<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRICELLULAR WIRELESS
CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4812 13-3784318
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Classification Code Identification No.)
incorporation or organization) Number)
</TABLE>
45 ROCKEFELLER CENTER
NEW YORK, NEW YORK 10020
(212) 459-0800
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT PRICE
PRICELLULAR WIRELESS CORPORATION
45 ROCKEFELLER CENTER
NEW YORK, NEW YORK
(212) 459-0800
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------------
COPIES TO:
RICHARD D. TRUESDELL, JR.
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this
Registration Statement becomes effective.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box:/ /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) FEE(2)
<S> <C> <C> <C> <C>
10 3/4% Senior Exchange Notes due
2004............................... $170,000,000 100% $170,000,000 $51,516
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Calculated pursuant to rule 457(f)(2).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 27, 1996
PROSPECTUS
, 1996
OFFER TO EXCHANGE
10 3/4% SENIOR EXCHANGE NOTES DUE 2004
FOR ANY AND ALL OUTSTANDING
10 3/4% SENIOR NOTES DUE 2004
OF
PRICELLULAR WIRELESS CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED
PriCellular Wireless Corporation ("PriCellular" or the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange $1,000 principal amount of 10 3/4% Senior
Exchange Notes due 2004 (the "New Notes") of the Company for each $1,000
principal amount of the issued and outstanding 10 3/4% Senior Notes due 2004
(the "Old Notes" and, together with the New Notes, the "Notes") of the Company.
As of the date of this Prospectus there were outstanding $170,000,000 principal
amount of Old Notes. The terms of the New Notes are identical in all material
respects to the Old Notes, except that the offer of the New Notes will have been
registered under the Securities Act and, therefore, the New Notes will not be
subject to certain transfer restrictions, registration rights and related
liquidated damage provisions applicable to the Old Notes.
The New Notes will bear interest from November 6, 1996. Holders of Old Notes
whose Old Notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on the Old Notes accrued
from November 6, 1996 to the date of the issuance of the New Notes. Interest on
the New Notes is payable semi-annually on May 1 and November 1 of each year,
commencing May 1, 1997, accruing from November 6, 1996 at a rate of 10 3/4% per
annum.
The Notes will be redeemable, in whole or in part, at the option of the
Company, at any time on or after November 1, 2000 at the redemption prices set
forth herein plus accrued and unpaid interest, if any, to the date of
redemption. In the event that the Company has not applied at least $95.0 million
of the net proceeds of the Old Notes in connection with the consummation of the
Pending Transactions (as defined) and certain other permitted uses on or before
March 26, 1997, the Company is required to offer to purchase outstanding Notes
with an aggregate principal amount equal to such remaining net proceeds at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest to the repurchase date. See "Description of Notes".
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement, dated
November 6, 1996, among the Company and the other signatories thereto (the
"Registration Rights Agreement"). Based upon interpretations contained in
letters issued to third parties by the staff of the Securities and Exchange
Commissions (the "SEC"), the Company believes that the New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by each Holder thereof (other than a
broker-dealer, as set forth below, and any such Holder which is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act of 1933,
as amended (the "Securities Act")) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder has no arrangement or understanding with any person to participate in the
distribution of such New Notes. Eligible Holders wishing to accept the Exchange
Offer must represent to the Company in the Letter of Transmittal that such
conditions have been met. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange of Old Notes where such Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 90 days
after the Expiration Date (as defined herein), it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution".
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. In the event the Company terminates the Exchange Offer and does
not accept for exchange any Old Notes, the Company will promptly return tendered
Old Notes to the Holders thereof. See "The Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the Notes.
The Company does not currently intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance than an active public market for the New Notes
will develop.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE
CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices: Seven World Trade Center,
13th Floor, New York, New York 10048; and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and copies of such material can be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition,
such material can also be obtained from the Commission's Web site at
http://www.sec.gov.
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information contained in the
Registration Statement and the exhibits and schedules thereto and reference is
hereby made to the Registration Statement and the exhibits and schedules thereto
for further information with respect to the Company and the securities offered
hereby. Statements contained herein concerning the provisions of any documents
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is made
to the copy of such document so filed. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference thereto and
makes a part hereof the following documents, heretofore filed with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"): (i) the Company's Annual
Report on Form 10-K for the year ended December 31, 1995; (ii) the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996;
(iii) the Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996; (iv) the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1996 and (v) pages F-27 through F-59, F-82
through F-98 and F-131 through F-164 contained in the Prospectus included in
PriCellular Corporation's Registration Statement on Form S-4 (Reg. No. 33-91006)
at effectiveness.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
termination of the offering being made hereby shall be deemed to be incorporated
in this Prospectus by reference and to be a part hereof from the resepective
dates of the 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 Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is, or is deemed to be, incorporated by reference herein, modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon written or oral request
of any such person, a copy of any and all of the documents referred to above
which have been or may be incorporated in this prospectus by reference, other
than exhibits to such documents which are not specifically incorporated by
reference to such documents. Requests for such copies should be directed to
Stuart B. Rosenstein, Chief Financial Officer, PriCellular Wireless Corporation,
45 Rockefeller Plaza, New York, New York 10020, telephone (212) 459-0800.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON
WRITTEN OR ORAL REQUEST FROM STUART B. ROSENSTEIN, CHIEF FINANCIAL OFFICER OF
THE COMPANY AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES LOCATED AT 45
ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020, TELEPHONE NUMBER (212) 459-0800. IN
ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
, 1996.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION (INCLUDING THE FINANCIAL STATEMENTS AND THE NOTES THERETO) INCLUDED
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL REFERENCES HEREIN
TO "PRICELLULAR" OR THE "COMPANY" INCLUDE ITS SUBSIDIARIES AND PREDECESSORS.
REFERENCES HEREIN TO THE "RECENT TRANSACTIONS" AND "PENDING TRANSACTIONS" REFER
TO THE RECENTLY CONSUMMATED TRANSACTIONS AND PENDING TRANSACTIONS, RESPECTIVELY,
DESCRIBED BELOW UNDER "ACQUISITIONS AND DISPOSITIONS--RECENT TRANSACTIONS" AND
"ACQUISITIONS AND DISPOSITIONS--PENDING TRANSACTIONS". EXCEPT FOR HISTORICAL
FINANCIAL INFORMATION AND UNLESS OTHERWISE INDICATED, ALL REFERENCES HEREIN TO
POPS, NET POPS AND THE COMPANY'S SYSTEMS GIVE EFFECT TO THE PENDING
TRANSACTIONS. CERTAIN OF THE PENDING TRANSACTIONS WILL NOT BE CONSUMMATED PRIOR
TO THE CLOSING OF THIS EXCHANGE OFFER.
THE COMPANY
PriCellular, through its subsidiaries, owns and operates FCC licensed
cellular telephone systems in the United States, primarily in smaller MSAs and
strategically located RSAs. The Company operates its Systems principally in the
Midwest and Mid-Atlantic regions in addition to markets north of New York City
and south of Albany, NY. As of September 30, 1996 on an actual basis, the
Company owned cellular interests representing approximately 4.2 million Net Pops
and had approximately 136,000 subscribers. The Company sells and markets its
products and services principally under the CELLULARONE-Registered Trademark-
brand name through a distribution network of over 60 full service retail
locations, a direct sales force and a small, select group of agents. In
addition, the Company has formed a strategic alliance with AT&T Wireless
Services, Inc. ("McCaw/AT&T Wireless"), a principal stockholder, allowing it to
take advantage of McCaw/AT&T Wireless' acquisition experience, vendor discounts,
centralized "back office" functions and joint marketing opportunities in markets
which are adjacent to McCaw/AT&T Wireless markets.
Through selective acquisitions and asset swaps, the Company has concentrated
its efforts on creating an integrated network of cellular systems in contiguous
service areas. After giving effect to the Pending Transactions (each of which is
subject to certain conditions, including FCC approval) and the Recent
Transactions, the Company will own cellular interests representing approximately
4.7 million Net Pops with approximately 144,000 subscribers, representing a
penetration rate of 3.0%. These interests consist principally of four large
operating clusters of cellular Systems:
UPPER MIDWEST CLUSTER--a 1.7 million Net Pop cluster of 14 non-wireline
Systems covering approximately 70,000 contiguous square miles in Minnesota,
Wisconsin and Michigan.
MID-ATLANTIC CLUSTER--an 853,000 Net Pop cluster of five contiguous
non-wireline Systems consisting of five RSAs in Ohio, Pennsylvania and West
Virginia covering more than 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 New York City and the Albany, NY MSA of SBC Communications
Inc., formerly Southwestern Bell Corporation ("Southwestern Bell").
KENTUCKY CLUSTER--a 775,000 Net Pop cluster of four RSAs adjacent to
Louisville and Lexington, KY. These 38 counties cover more than 13,000
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 260,000 Net Pops, and certain other cellular interests.
During the first nine months of 1996, the Company's customer base increased
from 78,227 to 135,840. This significant growth in subscribers was due to both
acquisitions and increased penetration of its existing markets. Revenues and
EBITDA of the Company were $81.0 million and $30.6 million, respectively, for
3
<PAGE>
the nine months ended September 30, 1996, in each case before giving effect to
the Recent Transactions and the Pending Transactions. On a pro forma basis,
after giving effect to the Recent Transactions and the Pending Transactions, the
revenues and EBITDA of the Company for the nine months ended September 30, 1996
would have been $94.2 million and $35.8 million, respectively. See "Unaudited
Pro Forma Condensed Consolidated Financial Statements".
PriCellular is a wholly owned subsidiary of PriCellular Corporation
("Parent"). Parent completed an initial public offering of its Class A Common
Stock in December 1994. Its principal stockholders include members of the family
of Robert Price, President of the Company, McCaw/AT&T Wireless, a subsidiary of
AT&T Corp. ("AT&T"), Aeneas Venture Corporation, an affiliate of Harvard Private
Capital Group, Inc. and a wholly owned subsidiary of the President and Fellows
of Harvard College ("Harvard Private Capital"), Spectrum Equity Investors, L.P.,
("Spectrum"), The Thomas H. Lee Company, Sandler Capital Management and The
Public School Employes' Retirement System of Pennsylvania. During 1994 and 1995,
these stockholders invested in excess of $135.0 million in exchange for their
current equity interests. McCaw/AT&T Wireless' investment in the Company
consisted of cash, minority interests and a significant amount of capital
equipment.
4
<PAGE>
CELLULAR MARKETS AND SYSTEMS
The Company has concentrated its efforts on creating an integrated network
of cellular systems in each of its operating clusters. The table below
summarizes certain information concerning the Company's markets after giving
effect to the Pending Transactions. See "Acquisitions and Dispositions--Pending
Transactions".
<TABLE>
<CAPTION>
TOTAL DATE OF
MARKET(A) POPS OWNERSHIP NET POPS ACQUISITION
- ----------------------------------------------------- ---------- ------------ ---------- ------------------
<S> <C> <C> <C> <C>
UPPER MIDWEST CLUSTER
Duluth, MN/Superior, WI MSA........................ 241,467 100.0% 241,467 04/28/94
Eau Claire, WI MSA................................. 143,190 97.1% 139,610 04/28/94
Wausau, WI MSA..................................... 121,262 94.4% 114,483 03/28/95
MN-2A RSA.......................................... 38,236 100.0% 38,236 07/07/95
MN-3 RSA........................................... 59,388 100.0% 59,388 04/28/94
MN-4 RSA........................................... 15,075 49.0% 7,387 07/27/95
MN-5 RSA........................................... 205,456 100.0% 205,456 07/07/95
MN-6 RSA........................................... 219,149 100.0% 219,149 11/23/94(b)
WI-1 RSA........................................... 109,248 100.0% 109,248 04/28/94
WI-2 RSA........................................... 84,925 100.0% 84,925 11/18/96
WI-3 RSA........................................... 139,189 100.0% 139,189 11/23/94(b)
WI-4 RSA........................................... 117,347 100.0% 117,347 pending(c)
WI-6A RSA.......................................... 32,734 100.0% 32,734 11/23/94(b)
MI-1 RSA........................................... 208,779 100.0% 208,779 03/07/95
MID-ATLANTIC CLUSTER
OH-7 RSA........................................... 254,949 100.0% 254,949 09/27/95
OH-10A RSA......................................... 61,785 100.0% 61,785 09/29/95
PA-9 RSA........................................... 187,551 100.0% 187,551 02/02/96
WV-2 RSA........................................... 79,307 100.0% 79,307 12/20/95
WV-3 RSA........................................... 269,413 100.0% 269,413 07/23/96
NEW YORK CLUSTER
Orange County, NY MSA.............................. 324,323 100.0% 324,323 10/17/96
Poughkeepsie, NY MSA............................... 262,663 94.8% 248,932 04/23/96
NY-5 RSA........................................... 383,960 100.0% 383,960 12/29/95
NY-6 RSA........................................... 111,023 100.0% 111,023 04/23/96
KENTUCKY CLUSTER
KY-4 RSA........................................... 242,816 100.0% 242,816 pending(c)
KY-5 RSA........................................... 156,107 100.0% 156,107 pending(c)
KY-6 RSA........................................... 256,852 100.0% 256,852 pending(c)
KY-8 RSA........................................... 118,814 100.0% 118,814 pending(c)
SOUTHWESTERN BELL JOINT VENTURE
Laredo, TX MSA..................................... 168,924 44.5% 75,171 11/30/95(b)
IL-4 RSA........................................... 216,023 44.5% 96,130 11/30/95(b)
IL-6 RSA........................................... 199,453 44.5% 88,757 11/30/95(b)
OTHER INTERESTS...................................... n/a n/a 74,646 various
---------- ----------
Total.......................................... 5,029,408 4,747,934
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(a) All of the Company's licenses are non-wireline licenses with the exception
of the license for the Laredo, TX MSA.
(b) Assumes the acquisition of the remaining shares of Cellular Information
Systems, Inc. ("CIS"). On November 23, 1994, the Company acquired
approximately 90.8% (on a fully diluted basis) of the equity of CIS. As of
September 30, 1996, the Company owned approximately 93.3% (on a fully
diluted basis) of the equity of CIS.
(c) Represents Systems to be acquired by the Company as described under
"Acquisitions and Dispositions--Pending Transactions". These acquisitions
are not expected to be consummated prior to the closing of this Offering.
There can be no assurances that the Company will be successful in
consummating the Pending Transactions.
5
<PAGE>
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-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 intends to pursue
additional acquisitions consistent with its growth strategy and is currently
engaged in a variety of preliminary discussions with respect to possible
acquisitions. There can be no assurance that the Company will seek to acquire or
be successful in acquiring any of such Systems.
OPERATING STRATEGY
Management believes that certain of its Systems and the Systems to be
acquired in the Pending Transactions are in the early stages of their growth
cycle and afford significant opportunities for improvements in management and
operating performance. 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 all 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 cash flow and reduce churn and their compensation is
linked to their ability to meet or exceed their budgeted goals. The Company
believes its decentralized management structure fosters a strong sense of
customer service and community spirit, enables it to customize its marketing
strategy to the needs of the local market, and eliminates 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 competitive challenges.
AGGRESSIVE MARKETING AND PROMOTING OF CELLULAR SERVICE
After selectively upgrading the engineering in its cellular network, the
Company implements aggressive marketing programs to increase subscriber
activations and reduce churn. Many of these 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 the local market.
6
<PAGE>
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 in
excess of 60 retail locations. Management believes that this local presence
enhances its ability to provide higher quality customer service and that on
average 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
independent 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, maintaining
24-hour customer service and active ongoing contact with new customers. The
Company believes that its emphasis on superior customer service has helped
reduce its average monthly churn rate. For example, the Company's average
monthly churn rate for the nine months ended September 30, 1996 was 1.6%.
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 in response to
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 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 sties.
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 efficiency of the network.
STRATEGIC RELATIONSHIPS
The Company has formed a strategic alliance with McCaw/AT&T Wireless which
allows the Company to take advantage of McCaw/AT&T Wireless' acquisition
experience, certain vendor discounts and certain services provided by McCaw/AT&T
Wireless including a variety of centralized "back office" functions. The Company
believes that purchasing cellular telephones at the volume discounts afforded by
the McCaw/ AT&T Wireless relationship allows the Company to minimize one of the
major costs associated with new subscriber additions. The volume discounts also
permit the Company to reduce the capital expenditures required for the Company's
system development and expansion. In connection with its initial investment in
the Company, McCaw/AT&T Wireless contributed a Northern Telecom digital
supernode switch and approximately 100 cell sites to the Company. The Company
believes that the proximity of three of its operating clusters to McCaw/AT&T
Wireless' Systems affords significant opportunities for joint marketing,
promotions and other programs. The Company's Upper Midwest Cluster is contiguous
to McCaw/AT&T Wireless' Systems serving the Minneapolis/St. Paul, MN MSA and the
St. Cloud, MN MSA. The
7
<PAGE>
Company's Mid-Atlantic Cluster borders the Pittsburgh, PA, Steubenville, OH and
Wheeling, WV MSAs, which are owned by McCaw/AT&T Wireless. The Company's New
York Cluster abuts the northern border of McCaw/AT&T Wireless' 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.
ACQUISITIONS AND DISPOSITIONS
PENDING TRANSACTIONS
THE COMPANY HAS FILED APPLICATIONS SEEKING FCC APPROVAL FOR EACH OF THE
PENDING TRANSACTIONS. THE COMPANY INTENDS TO CONSUMMATE SUCH TRANSACTIONS AFTER
THE GRANT OF FCC APPROVALS, BUT, IN CERTAIN CASES, PRIOR TO THE EXPIRATION OF
THE 40 TO 45-DAY FINALITY PERIOD DURING WHICH FCC APPROVALS ARE SUBJECT TO
RECONSIDERATION OR REVIEW. THERE CAN BE NO ASSURANCE THAT ANY OR ALL OF SUCH
APPROVALS WILL BE GRANTED, WILL NOT BE RECONSIDERED OR REVIEWED OR THAT SUCH
APPROVALS WILL NOT BE REVOKED PURSUANT TO ANY SUCH PROCEEDING. IN THE UNLIKELY
EVENT ANY SUCH APPROVALS ARE REVOKED, THE COMPANY COULD BE REQUIRED TO REFILE
ITS APPLICATIONS, RESCIND THE ACQUISITION OR SELL THE ACQUIRED SYSTEM.
The Company believes that the Pending Transactions described below support
the Company's acquisition strategy. The Systems to be acquired form a fourth
principal operating cluster, increase the size of the Upper Midwest Cluster, and
afford opportunities for increased marketing and engineering synergies.
KENTUCKY CLUSTER ACQUISITION
The Company and Parent have entered into an agreement, subject to certain
conditions including FCC approval, with a subsidiary of Horizon Cellular
Telephone Company, L.P. to purchase four RSAs in Kentucky (approximately 775,000
Net Pops) for $116.5 million (subject to adjustment) consisting of $94.0 million
in cash and $22.5 million in Parent's Class A Common Stock. The foregoing
transaction is referred to herein as the "Kentucky Cluster Acquisition". Parent
has agreed to contribute to the Company $22.5 million in Parent's Class A Common
Stock. The Kentucky Cluster Acquisition is expected to close on or before March
26, 1997. There can be no assurance that the Company will be successful in
consummating the Kentucky Cluster Acquisition.
THE WI-4 EXCHANGE
The Company has entered into an agreement with a subsidiary of BellSouth
Corporation pursuant to which it will effectively exchange, subject to certain
conditions including FCC approval, its standalone wireline Systems in Alabama
for both the WI-4 RSA and approximately $18.0 million in cash ($2.0 million of
which is attributable to a two year covenant not to compete). The Systems to be
exchanged are the Company's 136,816 Pop Florence, AL MSA and its 62,035 Pop
AL-1B RSA. 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. The foregoing
transaction is referred to herein as the "WI-4 Exchange". The WI-4 Exchange is
expected to close on or before March 26, 1997. There can be no assurance that
the Company will be successful in consummating the WI-4 Exchange.
REMAINING SHARES OF CIS
The Company currently intends to acquire all of the outstanding shares of
capital stock of CIS not currently owned by the Company, although the Company is
not required to do so. Such acquisitions may be effected through privately
negotiated or open market purchases, subsequent tender offers, a merger or
similar business combination between the Company and CIS or otherwise. As of
September 30, 1996, there were outstanding approximately 841,000 shares of CIS
capital stock not owned by the Company, representing approximately 6.7% of the
fully diluted equity of CIS. The Company acquired its current holdings of CIS
capital stock in November 1994 for approximately $2 per share.
8
<PAGE>
RECENT TRANSACTIONS
During 1995 and through November 1996, the Company consummated or agreed to
make several strategic acquisitions which expanded its Upper Midwest Cluster and
established the Mid-Atlantic Cluster and the New York Cluster. In addition, in
July 1996 the Company disposed of a stand-alone wireline System in Alabama
considered by management to be non-strategic.
EXPANSION OF UPPER MIDWEST CLUSTER
On March 7, 1995, the Company acquired from Buckhead Telephone Company
("BTC") the assets of the System serving the MI-1 RSA (208,779 Pops) for
approximately $17.7 million in cash.
On March 28, 1995, the Company acquired, pursuant to an agreement (the
"Wausau Purchase Agreement"), 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
(114,483 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
System serving the Lubbock, TX MSA (229,051 Pops) for approximately 327,000 Net
Pops, most of which are contiguous to 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 86% 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 (7,387 Net Pops), for approximately $75,000. In
addition, the Company entered into an agreement, in accordance with FCC rules,
to provide management and operation services to the MN-4 RSA.
THE WI-2 ACQUISITION
On November 18, 1996, the Company acquired from Wisconsin II Venture the
84,925 Pop WI-2 RSA for approximately $4.3 million in cash, or $51 per Pop. The
Company's existing Systems surround the WI-2 RSA. The foregoing transaction is
referred to herein as the "WI-2 Acquisition". Prior thereto, the Company had
interim operating authority for the WI-2 RSA.
THE MID-ATLANTIC CLUSTER ACQUISITIONS
On September 27, 1995, the Company acquired from United States Cellular
Corporation ("USCC") substantially all of the assets of the System serving the
OH-7 RSA (254,949 Pops) for $39.5 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 (79,307 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 (187,551 Pops) for $26.1 million in
cash.
On July 23, 1996, the Company acquired the WV-3 RSA (269,413 Pops) from a
subsidiary of Horizon Cellular Telephone Company, L.P. for $35.0 million in
cash. The WV-3 RSA is situated directly south of the Company's PA-9 RSA and
directly east of the Company's WV-2 RSA.
THE NEW YORK CLUSTER ACQUISITIONS
On December 29, 1995, the Company acquired from Cellular of Upstate New York
Inc. substantially all of the assets of the System serving the NY-5 RSA (383,960
Pops) for approximately $65.9 million in cash.
9
<PAGE>
On April 23, 1996, the Company acquired from subsidiaries of USCC the System
serving the NY-6 RSA (111,023 Pops) and 83% of the System serving the
Poughkeepsie, NY MSA (248,932 Net Pops). The Company acquired substantially all
of the assets serving the NY-6 RSA for approximately $19.8 million in cash and
83% 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").
On October 17, 1996, the Company consummated an exchange transaction with
Vanguard Cellular Systems, Inc., pursuant to which it exchanged certain of its
Systems in the Mid-Atlantic Cluster for, among other things, the Orange County,
NY MSA and an additional 11.1% of the Company's majority-owned Poughkeepsie, NY
MSA. The Company exchanged an aggregate of 548,016 Net 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 (324,323
Pops), 11.1% of the Poughkeepsie, NY MSA (262,663 Pops), 12.2% of the
Janesville, WI MSA (18,013 Net Pops) and approximately 23,571 additional Net
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 Orange County,
NY MSA abuts the Company's NY-5 MSA to the north, the Company's Poughkeepsie, NY
MSA to the east and the New York City MSA of McCaw/AT&T Wireless to the south
and east (bordering Westchester, Putnam and Rockland counties). The foregoing
transaction is referred to as the "Orange County Exchange".
THE AL-4 RSA DISPOSITION
During July 1996, the Company consummated the sale of its recently-acquired
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
half of this stand-alone RSA for $10.0 million in cash and the other half as an
equity contribution from Parent.
THE MI-2 DISPOSITION
In a disputed acquisition of November 14, 1994, RFB Cellular, Inc. signed a
contract to acquire the MI-2 RSA (109,612 Pops). The Company believed it should
have had the right to purchase the property and initiated legal proceedings. In
May 1995, as a result of this litigation, the Court of Chancery of the State of
Delaware awarded the Company the right to acquire the MI-2 RSA. The defendant in
the lawsuit appealed the decision. On March 22, 1996, the Delaware Supreme Court
reversed the lower court's decision and ordered the Company to reverse the
acquisition and sell the license and operating assets to the defendant. The sale
was consummated on October 31, 1996. The Company received $6.5 million pursuant
to such sale. The Company believes that the loss of MI-2's operating results
will not be material to the Company's results of operations. The MI-2 RSA
represented approximately 2,000 subscribers.
The Company was incorporated under the laws of the State of Delaware on
August 23, 1994. The principal executive offices of the Company are located at
45 Rockefeller Plaza, New York, New York 10020, and its telephone number is
(212) 459-0800.
10
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered................ Up to $170,000,00 principal amount of 10 3/4% Senior
Exchange Notes due 2004. The terms of the New Notes and
the Old Notes are identical in all material respects,
except that the offer of the New Notes will have been
registered under the Securities Act and therefore, the
New Notes will not be subject to certain transfer
restrictions, registration rights and related liquidated
damage provisions applicable to the Old Notes.
The Exchange Offer................ The Company is offering, upon the terms and subject to
the conditions of the Exchange Offer, to exchange $1,000
principal amount of New Notes for each $1,000 principal
amount of Old Notes. See "The Exchange Offer" for a
description of the procedures for tendering Old Notes.
The Exchange Offer is intended to satisfy obligations of
the Company under the Registration Rights Agreement,
dated November 6, 1996, between the Company and
Donaldson, Lufkin & Jenrette Securities Corporation,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
NatWest Capital Markets Limited, PaineWebber
Incorporated and Wasserstein Perella Securities, Inc.
(collectively, the "Initial Purchasers").
Tenders, Expiration Date; The Exchange Offer will expire at 5:00 p.m., New York
Withdrawal...................... City time, on , 1997, or such later date and time
to which it is extended. The tender of Old Notes
pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date. Any Old Notes not
accepted for exchange for any reasons will be returned
without expense to the tendering Holder thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer.
Federal Income Tax Consequences... The exchange pursuant to the Exchange Offer will not
result in any income, gain or loss to the Holders or the
Company for federal income tax purposes. See "Certain
Federal Income Tax Consequences."
Use of Proceeds................... There will be no proceeds to the Company from the
issuance of the New Notes pursuant to the Exchange
Offer.
Exchange Agent.................... The Bank of Montreal Trust Company is serving as
Exchange Agent in connection with the Exchange Offer.
</TABLE>
CONSEQUENCE OF EXCHANGING OLD NOTES
PURSUANT TO THE EXCHANGE OFFER
Based upon interpretations contained in letters issued to third partes by
the staff of the SEC, the Company believes that, generally, any Holder of Old
Notes (other than a broker-dealer, as set forth below, and any Holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who exchange it Old Notes for New Notes pursuant to the Exchange Offer may
offer such New Notes for resale, resell such New Notes, or otherwise transfer
such New Notes without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided such New Notes are acquired in the
ordinary course of the Holder's business and such Holder has no arrangement or
understanding with any person to participate in a distribution of such New
Notes. Eligible Holders wishing to accept the Exchange Offer must represent to
the Company in the Letter of Transmittal that such conditions have been met and
must represent, if such Holder is not a broker-dealer, or is a broker-dealer
11
<PAGE>
but will not receive New Notes for its own account in exchange for Old Notes,
that neither such Holder nor the person receiving such New Notes, if other than
the Holder, is engaged in or intends to participate in the distribution of such
New Notes. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes must represent that the Old Notes tendered in exchange
therefor were acquired as a result of market-making activities or other trading
activities and must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution". To comply with
the securities laws of certain jurisdictions, it may be necessary to qualify for
sale or register the New Notes prior to offering or selling such New Notes. The
Company does not currently intend to take any action to register or qualify the
New Notes for resale in any such jurisdictions. If a Holder of Old Notes does
not exchange such Old Notes for New Notes pursuant to the Exchange Offer, such
Old Notes will continue to be subject to the restrictions on transfer contained
in the legend thereon. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. Any holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of participating, in a distribution
of New Notes could not rely on the position of the staff of the SEC enunciated
in EXXON CAPITAL HOLDINGS CORPORATION (available May 13, 1986) or similar
no-action letters and, in the absence of an exemption therefrom, must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction. Failure to comply with such
requirements in such instance may result in such holder incurring liability
under the Securities Act for which the holder is not indemnified by the Company.
See "The Exchange Offer--Consequences of Failure to Exchange" and "Description
of Notes--Registration Rights; Liquidated Damages."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except that the offer of the New Notes will have been registered under
the Securities Act and, therefore, the New Notes will not be subject to certain
transfer restrictions, registration rights and related liquidated damage
provisions applicable to the Old Notes.
<TABLE>
<S> <C>
Notes Offered..................... Up to $170,000,000 aggregate principal amount of 10 3/4%
Senior Exchange Notes due 2004.
Interest.......................... Payable semi-annually on each May 1 and November 1,
commencing on May 1, 1997. The New Notes will bear
interest from November 6, 1996. Holders of Old Notes
whose Old Notes are accepted for exchange will be deemed
to have waived the right to receive any payment in
respect of interest on such Old Notes accrued from
November 6, 1996 to the date of the issuance of the New
Notes. Consequently, holders who exchange their Old
Notes for New Notes will receive the same interest
payment on May 1, 1997 (the first interest payment date
with respect to the Old Notes and the New Notes) that
they would have received had they not accepted the
Exchange Offer.
Maturity Date..................... November 1, 2004.
Optional Redemption............... The Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after November 1,
2000 at the redemption prices set forth herein, together
with accrued and unpaid interest, if any, to the
applicable Redemption Date. See "Description of
Notes--Optional Redemption."
Ranking........................... The Notes will be general unsecured obligations of the
Company ranking senior to all subordinated Indebtedness
of the Company and PARI PASSU in right of payment to all
other existing and future Indebtedness of the Company.
As of September 30, 1996, on a
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
pro forma basis after giving effect to the issuance and
sale of the Notes, the application of the estimated net
proceeds therefrom and the transactions described herein
under "Unaudited Pro Forma Condensed Consolidated
Financial Statements," the Company would have had no
outstanding senior Indebtedness other than the Notes
offered hereby and $303.5 million of subordinated
Indebtedness. The Company is an intermediate company
and, therefore, the Notes will be effectively
subordinated to all liabilities (including trade
payables) of the Company's subsidiaries, which at
September 30, 1996, on a pro forma basis as described
above, would have been $28.2 million. Except as
described under "Description of Notes--Certain
Covenants--Limitation on Incurrence of Indebtedness,"
there are no restrictions on the amount of senior
Indebtedness that may be incurred.
Certain Covenants................. The Indenture imposes certain limitations on the ability
of the Company and its Restricted Subsidiaries (as
defined) to, among other things, incur Restricted
Payments (as defined), enter into certain transactions
with Related Persons (as defined), merge or consolidate
with any other person or transfer all or substantially
all of their properties and assets. See "Description of
Notes-- Covenants."
Change of Control................. Upon the occurrence of a Change of Control (as defined),
each Holder of Notes has the right to require the
Company to repurchase such Holder's Notes at 101% of the
principal amount thereof plus accrued and unpaid
interest thereon, if any, to the repurchase date. The
Company may not have sufficient funds or financing
available to satisfy its obligations to repurchase the
Notes and other debt that may come due upon a Change of
Control.
</TABLE>
13
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT OPERATING DATA)
The following table sets forth summary historical and pro forma financial
data for the Company for the periods and as of the dates indicated. The
unaudited pro forma data is not designed to represent and does not represent
what the Company's financial position or results of operations actually would
have been had the transactions described herein under "Unaudited Pro Forma
Condensed Consolidated Financial Statements" been completed as of the date or at
the beginning of the periods indicated, or to project the Company's financial
position or results of operations at any future date or for any future period.
The following data should be read in conjunction with "Selected Financial Data",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Unaudited Pro Forma Condensed Consolidated Financial Statements"
and the consolidated financial statements and notes thereto of the Company and
certain acquired businesses included elsewhere or incorporated by reference
herein.
The following table also sets forth certain summary operating data for the
Company as of the dates and for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996 YEARS ENDED DECEMBER 31,
---------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
PRO PRO FORMA ACTUAL ACTUAL
FORMA(A) ACTUAL 1995(A) 1995 1994
---------- ---------- ----------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ 94,192 $ 80,978 $ 83,395 $ 41,504 $ 5,209
Cost of services and sales............................ (30,319) (27,821) (25,587) (15,645) (2,706)
Selling, general and administrative................... (30,182) (23,635) (35,111) (16,219) (5,791)
Depreciation and amortization......................... (21,148) (15,295) (26,833) (10,279) (2,720)
---------- ---------- ----------- --------- ---------
Operating income (loss)............................. 12,543 14,227 (4,136) (639) (6,008)
Other income (expense)(b)............................. (41,909) (27,384) (48,902) (6,455) 4,773
---------- ---------- ----------- --------- ---------
Net income (loss)................................... $ (29,366) $ (13,157) $ (53,038) $ (7,094) $ (1,235)
---------- ---------- ----------- --------- ---------
---------- ---------- ----------- --------- ---------
Deficiency of earnings to fixed charges(c).......... $ (29,366) $ (13,157) $ (53,038) $ (7,094) $ (1,235)
---------- ---------- ----------- --------- ---------
---------- ---------- ----------- --------- ---------
CERTAIN OPERATING DATA:
EBITDA(d)............................................. $ 35,768 $ 30,584 $ 25,990 $ 10,160 $ (3,385)
EBITDA to cash interest expense ratio................. 2.6 34.7 1.4 11.6 n/a
EBITDA to total interest expense ratio................ 0.8 1.0 0.5 0.5 n/a
Ending subscribers(e)................................. 143,953 135,840 99,651 78,227 17,344
Ending penetration(f)................................. 3.0% 3.2% 2.1% 2.2% 1.0%
Average marketing costs per net subscriber
addition(g)......................................... $ 428 $ 377 $ 544 $ 403 n/a
Average monthly revenue per subscriber(h)............. $ 80 $ 85 $ 84 $ 107 n/a
Churn(i).............................................. 1.8% 1.6% 2.8% 2.3% n/a
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
------------------------
<S> <C> <C>
PRO FORMA(J) ACTUAL
------------ ----------
BALANCE SHEET DATA:
Working capital...................................................................... $ 89,717 $ 19,066
Net fixed assets..................................................................... 75,355 61,047
Total assets......................................................................... 733,140 547,738
Long-term debt....................................................................... 473,516 324,793
Total liabilities.................................................................... 513,508 358,631
Stockholder's equity................................................................. 219,632 189,107
</TABLE>
- ------------------------
(a) Pro forma to reflect the transactions described in "Unaudited Pro Forma
Condensed Consolidated Financial Statements" as if each of such transactions
occurred on January 1, 1995. See "Unaudited Pro Forma Condensed Consolidated
Financial Statements".
(b) Pro forma results of operations for the year ended December 31, 1995, and
the nine months ended September 30, 1996, include in other income (expense)
revenue attributable to covenants not to compete paid to the Company
pursuant to (i) the Lubbock/ Minnesota Exchange (as defined) (three year
term), (ii) the AL-4 RSA Disposition (two year term); and (iii) the WI-4
Exchange (two year term). Income attributable to the covenants not to
compete was $1,062 ($2,437 on a pro forma basis) for the nine months ended
September 30, 1996, and $500 ($3,250 on a pro forma basis) for the year
ended December 31, 1995.
(c) For the purpose of computing the deficiency of earnings to fixed charges,
"earnings" are defined as loss from operations before income taxes, plus
fixed charges. Fixed charges consist of interest expense on all indebtedness
and the portion of operating lease rental expense that is representative of
the interest factor.
(d) EBITDA represents earnings before depreciation and amortization, interest
expense, interest income, and gains on sales of cellular properties. EBITDA
is not intended to be a performance measure and should not be regarded as an
alternative to either operating income or net income as an indicator of
operating performance or to cash flows as a measure of liquidity.
Furthermore, EBITDA is not a GAAP-based financial measure, and it should not
be considered as an alternative to GAAP-based measures of financial
performance.
(e) Each billable telephone number in service represents one subscriber, not
including test, demonstration or other telephone numbers for which payment
is not expected.
(f) Represents the ratio of ending subscribers to the estimated total population
of majority owned Systems and the Company's joint venture with Southwestern
Bell.
(g) Determined by dividing the amount of marketing costs for such period by the
net subscribers added during such period. Marketing cost represents all
selling expenses and losses incurred on equipment sales.
(h) Represents the ratio of total service revenues to average monthly
subscribers.
(i) Represents the average of the monthly churn rates during the periods
presented. Churn equals the ratio of disconnected monthly subscribers to
average monthly subscribers.
(j) Pro forma to reflect each of the transactions described in "Unaudited Pro
Forma Condensed Consolidated Financial Statements" and which occurred after
September 30, 1996 or is pending as if each such transaction occurred as of
September 30, 1996. See "Unaudited Pro Forma Condensed Consolidated
Financial Statements".
15
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER MATTERS DESCRIBED IN THIS PROSPECTUS, HOLDERS OF
OLD NOTES SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE ACCEPTING
THE EXCHANGE OFFER.
THIS PROSPECTUS CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. THOSE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS PROSPECTUS AND
INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE
COMPANY, ITS DIRECTORS OR ITS OFFICERS PRIMARILY WITH RESPECT TO THE FUTURE
OPERATING PERFORMANCE OF THE COMPANY. HOLDERS OF THE OLD NOTES ARE CAUTIONED
THAT ANY SUCH FORWARD LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND MAY INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY
DIFFER FROM THOSE IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS
FACTORS. THE ACCOMPANYING INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING
WITHOUT LIMITATION THE INFORMATION SET FORTH BELOW AND THE INFORMATION UNDER THE
HEADING "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS", IDENTIFIES IMPORTANT FACTORS THAT COULD CAUSE SUCH DIFFERENCES.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
the Old Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company does not
intend to register the Old Notes under the Securities Act. The Company believes
that, based upon interpretations contained in letters issued to third parties by
the staff of the SEC, New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by each Holder thereof (other than a broker-dealer, as set forth
below, and any such Holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such Holder's
business and such Holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes. Eligible Holders wishing to
accept the Exchange Offer must represent to the Company in the Letter of
Transmittal that such conditions have been met and must represent, if such
Holder is not a broker-dealer, or is a broker-dealer but will not receive New
Notes for its own account in exchange for Old Notes, that neither such Holder
nor the person receiving such New Notes, if other than the Holder is engaged in
or intends to participate in the distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must represent that the Old Notes tendered in exchange therefor
were acquired as a result of market-making activities or other trading
activities and must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with the resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 90 days after the Expiration Date (as defined
herein), they will make this Prospectus available to any broker-dealer for use
in connection with any such resale. See "Plan of Distribution." However, to
comply with the securities laws of certain jurisdictions, if applicable, the New
Notes may not be offered or sold unless they have been registered or qualified
for sale in such jurisdiction or an exemption from registration or qualification
is available and is complied with. The Company does not currently intend to take
any action to register or qualify the New Notes for resale in any such
jurisdictions. In addition, the tender of Old Notes pursuant to the Exchange
Offer will reduce the principal amount of the Old Notes outstanding, which may
have an adverse effect upon, and increase the volatility of, the market price of
the Old Notes due to a reduction in liquidity.
16
<PAGE>
EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and avoid the restrictions on Old
Notes, each Holder of Old Notes must transmit a properly completed Letter of
Transmittal, including all other documents required by such Letter of
Transmittal, to The Bank of Montreal Trust Company (the "Exchange Agent") at one
of the addresses set forth below under "Exchange Agent") on or prior to the
Expiration Date. In addition, (i) certificates for such Old Notes must be
received by the Exchange Agent along with the Letter of Transmittal, (ii) a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Old Notes, if such procedure is available, into the Exchange Agent's
account at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date or (iii) the Holder
must comply with the guaranteed delivery procedures described below. See "The
Exchange Offer."
LIMITED OPERATING HISTORY; NET LOSSES
Since its formation, the Company has concentrated on the acquisition,
exchange, construction, initial operation and development of cellular telephone
systems. The Company has operated cellular telephone systems since 1989;
however, it has acquired all of its existing Systems between April 1994 and
November 1996. On a pro forma basis, after giving effect to the Recent and
Pending Transactions and the other transactions described herein under
"Unaudited Pro Forma Condensed Consolidated Financial Data", the Company would
have incurred an accounting net loss of $29.4 million and $53.1 million for the
nine months ended September 30, 1996, and the year ended December 31, 1995,
respectively. There can be no assurance that the Company's future operations,
individually or in the aggregate, will generate sufficient earnings to pay its
obligations. See "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
LEVERAGE AND ABILITY TO MEET REQUIRED DEBT SERVICE
Without regard to any increase in valuation of assets since their
acquisition by the Company, the Company still considers itself highly leveraged.
On a pro forma basis, after giving effect to the Recent and Pending Transactions
and the other transactions described herein under "Unaudited Pro Forma Condensed
Consolidated Financial Statements", for the nine months ended September 30,
1996, and the year ended December 31, 1995, the Company's ratio of EBITDA to
total interest expense would have been 0.8 and 0.5, respectively, and the
Company's deficiency of earnings to fixed charges would have been $29.4 million
and $53.1 million, respectively. The Company considers that this is a high
degree of leverage and could limit its ability to make acquisitions, withstand
competitive pressures or adverse economic conditions, obtain necessary financing
or take advantage of business opportunities that may arise.
The Company's ability to meet its debt service requirements will require
consistent, significant and sustained growth in the Company's cash flow. There
can be no assurance that the Company will be successful in improving its cash
flow by a sufficient magnitude or in a timely manner or in raising additional
equity or debt financing to enable the Company to meet its debt service
requirements. The Company's outstanding subordinated indebtedness matures
between 2001 and 2004, in each case prior to the Notes offered hereby.
BUSINESS RISKS ASSOCIATED WITH PENDING TRANSACTIONS
The information appearing herein is presented assuming the acquisition by
the Company of 100% of the capital stock of CIS and the consummation of the
other Pending Transactions. There can be no assurances that the Company will be
successful in consummating any or all of such acquisitions or the Pending
Transactions in a timely manner or on the terms described herein.
The Company has filed applications seeking FCC approval for each of the
Pending Transactions. The Company may consummate such acquisitions after the
grant of FCC approval but prior to the expiration of the 40 to 45-day period
during which FCC approvals are subject to reconsideration or review. There can
be
17
<PAGE>
no assurance that any or all of such approvals will be granted, will not be
reconsidered or reviewed or that such approvals will not be revoked pursuant to
any such proceeding. In the event any such approvals are revoked, the Company
could be required to refile its applications, rescind the acquisition or
otherwise dispose of the System acquired pursuant to the acquisition.
The Company will also be subject to risks that new Systems, including all of
its existing Systems which were acquired since 1994, and the Systems to be
acquired pursuant to the Pending Transactions, will not perform as expected and
that the returns from such Systems will not support the indebtedness incurred to
acquire, or the capital expenditures needed to develop, such Systems. See
"Acquisitions and Dispositions-- Pending Transactions".
COMPETITION
The Company competes with one other cellular licensee in each of its
cellular markets, most of which are larger and have greater financial resources
than the Company, as well as paging companies and landline telephone service
providers. Current policies of the FCC authorize only two licensees to operate
cellular systems in each market, and the Company expects there will continue to
be competition from the other licensee authorized to serve each cellular market
in which the Company operates. Competition for subscribers between cellular
licensees is based principally upon the services and enhancements offered, the
technical quality of the cellular system, customer service, system coverage and
capacity and price.
As a result of recent regulatory and legislative initiatives, 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 nor their operational abilities. While some of
these technologies and services are currently operational on a limited basis,
others are being developed or may be developed in the future. The Company's
cellular operations may face additional competition from new market entrants
such as personal communication services ("PCS") to the extent they become
feasible. The FCC has decided to offer over 2,000 licenses for PCS use and has
completed the initial rounds of its spectrum and auction process which resulted
in the award of two PCS licenses in each Major Trading Area ("MTA") and one in
each Basic Trading Area ("BTA"). PCS operators could compete directly with the
Company and may have access to substantial capital resources although in most
instances such resources are limited at this time. If these technologies are
successfully developed they may, and PCS operators claim they will, provide
services and features in addition to those currently provided by cellular
companies. There can be no assurance that the Company will be able to provide
nor that it will choose to pursue, depending on the economics thereof, such
services and features. The Company believes that traditional tested cellular is
economically proven unlike certain of the PCS and other "Buck Rogers"
technologies. While the Company believes that other technologies may be
developed over either the short or long term, the Company believes that POCS
(plain old cellular service) is tested and that the development thereof and the
expansion of the Company's clusters is the best strategy for the Company.
The Company's cellular operations may also face competition from other "Buck
Rogers" technologies which may be developed in the future, including, but not
limited to, mobile satellite systems. In addition, the FCC has licensed
Specialized Mobile Radio ("SMR") system operators to construct digital mobile
communications systems on existing SMR frequencies, referred to as enhanced
specialized mobile radio ("ESMR") in many cities throughout the United States,
including each of the cities in which the Company operates. The Company believes
that the technology, financing and engineering of these other technologies is
not as advanced as their publicity would suggest. 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. See "Business--Competition".
DEPENDENCE ON CORPORATE MANAGEMENT
The Company's decentralized management philosophy delegates day-to-day
operating decisions to the local System managers and, therefore, the Company's
affairs are managed by a small number of corporate
18
<PAGE>
management personnel, the loss of any of whom could have an adverse impact on
the Company. The Company does not have any employment contracts with corporate
management personnel other than Robert Price, the Company's President. Mr. Price
concurrently serves as a Director and the Chief Executive Officer and President
of Price Communications Corporation ("Price Communications"). Although
PriCellular and Price Communications historically have not imposed inconsistent
demands on Mr. Price's availability, there can be no assurances that such
conflicts will not arise in the future. The success of the Company's operations
and expansion strategy depends on its ability to retain and to expand its staff
of qualified personnel in the future. See "Management".
RELIANCE ON USE OF THIRD-PARTY SERVICE MARK
The Company currently uses the registered service mark
CELLULARONE-Registered Trademark- to market the services of its non-wireline
Systems. The Company's use of this service mark is governed by five-year
contracts between the Company and Cellular One Group, the owner of the service
mark. Such contracts expire on various dates and each is renewable at the option
of the Company for three additional five-year terms, subject to the attainment
of certain customer satisfaction ratings. See "Business--Service Marks". Under
these agreements, the Company has agreed to meet a consistent set of operating
and service quality standards for its cellular service areas. If these
agreements were not renewed upon expiration or if the Company were to fail to
meet the applicable operating or service quality standards, and therefore was no
longer permitted to use the CELLULARONE-Registered Trademark- service mark, the
Company's ability both to attract new subscribers and retain existing
subscribers could be materially impaired. The Company does not anticipate any
difficulty in obtaining renewal of its agreements with Cellular One Group or in
continuing to meet such standards. In addition, if for some reason beyond the
Company's control, the name CELLULARONE-Registered Trademark- were to suffer
diminished marketing appeal, the Company's ability both to attract new
subscribers and retain existing subscribers could be materially impaired.
McCaw/AT&T Wireless, which had been the single largest user of the
CELLULARONE-Registered Trademark- brand name, has significantly reduced its use
of the brand name as a primary service mark. There can be no assurance that such
reduction in use by McCaw/AT&T Wireless will not have an adverse effect on the
marketing appeal of the brand name.
LIMITS ON THE COMPANY'S BUSINESS
The Company has agreed not to effect certain transactions, including, among
others, any acquisition involving more than 10% of the fair market value of the
Company and certain borrowings, without the prior written consent of McCaw/AT&T
Wireless, subject to certain conditions on the ability of McCaw/ AT&T Wireless
to withhold such consent. There can be no assurances that the Company will be
able to obtain any such consents. McCaw/AT&T Wireless may withhold such consent
for any reason, including because it seeks to acquire such property itself. The
failure to obtain such consents could have an adverse effect on the Company's
business. McCaw/AT&T Wireless has consented to the Pending Transactions.
In addition, PriCellular's affiliation with McCaw/AT&T Wireless could
operate to prohibit PriCellular or McCaw/AT&T Wireless from acquiring certain
wireless franchises. If McCaw/AT&T Wireless or PriCellular has a pre-existing
ownership or management interest in a cellular carrier in an MSA or RSA, McCaw/
AT&T Wireless or PriCellular would be precluded by FCC regulations from
acquiring the other carrier in that particular MSA or RSA. McCaw/AT&T Wireless
and PriCellular may compete by seeking to acquire directly ownership interests
in certain MSAs or RSAs.
FRAUDULENT CONVEYANCE STATUTES
Various laws enacted for the protection of creditors may apply to the
Company's incurrence of indebtedness and other obligations in connection with
the Pending Transactions, including the issuance of the Notes. If a court were
to find in a lawsuit by an unpaid creditor or representative of creditors of the
Company that the Company did not receive fair consideration or reasonably
equivalent value for incurring such indebtedness or obligation and, at the time
of such incurrence, the Company (i) was insolvent; (ii) was rendered insolvent
by reason of such incurrence; (iii) was engaged in a business or transaction for
which
19
<PAGE>
the assets remaining in the Company 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 invalidate, in whole or in part, such
indebtedness and obligations as fraudulent conveyances or subordinate such
indebtedness and obligations to existing or future creditors of the Company.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction which is being applied. Generally, however, the
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. On the basis of its historical financial
information, its recent operating history as discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other factors, the Company's management believes that, after giving effect to
indebtedness incurred in connection with the Pending Transactions and the other
related financings, the Company will not be rendered insolvent, it will have
sufficient capital for the businesses in which it will be engaged and it will be
able to pay its debts as they mature; however, management has not obtained any
independent opinion regarding such issues. There can be no assurance, however,
as to what standard a court would apply in making such determinations.
POTENTIAL FOR ADVERSE REGULATORY CHANGE AND NEED FOR REGULATORY APPROVALS
The licensing, construction, operation, acquisition and sale of cellular
systems, as well as the number of cellular and other wireless licensees
permitted in each market, are regulated by the FCC. Changes in the regulation of
cellular activities (such as a decision by the FCC to permit more than two
cellular licensees in each MSA or RSA market) and other wireless carriers could
have a material adverse effect on the Company's operations. In addition, all
cellular licenses in the United States were granted for an initial 10-year term
and are subject to renewal. The Company's cellular licenses expire in various
years from 1997 to 2001. While the Company believes that each of these licenses
will be renewed based upon FCC rules establishing a presumption in favor of
licensees that have complied with their regulatory obligations during the
initial license period, there can be no assurance that all of the Company's
licenses will be renewed.
FLUCTUATIONS IN MARKET VALUE OF LICENSES
A substantial portion of the Company's assets consists of its interests in
cellular licenses. The future value of the Company's interests in its cellular
licenses will depend significantly upon the success of the Company's business.
While there is a current market for the Company's licenses, such market may not
exist in the future or the values obtainable may be significantly lower than at
present. The transfer of interests in such licenses is subject to prior FCC
approval and is subject to certain rights of first refusal, which may have the
effect of reducing the value of the licenses. As a consequence, there can be no
assurance that the proceeds from the liquidation or sale of the Company's assets
would be sufficient to pay the Company's obligations, and a significant
reduction in the value of the licenses could require a charge to the Company's
results of operations.
EQUIPMENT FAILURE; NATURAL DISASTER
Although the Company carries "business interruption" insurance, a major
equipment failure or a natural disaster affecting any one of the Company's
central switching offices or certain of its cell sites could have a significant,
adverse effect on the Company's operations.
RADIO FREQUENCY EMISSION CONCERNS
Media reports have suggested that certain radio frequency ("RF") emissions
from portable cellular telephones may be linked to cancer and interfere with
heart pacemakers and other medical devices.
20
<PAGE>
Concerns over RF emissions and interference may have the effect of discouraging
the use of cellular telephones, which could have an adverse effect upon the
Company's business. In August 1996, the FCC adopted new guidelines and methods
for evaluating the environmental effects of RF emissions. The updated guidelines
generally are more stringent than the previous rules, based on recommendations
of federal health and safety agencies, including the Environmental Protection
Agency and the Food and Drug Administration. However, the Company does not
believe these guidelines will have a material impact on the Company's
operations. Among the guidelines are limits for specific absorption rate for
evaluating certain hand-held devices such as cellular telephones, as well as
guidelines for the evaluation of cellular transmitting facilities. The Company
believes that the cellular telephones currently marketed and in use by the
Company's customers, as well as the Company's transmitting facilities, comply
with the new standards. Moreover, the FCC preempted state and local government
regulation of cellular and other personal wireless services facilities based on
RF environmental effects to the extent that such facilities comply with the
FCC's rules concerning such RF emissions. Potential interference to medical
devices involves primarily digital transmissions rather than analog. Industry,
government, and medical experts have been conducting tests and developing
methods for reducing or eliminating such interference.
LACK OF PUBLIC MARKET
The New Notes are being offered to the Holders of the Old Notes. The Old
Notes were issued on November 6, 1996 to a limited number of institutional
investors. The New Notes are new securities for which there currently is no
market. The Company does not intend to apply for listing of the Notes on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System. There can be no assurance that an
active trading market for the New Notes will develop. If a trading market
develops for the New Notes, future trading prices of such securities will depend
on many factors, including prevailing interest rates, the Company's results of
operations and financial condition and the market for similar securities.
21
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of September 30, 1996 on (i) an actual basis and (ii) on a pro
forma basis after giving effect to the Recent Transactions, the Pending
Transactions and the sale of the Notes and the other transactions described
herein under "Unaudited Pro Forma Condensed Consolidated Financial Statements".
This table should be read in conjunction with the consolidated financial
statements of the Company, including the notes thereto, the "Unaudited Pro Forma
Condensed Consolidated Financial Statements" and notes thereto, included
elsewhere herein, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Acquisitions and Dispositions".
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
------------------------
<S> <C> <C>
ACTUAL PRO FORMA
----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Cash................................................................................. $ 25,234 $ 95,926
----------- -----------
----------- -----------
Current portion of long-term debt.................................................... $ 389 $ --
10 3/4% Senior Notes due 2004........................................................ -- 170,000
14% Senior Subordinated Discount Notes due 2001...................................... 141,861 141,861
12 1/4% Senior Subordinated Discount Notes due 2003.................................. 161,655 161,655
Poughkeepsie Note and other long-term debt........................................... 21,277 --
----------- -----------
Total long-term debt (including current portion of long-term debt)............... 325,182 473,516
Stockholder's equity:
Common Stock, $0.01 par value per share, 100 shares authorized, issued and
outstanding actual and pro forma.................................................
Additional paid-in capital........................................................... 211,642 234,142
Retained (deficit)................................................................... (22,535) (14,510)
----------- -----------
Total stockholder's equity....................................................... 189,107 219,632
----------- -----------
Total capitalization............................................................. $ 514,289 $ 693,148
----------- -----------
----------- -----------
</TABLE>
22
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The pro forma financial statements presented below reflect the effects of
adjustments to the historical consolidated financial statements of the Company
necessary to give pro forma effect to the transactions described as if such
transactions had occurred on January 1, 1995 for purposes of the unaudited pro
forma condensed consolidated statements of operations and as of September 30,
1996 for purposes of the unaudited pro forma condensed consolidated balance
sheet.
<TABLE>
<CAPTION>
ACTUAL DATE
PROPERTY DESCRIPTION OF TRANSACTION
- --------------------------------------------------------------------------------------- ------------------------------
<C> <S> <C>
ACQUISITIONS:
- ---------------------------------------------------------------------------------------
1. MI-1 RSA.................................................................... March 7, 1995
2. Wausau, WI MSA.............................................................. March 28, 1995
3. MN 2-A RSA, MN 3-B RSA, MN-5 RSA and the Alton/Granite City, IL MSA......... July 7, 1995
4. OH-7 RSA.................................................................... September 27, 1995
5. WV-2 RSA.................................................................... December 20, 1995
6. NY-5 RSA.................................................................... December 29, 1995
7. PA-9 RSA.................................................................... February 2, 1996
8. NY-6 RSA, Poughkeepsie, NY MSA (83%)........................................ April 23, 1996
9. WV-3 RSA.................................................................... July 23, 1996
10. Orange County, NY MSA....................................................... October 17, 1996
11. KY-4 RSA, KY-5 RSA, KY-6 RSA and KY-8 RSA................................... Pending
12. WI-2 RSA.................................................................... November 18, 1996
13. WI-4 RSA.................................................................... Pending
DISPOSITIONS:
- ---------------------------------------------------------------------------------------
14. Abilene, TX MSA............................................................. January 6, 1995
15. AL-4 RSA.................................................................... July 1, 1996
16. MI-2 RSA.................................................................... October 31, 1996
OTHER:
- ---------------------------------------------------------------------------------------
17. Exchange of Lubbock, TX MSA for Minnesota properties (see 3 above).......... July 7, 1995
18. Southwestern Bell Joint Venture............................................. November 30, 1995
19. Exchange of OH-9 RSA, OH-10B RSA and Parkersburg, WV/ Marietta, OH MSA for
Orange County, NY MSA (see 10 above)...................................... October 17, 1996
20. Exchange of Florence, AL MSA and AL-1B RSA for WI-4 RSA (see 13 above)...... Pending
21. Issuance of 12 1/4% Senior Subordinated Notes and Poughkeepsie Note......... September 27, 1995 and April
23, 1996, respectively
22. Issuance of 10 3/4% Senior Notes due 2004................................... November 6, 1996
23. Retirement of Poughkeepsie Note............................................. November 13, 1996
24. Sale of minority interest Pops.............................................. September 17, 1996
</TABLE>
The unaudited pro forma condensed consolidated statements of operations give
effect to the above listed transactions under the purchase method of accounting.
The unaudited pro forma condensed consolidated financial statements have
been prepared by the Company's management. The unaudited pro forma data is not
designed to represent and does not represent what the Company's results of
operations or financial position would have been had the aforementioned
transactions been completed on or as of the dates assumed, and are not intended
to project the Company's results of operations for any future period or as of
any future date. The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the audited and unaudited
consolidated financial statements and notes of the Company included elsewhere or
incorporated by reference herein.
23
<PAGE>
PRICELLULAR WIRELESS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR PENDING
PRO FORMA TRANSACTIONS
HISTORICAL ADJUSTMENTS HISTORICAL AND THE
RECENT FOR RECENT PRICELLULAR PENDING DEBT
PRICELLULAR TRANSACTIONS(1) TRANSACTIONS AS ADJUSTED TRANSACTIONS(2) FINANCING
----------- --------------- ------------ ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 80,978 $ 14,681 $ (15,174) (b) $ 80,485 $ 17,894 $ (4,187)(h)
Costs and expenses:
Cost of cellular service........... 20,999 2,093 (4,028)(b) 19,064 5,015 (1,204)(h)
Cost of equipment sold............. 6,822 786 (1,078)(b) 6,530 1,243 (329)(h)
Selling, general and
administrative................... 23,635 6,636 (3,955)(b) 26,316 4,684 (818)(h)
Depreciation and amortization...... 15,295 1,877 (839) (c) 16,333 4,292 523(h),(i)
----------- ------- ------------ ----------- ------- -------------
66,751 11,392 (9,900) 68,243 15,234 (1,828)
----------- ------- ------------ ----------- ------- -------------
Operating income (loss).............. 14,227 3,289 (5,274) 12,242 2,660 (2,359)
Other income (expense)
Interest expense, net.............. (28,623) (4,205) 2,442(b),(d),(e) (30,386) (1,222) (12,378)(j)(o)
Other income (expense)............. 1,062 (360) 625(f) 1,327 750 (k)
Gain on sale of investments in
cellular operations.............. 177 (177 (g)
----------- ------- ------------ ----------- ------- -------------
Total other income (expense)......... (27,384 ) (4,565 ) 2,890 (29,059 ) (1,222 ) (11,628 )
----------- ------- ------------ ----------- ------- -------------
Net income (loss).................... $ (13,157 ) $ (1,276 ) $ (2,384 ) (16,817 ) $ 1,438 $ (13,987 )
----------- ------- ------------ ----------- ------- -------------
----------- ------- ------------ ----------- ------- -------------
EBITDA(3)............................ $ 30,584 $ 29,902
----------- -----------
----------- -----------
<CAPTION>
PRO FORMA
PRICELLULAR
-----------
<S> <C>
REVENUES............................. $ 94,192
Costs and expenses:
Cost of cellular service........... 22,875
Cost of equipment sold............. 7,444
Selling, general and
administrative................... 30,182
Depreciation and amortization...... 21,148
-----------
81,649
-----------
Operating income (loss).............. 12,543
Other income (expense)
Interest expense, net.............. (43,986)
Other income (expense)............. 2,077
Gain on sale of investments in
cellular operations..............
-----------
Total other income (expense)......... (41,909 )
-----------
Net income (loss).................... $ (29,366 )
-----------
-----------
EBITDA(3)............................ $ 35,768
-----------
-----------
</TABLE>
- ------------------------
(1) See supplemental unaudited condensed combined statement of operations for
the nine months ended September 30, 1996 on page 34 for details of Recent
Transactions.
(2) See supplemental unaudited condensed combined statement of operations for
the nine months ended September 30, 1996 on page 35 for details of Pending
Transactions.
(3) EBITDA represents earnings before depreciation and amortization, interest
expense, interest income, and gains on sales of cellular properties. EBITDA
is not intended to be a performance measure and should not be regarded as an
alternative to either operating income or net income as an indicator of
operating performance or to cash flows as a measure of liquidity.
Furthermore, EBITDA is not a GAAP-based financial measure, and it should not
be considered as an alternative to GAAP-based measures of financial
performance.
24
<PAGE>
PRICELLULAR WIRELESS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR PENDING
PRO FORMA TRANSACTIONS
HISTORICAL ADJUSTMENTS HISTORICAL AND THE
RECENT FOR RECENT PRICELLULAR PENDING DEBT
PRICELLULAR TRANSACTIONS(1) TRANSACTIONS AS ADJUSTED TRANSACTIONS(2) FINANCING
----------- --------------- ------------ ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES........................ $ 41,504 $ 40,280 $ (9,914) b), $ 71,870 $ 15,667 $ (4,142)(h)
Costs and expenses: ,(m
Cost of cellular service...... 10,694 8,050 (2,815) (l) 15,929 2,780 (1,013)(h)
Cost of equipment sold........ 4,951 2,897 (856) (l) 6,992 1,471 (572)(h)
Selling, general and
administrative.............. 16,219 17,759 (2,715) (l) 31,263 5,057 (1,209)(h)
Depreciation and
amortization................ 10,279 6,539 3,896 ,(l 20,714 5,339 780(h)(i)
----------- ------- ------------ ----------- ------- -------------
42,143 35,245 (2,490) 74,898 14,647 (2,014)
----------- ------- ------------ ----------- ------- -------------
Operating income (loss)......... (639) 5,035 (7,424) (3,028) 1,020 (2,128)
Other income (expense)
Interest expense, net......... (18,573) (7,555) (7,042) (e) (33,170) (1,895) (17,130)(j)(o)
Other income (expense)........ 520 23 1,750 ,(n 2,293 1,000(k)
Gain on sale of investments in
cellular operations......... 11,598 (555) (11,043)(g)
----------- ------- ------------ ----------- ------- -------------
Total other income (expense).... (6,455) (8,087) (16,335) (30,877) (1,895) (16,130)
----------- ------- ------------ ----------- ------- -------------
Net income (loss)............... $ (7,094) $ (3,052) $ (23,759) $ (33,905) $ (875) $ (18,258)
----------- ------- ------------ ----------- ------- -------------
----------- ------- ------------ ----------- ------- -------------
EBITDA(3)....................... $ 10,160 $ 19,979
----------- -----------
----------- -----------
<CAPTION>
PRO FORMA
PRICELLULAR
-----------
<S> <C>
REVENUES........................ $ 83,395
Costs and expenses:
Cost of cellular service...... 17,696
Cost of equipment sold........ 7,891
Selling, general and
administrative.............. 35,111
Depreciation and
amortization................ 26,833
-----------
87,531
-----------
Operating income (loss)......... (4,136)
Other income (expense)
Interest expense, net......... (52,195)
Other income (expense)........ 3,293
Gain on sale of investments in
cellular operations.........
-----------
Total other income (expense).... (48,902)
-----------
Net income (loss)............... $ (53,038)
-----------
-----------
EBITDA(3)....................... $ 25,990
-----------
-----------
</TABLE>
- ------------------------
(1) See supplemental unaudited condensed combined statement of operations for
the twelve months ended December 31, 1995 on page 36 for details of Recent
Transactions.
(2) See supplemental unaudited condensed combined statement of operations for
the twelve months ended December 31, 1995 on page 37 for details of Pending
Transactions.
(3) EBITDA represents earnings before depreciation and amortization, interest
expense, interest income, and gains on sales of cellular properties. EBITDA
is not intended to be a performance measure and should not be regarded as an
alternative to either operating income or net income as an indicator of
operating performance or to cash flows as a measure of liquidity.
Furthermore, EBITDA is not a GAAP-based financial measure, and it should not
be considered as an alternative to GAAP-based measures of financial
performance.
25
<PAGE>
PRICELLULAR WIRELESS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ORANGE KENTUCKY PRO FORMA
PRICELLULAR COUNTY CLUSTER WI-4 ADJUSTMENTS PRO FORMA
----------- ---------- ----------- --------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents........................ $ 25,234 $ 5 $ 613 $ 70,074(p) $ 95,926
Accounts receivable, net......................... 14,837 1,186 6,155 31 (2,547)(q) 19,662
Inventory........................................ 1,731 168 136 (213)(r) 1,822
Prepaid expenses and other current assets........ 723 139 147 25 (62)(s) 972
----------- ---------- ----------- --------- ----------- -----------
Total current assets................................. 42,525 1,498 7,051 56 67,252 118,382
Net fixed assets..................................... 61,047 5,327 13,147 3,031 (7,197)(t) 75,355
Investment in cellular operations.................... 36,581 2,904 39,485
Cellular licenses, net............................... 390,373 44,662 46,911(u) 481,946
Cellular licenses held for sale, net................. 8,179 (8,179)(v) 0
Deferred financing costs, net........................ 8,938 6,000(x) 14,938
Other assets......................................... 95 12 2,943 (16)(w) 3,034
----------- ---------- ----------- --------- ----------- -----------
Total assets......................................... $ 547,738 $ 9,741 $ 67,803 $ 3,087 $ 104,771 $ 733,140
----------- ---------- ----------- --------- ----------- -----------
----------- ---------- ----------- --------- ----------- -----------
Liabilities and stockholder's equity
Current liabilities:
Accounts payable and accrued expenses............ $ 17,859 $ 359 $ 4,314 $ 45 $ (580)(y) $ 21,997
Long-term debt--current portion.................. 389 (389)(z) 0
Income taxes payable............................. 432 432
Other current liabilities........................ 4,779 62 457 938 (aa 6,236
----------- ---------- ----------- --------- ----------- -----------
Total current liabilities............................ 23,459 421 4,771 45 (31) 28,665
Long-term debt....................................... 324,793 148,723 (bb 473,516
Other long-term liabilities.......................... 10,379 33,717 14,317 5,134 (52,220) cc) 11,327
----------- ---------- ----------- --------- ----------- -----------
Total liabilities.................................... 358,631 34,138 19,088 5,179 96,472 513,508
Stockholder's equity (deficit):...................... 189,107 (24,397) 48,715 (2,092) 8,299 (dd 219,632
----------- ---------- ----------- --------- ----------- -----------
Total liabilities and stockholder's equity
(deficit).......................................... $ 547,738 $ 9,741 $ 67,803 $ 3,087 $ 104,771 $ 733,140
----------- ---------- ----------- --------- ----------- -----------
----------- ---------- ----------- --------- ----------- -----------
</TABLE>
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
For purposes of determining the pro forma effect of the transactions
described above on PriCellular's Condensed Consolidated Statements of Operations
for the nine months ended September 30, 1996 and the year ended December 31,
1995, the following adjustments have been made:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C> <C>
(a) Represents the share of income from the Southwestern Bell Joint Venture $ 675 $ 3,025
(b) Represents the elimination of the results of operations of the MI-2, AL-4,
OH-9, OH-10, and Parkersburg, WV/Marietta, OH Systems
Revenues............................................................... $ (15,849) $ (4,504)
Cost of cellular service............................................... (4,028) (1,192)
Cost of equipment sold................................................. (1,078) (526)
Selling, general and administrative.................................... (3,955) (1,611)
Depreciation and amortization.......................................... (2,635) (974)
Interest expense, net.................................................. 197 107
(c) Represents the incremental depreciation and amortization due to the
application of purchase price accounting and the resulting increases in
the basis of the assets relating to the acquisition of Wausau, MI-1,
MN-2A, MN-3B, MN-5, Alton/Granite City, OH-7, WV-2, NY-5, PA-9, NY-6,
Poughkeepsie, NY, WV-3 and Orange County, NY Systems. Fixed assets are
depreciated over a useful life of three to seven years. Cellular licences
are amortized over 40 years.............................................. $ 1,796 $ 6,302
(d) Represents amortization of the deferred financing costs, as well as the
adjustments to interest expense to give effect to the issuance of the
12 1/4% Notes issued during 1995 and the elimination of certain interest
expense of Wausau, MI-1, MN-2A, MN-3B, MN-3, Alton/ Granite City, OH-7,
WV-2, NY-5, PA-9, NY-6, WV-3, Orange County, NY and Poughkeepsie, NY as a
result of debt not assumed as a part of these acquisitions.
Amortization of deferred financing costs............................... $ (544)
Interest expense for the 12 1/4% Notes................................. $ (1,745) (13,731)
Elimination of historical interest expense, net as a result of debt not
assumed as part of the following acquisitions:
MN-2A, MN-3B, MN-5 and Alton/Granite City.............................. 496
OH-7................................................................... 326
WV-2................................................................... 156
NY-5................................................................... (154)
PA-9................................................................... 305
NY-6................................................................... 6 38
Orange County.......................................................... 2,772 3,518
WV-3................................................................... 979 1,598
Poughkeepsie........................................................... 448 1,272
------------ ------------
$ 2,460 $ (6,720)
------------ ------------
------------ ------------
</TABLE>
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C> <C>
(e) Represents the loss of interest income attributable to a decrease in cash
on hand due to the purchase of NY-6, Poughkeepsie and WV-3............... $ (215) $ (429)
(f) Represents additional income attributable to the covenant not to compete
pursuant to the sale of AL-4............................................. $ 625 $ 1,250
(g) Represents the elimination of the net gain on the sale of the Company's
AL-4 RSA and an investment in minority Pops and its interest in the
Abilene, TX MSA.......................................................... $ (177) $ (11,598)
Elimination of loss on sale of investments in cellular operations
incurred by Orange County............................................ 555
------------ ------------
$ (177) $ (11,043)
------------ ------------
------------ ------------
(h) Represents the elimination of the results of operations of the Florence, AL
system which is to be exchanged in the WI-4 Exchange.
Revenues............................................................... $ (4,187) $ (4,142)
Cost of cellular service............................................... (1,204) (1,013)
Cost of equipment sold................................................. (329) (572)
Selling, general and administrative.................................... (818) (1,209)
Depreciation and amortization.......................................... (535) (632)
(i) Represents the incremental depreciation and amortization due to the
application of purchase price accounting and the resulting increases in
the basis of the assets relating to the acquisition of the Kentucky
Cluster, WI-2 and WI-4 Systems. Fixed assets are depreciated over a
useful life of three to seven years. Cellular licences are amortized over
40 years................................................................. $ 1,058 $ 1,412
(j) Represents the elimination of certain interest expense, net of Kentucky and
WI-4 as a result of debt not assumed as a part of these acquisitions.
Kentucky Cluster....................................................... $ 1,041 $ 1,596
WI-4................................................................... 181 299
------------ ------------
$ 1,222 $ 1,895
------------ ------------
------------ ------------
(k) Represents additional income attributable to the covenant not to compete
pursuant to the sale of Florence......................................... $ 750 $ 1,000
</TABLE>
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C> <C>
(l) Represents the elimination of the results of operations of the Lubbock
system for the period January 1, 1995 to July 7, 1995 and the results of
operations of the Laredo System which was contributed to the Southwestern
Bell Joint Venture on November 30, 1995.
Revenues............................................................... $ (7,680)
Cost of cellular service............................................... (1,623)
Cost of equipment sold................................................. (330)
Selling, general and administrative.................................... (1,104)
Depreciation and amortization.......................................... (1,432)
(m) Represents the elimination of revenues earned in connection with the
Management Agreement associated with the purchase of AL-4................ $ (755)
(n) Represents additional income attributable to the covenant not to compete
pursuant to the Lubbock/Minnesota Exchange............................... $ 500
(o) Represents amortization of the deferred financing costs, as well as the
adjustments to interest expense to give effect to the issuance of the
10 3/4% Senior Notes due 2004 and the repayment of the Poughkeepsie Note.
Amortization of deferred financing costs............................... $ (562) $ (750)
Interest expense for the Poughkeepsie Note............................. 668
Interest expense of the 10 3/4% Senior Notes due 2004.................. (13,706) (18,275)
------------ ------------
$ (13,600) $ (19,025)
------------ ------------
------------ ------------
</TABLE>
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
For purposes of determining the pro forma effect of the transactions
described above on PriCellular's Condensed Consolidated Balance Sheet as of
September 30, 1996, the following adjustments have been made:
<TABLE>
<S> <C> <C>
(p) CASH AND CASH EQUIVALENTS
Net proceeds from sale of Notes.......................................... $ 164,000
Proceeds from WI-4 Exchange, net......................................... 17,925
Proceeds from disposition of MI-2........................................ 6,496
Purchase of WI-2......................................................... (4,300)
Purchase of Kentucky..................................................... (94,000)
Repayment of Poughkeepsie Note........................................... (19,429)
Total cash not acquired in connection with the above acquisitions........ (618)
---------
$ 70,074
---------
---------
(q) ACCOUNTS RECEIVABLE
Receivables sold or exchanged in the following transactions:
MI-2................................................................. $ (689)
Florence............................................................. (283)
OH-9................................................................. (555)
OH-10................................................................ (209)
Parkersburg.......................................................... (485)
Receivables not acquired in connection with the Orange County Exchange... (326)
---------
$ (2,547)
---------
---------
(r) INVENTORY
Represents the elimination of inventory disposed of in the disposition of
MI-2................................................................... $ (45)
Represents inventory not acquired with the Orange County Exchange........ (168)
---------
$ (213)
---------
---------
(s) PREPAID EXPENSES AND OTHER CURRENT ASSETS
Represents the elimination of prepaid expenses and other current assets
disposed of in the following transactions:
MI-2................................................................. $ (1)
Florence............................................................. (23)
OH-9................................................................. (17)
OH-10................................................................ (5)
Parkersburg.......................................................... (16)
---------
$ (62)
---------
---------
</TABLE>
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
(t) NET FIXED ASSETS
Represents the decrease in net fixed assets due to the sale and
disposition of the following:
Florence............................................................. $ (2,472)
OH-9................................................................. (1,983)
OH-10................................................................ (1,595)
Parkersburg.......................................................... (1,147)
---------
$ (7,197)
---------
---------
<CAPTION>
1996
---------
<S> <C> <C>
(u) CELLULAR LICENSES, NET
Represents the increase in cellular licenses due to the application of
purchase price accounting for the following acquisitions:
Kentucky............................................................. $ 54,081
WI-4................................................................. 3,113
WI-2................................................................. 4,300
Represents the adjustment to cellular licenses resulting from the Orange
County Exchange........................................................ (3,236)
Represents the decrease in cellular licence due to the disposition of
Florence............................................................... (11,347)
---------
$ 46,911
---------
---------
(v) CELLULAR LICENSES HELD FOR SALE, NET
Represents the decrease in Cellular licenses held for sale due to the
disposition of MI-2.................................................... $ (8,179)
(w) OTHER ASSETS
Represents the elimination of other assets not acquired in the Orange
County Exchange........................................................ $ (12)
Represents the decrease in other assets due to the disposition of MI-2... (4)
---------
$ (16)
---------
---------
(x) DEFERRED FINANCING COSTS
Capitalization of estimated costs and expenses of the offering of the
Notes which will be amortized over the life of the Notes............... $ 6,000
(y) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Represents the decrease in accounts payable and accrued expenses due to
the disposition of MI-2................................................ $ (176)
Represents the elimination of accounts payable and accrued expenses not
acquired in connection with the following:
WI-4................................................................. (45)
Orange County Exchange............................................... (359)
---------
$ (580)
---------
---------
(z) LONG-TERM DEBT--CURRENT PORTION
Represents the decrease in long-term debt--current portion due to the
disposition of MI-2.................................................... $ (389)
</TABLE>
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996
---------
<S> <C> <C>
(aa) OTHER CURRENT LIABILITIES
Represents the current unearned portion of the covenant not to compete
received in connection with the disposition of Florence................ $ 1,000
Represents the decrease in other current liabilities not being acquired
in connection with the Orange County Exchange.......................... (62)
---------
$ 938
---------
---------
(bb) LONG-TERM DEBT
Represents the increase in long-term debt due to the issuance of the
10 3/4% Senior Notes due 2004.......................................... $ 170,000
Represents decrease in long-term debt due to the repayment of the
Poughkeepsie Note...................................................... (19,429)
Represents the decrease in long-term debt due to the disposition of
MI-2................................................................... (1,848)
---------
$ 148,723
---------
---------
(cc) OTHER LONG-TERM LIABILITIES
Represents the elimination of affiliated payables not being acquired in
the following acquisitions:
WI-4................................................................. $ (5,134)
Kentucky............................................................. (14,317)
Orange County........................................................ (33,667)
Represents the long-term unearned portion of the two year covenant not to
compete received in connection with the disposition of Florence........ 1,000
Represents the decrease in other long-term liabilities due to the
disposition of the following:
Florence............................................................. (25)
MI-2................................................................. (9)
Represents the decrease in other long-term liabilities of previously
owned entities disposed of in the Orange County Exchange............... (68)
---------
$ (52,220)
---------
---------
(dd) STOCKHOLDER'S EQUITY
Contribution of Parent's Class A Common Stock to be used as partial
consideration in connection with the Kentucky Cluster Acquisition...... $ 22,500
Represents the elimination of net equity in connection with the following
acquisitions:
Kentucky Cluster..................................................... (48,715)
WI-4................................................................. 2,092
Orange County........................................................ 24,397
Gain on disposition of Florence.......................................... 8,025
---------
$ 8,299
---------
---------
</TABLE>
32
<PAGE>
PRICELLULAR WIRELESS CORPORATION
SUPPLEMENTAL UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR RECENT TRANSACTIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------
RECENT TRANSACTIONS
---------------------------------------------------------
(1) TOTAL
ORANGE RECENT
PA-9 NY-6 POUGHKEEPSIE WV-3 COUNTY TRANSACTIONS
--------- --------- ------------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................................. $ 206 $ 1,228 $ 2,062 $ 2,886 $ 8,299 $ 14,681
Costs and expenses:
Cost of cellular service............................... 70 371 404 321 927 2,093
Cost of equipment sold................................. 15 92 181 197 301 786
Selling, general and administrative.................... 62 449 795 1,344 3,986 6,636
Depreciation and amortization.......................... 28 213 158 735 743 1,877
--------- --------- ------ --------- --------- ------------
175 1,125 1,538 2,597 5,957 11,392
--------- --------- ------ --------- --------- ------------
Operating income (loss).................................. 31 103 524 289 2,342 3,289
Other income (expense)
Interest expense, net.................................. (6) (448) (979) (2,772) (4,205)
Other income (expense)................................. 5 (148) (217) (360)
--------- --------- ------ --------- --------- ------------
Total other income (expense)............................. 0 (1) (596) (979) (2,989) (4,565)
--------- --------- ------ --------- --------- ------------
Net income (loss)........................................ $ 31 $ 102 $ (72) $ (690) $ (647) $ (1,276)
--------- --------- ------ --------- --------- ------------
--------- --------- ------ --------- --------- ------------
</TABLE>
- ------------------------
(1) Pending as of September 30, 1996
33
<PAGE>
PRICELLULAR WIRELESS CORPORATION
SUPPLEMENTAL UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
FOR PENDING TRANSACTIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------
PENDING
TRANSACTIONS
---------------------- TOTAL
KENTUCKY PENDING
CLUSTER WI-4 TRANSACTIONS
----------- --------- ------------
<S> <C> <C> <C>
Revenues....................................................................... $ 16,663 $ 1,231 $ 17,894
Costs and expenses:
Cost of cellular service..................................................... 4,215 800 5,015
Cost of equipment sold....................................................... 1,027 216 1,243
Selling, general and administrative.......................................... 4,249 435 4,684
Depreciation and amortization................................................ 4,021 271 4,292
----------- --------- ------------
13,512 1,722 15,234
----------- --------- ------------
Operating income (loss)........................................................ 3,151 (491) 2,660
Other income (expense)
Interest expense, net........................................................ (1,041) (181) (1,222)
----------- --------- ------------
Total other income (expense)................................................... (1,041) (181) (1,222)
----------- --------- ------------
Net income (loss).............................................................. $ 2,110 $ (672) $ 1,438
----------- --------- ------------
----------- --------- ------------
</TABLE>
34
<PAGE>
PRICELLULAR WIRELESS CORPORATION
SUPPLEMENTAL UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
FOR RECENT TRANSACTIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------------------------------------------------------------
RECENT TRANSACTIONS
--------------------------------------------------------------------------------------------------
MN-2A, MN-3B,
MN-5 AND ALTON
GRANITE CITY,
MI-1 WAUSAU IL OH-7 WV-2 NY-5 PA-9 NY-6
----- ----------- ----------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............ $ 558 $ 612 $ 1,224 $ 3,126 $ 688 $ 9,926 $ 1,789 $ 3,786
Costs and expenses:
Cost of cellular
service......... 96 153 290 363 239 1,808 339 663
Cost of equipment
sold............ 111 66 0 239 4 440 231 258
Selling, general
and
administrative... 132 150 776 1,294 325 4,140 847 1,324
Depreciation and
amortization.... 129 105 690 282 145 1,572 296 444
----- ----- ------- --------- --------- --------- --------- ---------
468 474 1,756 2,178 713 7,960 1,713 2,689
----- ----- ------- --------- --------- --------- --------- ---------
Operating income
(loss)............ 90 138 (532) 948 (25) 1,966 76 1,097
Other income
(expense)
Interest income
(expense),
net............. (496) (326) (156) 154 (305) (38)
Other income
(expense)....... 6 4 11 6 (17)
Gain (loss) on
sale of
investment in
cellular
operations
----- ----- ------- --------- --------- --------- --------- ---------
Total other income
(expense)......... 0 0 (496) (320) (152) 165 (299) (55)
----- ----- ------- --------- --------- --------- --------- ---------
Net income (loss)... $ 90 $ 138 $ (1,028) $ 628 $ (177) $ 2,131 $ (223) $ 1,042
----- ----- ------- --------- --------- --------- --------- ---------
----- ----- ------- --------- --------- --------- --------- ---------
<CAPTION>
TOTAL
(1) RECENT
POUGHKEEPSIE WV-3 ORANGE COUNTY TRANSACTIONS
------------- --------- --------------- -------------
<S> <C> <C> <C> <C>
Revenues............ $ 5,189 $ 4,237 $ 9,145 $ 40,280
Costs and expenses:
Cost of cellular
service......... 2,190 599 1,310 8,050
Cost of equipment
sold............ 462 514 572 2,897
Selling, general
and
administrative... 2,388 2,069 4,314 17,759
Depreciation and
amortization.... 471 1,172 1,233 6,539
------------- --------- ------- -------------
5,511 4,354 7,429 35,245
------------- --------- ------- -------------
Operating income
(loss)............ (322) (117) 1,716 5,035
Other income
(expense)
Interest income
(expense),
net............. (1,272) (1,598) (3,518) (7,555)
Other income
(expense)....... 13 23
Gain (loss) on
sale of
investment in
cellular
operations (555) (555)
------------- --------- ------- -------------
Total other income
(expense)......... (1,259) (1,598) (4,073) (8,087)
------------- --------- ------- -------------
Net income (loss)... $ (1,581) $ (1,715) $ (2,357) $ (3,052)
------------- --------- ------- -------------
------------- --------- ------- -------------
</TABLE>
- ------------------------------
(1) Pending as of September 30, 1996
35
<PAGE>
PRICELLULAR WIRELESS CORPORATION
SUPPLEMENTAL UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
FOR PENDING TRANSACTIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------
PENDING
TRANSACTIONS
---------------------- TOTAL
KENTUCKY PENDING
CLUSTER WI-4 TRANSACTIONS
----------- --------- ------------
<S> <C> <C> <C>
Revenues....................................................................... $ 14,381 $ 1,286 $ 15,667
Costs and expenses:
Cost of cellular service..................................................... 1,904 876 2,780
Cost of equipment sold....................................................... 1,377 94 1,471
Selling, general and administrative.......................................... 4,779 278 5,057
Depreciation and amortization................................................ 4,983 356 5,339
----------- --------- ------------
13,043 1,604 14,647
----------- --------- ------------
Operating income (loss)........................................................ 1,338 (318) 1,020
Other income (expense)
Interest expense, net........................................................ (1,596) (299) (1,895)
----------- --------- ------------
Total other income (expense)................................................... (1,596) (299) (1,895)
----------- --------- ------------
Net income (loss).............................................................. $ (258) $ (617) $ (875)
----------- --------- ------------
----------- --------- ------------
</TABLE>
36
<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except ratios)
The Company acquired all of its existing Systems in a series of acquisitions
between April 1994 and November 1996. 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 nine months
ended September 30, 1996 and 1995 have been prepared on the same basis as the
audited consolidated financial statements and contain all adjustments,
consisting of normal recurring adjustments that the Company considers necessary
for a fair presentation of the financial position and results of operations for
the periods presented. The selected financial data set forth below for the
Company for the years ended December 31, 1995, 1994 and 1993 and as of December
31, 1995 and 1994 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 as of and for the years ended
December 31, 1992 and 1991, and as of December 31, 1993 is derived from audited
consolidated financial statements not included elsewhere herein. The selected
financial data set forth below should be read in conjunction with the "Unaudited
Pro Forma Condensed Consolidated Financial Statements", "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1995 1994 1993 1992 1991
------------- --------- --------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 80,978 $ 25,187 $ 41,504 $ 5,209 $ 3,809 $ 4,859 $ 2,274
Cost of cellular service........................ 20,999 6,353 10,694 1,892 835 1,265 742
Cost of equipment sold.......................... 6,822 2,825 4,951 814 255 411 317
------------- --------- --------- --------- --------- --------- ---------
Gross margin.................................... 53,157 16,009 25,859 2,503 2,719 3,183 1,215
General and administrative...................... 12,067 5,126 8,754 4,640 1,280 3,272 1,744
Sales and marketing............................. 11,568 4,002 7,465 1,151 379 517 545
Depreciation and amortization................... 15,295 6,443 10,279 2,720 1,695 3,089 3,157
------------- --------- --------- --------- --------- --------- ---------
Operating profit (loss)......................... 14,227 438 (639) (6,008) (635) (3,695) (4,231)
Net gain on sale of investments in cellular
operations.................................... 177 11,598 11,598 6,819 11,986 2,557
Interest expense, net........................... (28,623) (10,750) (18,573) (1,949) (271) (572) (97)
Other income (expense), net..................... 1,062 270 520 (97) (439) (855) (586)
------------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for income taxes
and extraordinary item........................ (13,157) 1,556 (7,094) (1,235) 10,641 (2,565) (4,914)
Provision for income taxes...................... (172)
Gain on early extinguishment of debt, net of
tax........................................... 147
------------- --------- --------- --------- --------- --------- ---------
Net income (loss)............................... $ (13,157) $ 1,556 $ (7,094) $ (1,235) $ 10,616 $ (2,565) $ (4,914)
------------- --------- --------- --------- --------- --------- ---------
------------- --------- --------- --------- --------- --------- ---------
Ratio of earnings to fixed charges(1)........... 1.1 22.7
------------- --------- --------- --------- --------- --------- ---------
------------- --------- --------- --------- --------- --------- ---------
<CAPTION>
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, -----------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)....................... $ 19,066 $ 16,431 $ 20,615 $ (139) $ 3,277 $ 3,311
Net fixed assets................................ 61,047 52,041 26,144 389 1,700 1,556
Total assets.................................... 547,738 443,119 209,779 6,755 19,719 20,698
Long-term debt.................................. 324,793 298,650 113,683 4,000 6,410 6,793
Total liabilities............................... 358,631 322,206 137,436 4,680 10,144 8,558
Stockholders' equity............................ 189,107 120,913 72,363 2,075 9,575 12,140
</TABLE>
- ------------------------
(1) The ratio of earnings to fixed charges is determined by dividing the sum of
earnings before extraordinary items and accounting changes, interest
expense, taxes and a portion of rent expense representative of interest by
the sum of interest expense and a portion of rent expense representative of
interest. The ratio of earnings to fixed charges is not meaningful for
periods that result in a deficit. For the nine months ended September 30,
1996 and the years ended December 31, 1995, 1994, 1992 and 1991 the deficit
of earnings to fixed charges was $13,157, $7,094, $1,235, $2,565, and
$4,914, respectively.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Due to the synergies associated with operating contiguous markets
("clusters") the development of the cellular industry has been marked by a high
volume of acquisitions, divestitures and exchanges of Systems among cellular
system operators. Consistent with this experience and as a result of its effort
to acquire such clusters, as of December 31, 1994, the Company no longer owned
any of the Systems reflected in its historical results of operations for the
years ended December 31, 1993, 1992 or 1991. As a result, the historical
financial data of the Company discussed below is not comparable nor is it
indicative of future results of operations.
Cellular systems typically experience losses and negative cash flow in their
initial years of operation. Although the Company generated net income and
positive cash flow for the year ended December 31, 1993 (primarily as a result
of the sale of the Company's cellular systems), as noted above, the Company no
longer owns the Systems reflected in such results of operations. For the nine
months ended September 30, 1996 and 1995 and the years ended December 31, 1995
and 1994, the Company incurred net losses (except for the nine months ended
September 30, 1995 as a result of the gain on sale during January, 1995). The
Company expects to continue to incur net losses for several years.
HISTORICAL RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1995
Revenues for the nine months ended September 30, 1996 increased to
$80,978,000 (consisting of cellular service revenues of $75,560,000, equipment
sales revenues of $2,440,000 and other revenues of $2,978,000) from $25,187,000
(consisting of cellular service revenues of $23,696,000, equipment sales
revenues of $999,000 and other revenue of $492,000).
Total operating expenses for the nine months ended September 30, 1996
increased to $66,751,000 (consisting of cost of cellular service of $20,999,000,
cost of equipment sold of $6,822,000, general and administrative expenses of
$12,067,000, sales and marketing expenses of $11,568,000 and depreciation and
amortization of $15,295,000) from $24,749,000 (consisting of cellular service of
$6,353,000, cost of equipment sold of $2,825,000, general and administrative
expenses of $5,126,000, sales and marketing expenses of $4,002,000 and
depreciation and amortization of $6,443,000).
The principal factors contributing to the increases in revenues, operating
expenses and operating income were the Company's acquisition of operating
systems and the growth from existing system operations.
Other income (expense) for the nine month period ended September 30, 1996
includes the sale of the Company's AL-4 RSA as well as the sale of an investment
in minority Pops, which transactions resulted in a net gain of $177,000. For the
comparable period in 1995, other income (expense) includes the gain on sale of
the Company's investment in cellular operations of the non-wireline system
serving the Abilene, TX MSA.
Interest expense, net, increased to $28,623,000 from $10,750,000 due
primarily to the Company's issuance of $205,000,000 face amount of 12 1/4%
Senior Subordinated Discount Notes, the Junior Subordinated Discount Note to
Parent in September 1995 and the issuance of the Poughkeepsie Note on April 23,
1996. The Company expects interest expense to increase in the future as a result
of the issuance of the Notes offered hereby.
Other income for the nine month period ended September 30, 1996 consists of
$750,000 resulting from the Company's agreement not to compete with Western
Wireless within the Lubbock, TX MSA and $312,000 resulting from the Company's
two year agreement not to compete connected with the sale of the
38
<PAGE>
AL-4 RSA on July 1, 1996. The comparable prior year period includes $250,000 for
the not to compete agreement with Western Wireless.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Operating revenues of $5,209,000 (consisting of cellular service revenues of
$4,825,000 and equipment sales of $384,000) for the year ended December 31, 1994
represented the operations of the markets acquired in 1994 from their respective
dates of acquisition on April 28, 1994 and November 23, 1994, whereas operating
revenues of $41,504,000 (consisting of cellular service revenues of $38,757,000
equipment sales of $1,717,000 and other revenues of $1,030,000) for the year
ended December 31, 1995 represented operations of the markets acquired in 1994
for a full year, as well as operations of the markets acquired during 1995 from
their respective dates of acquisition in March, July, September, November and
December 1995. In addition, other revenues in 1995 consist of management fee
income of $755,000 related to the Company's interim management of the AL-4 RSA
property prior to the consummation of the Company's acquisition of such property
on November 7, 1995 and $275,000 of net income from the Southwestern Bell Joint
Venture for the month of December 1995.
Total costs and expenses incurred for the year ended December 31, 1995 of
$42,143,000 increased from $11,217,000. This increase was due to 1995 including
a full year of costs and expenses related to the properties acquired during 1994
whereas in 1994, costs and expenses related to such properties were only
included from the dates of acquisition. In addition, total costs and expenses in
1995 included amounts related to the markets acquired during 1995 for which
there are no comparable amounts in 1994. Cost of cellular service increased to
$10,694,000 in 1995 from $1,892,000 in 1994 due to the larger number of acquired
markets in operation incurring system telephone expenses and rental expenses on
leased facilities. Cost of equipment sold increased to $4,951,000 in 1995 from
$814,000 in 1994 due to an increased number of phones being sold in 1995.
General and administrative expenses increased to $8,754,000 in 1995 from
$4,640,000 in 1994 due primarily to costs associated with operating new markets
and opening numerous administrative and retail offices in 1995. Sales and
marketing expenses increased in 1995 to $7,465,000 from $1,151,000 in 1994 due
to aggressive marketing kickoff campaigns for certain newly acquired markets.
Depreciation and amortization increased to $10,279,000 in 1995 from $2,720,000
in 1994 due to the larger amount of equipment and intangible assets that were
owned in 1995.
Gain on sale of investments in cellular operations in 1995 and 1994 of
$11,598,000 and $6,819,000, respectively, were due to the disposition of the
Company's interest in the non-wireline system serving the Abilene, TX MSA and
the sale of the Company's remaining interest in the Wichita Falls System,
respectively.
Interest expense of $21,569,000 in 1995 increased from $2,245,000 in 1994
due primarily to the increase in the average amount of indebtedness outstanding
during the year ended December 31, 1995. Interest expense in 1995 includes a
full year of interest expense on the 14% Senior Subordinated Discount Notes
issued in November 1994, as compared to approximately five weeks of interest
expense in 1994. In addition, interest expense in 1995 also includes interest
expense related to the 12 1/4% Senior Subordinated Discount Notes issued in
September 1995 and the 8% Junior Subordinated Discount Note issued to Parent in
1995, for which there are no comparable amounts in 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
During the third quarter of 1993, the Company (i) sold a 49.5% interest in
the Wichita Falls System, (ii) sold the FCC licenses for the Texas-6 RSA (the
"Texas-6 License") and the South Dakota-7 RSA (the "South Dakota-7 License") and
(iii) exchanged the FCC license for the Louisiana-8 RSA (the "Louisiana-8
License") for the Abilene System. Accordingly, operating revenues of $3,809,000
(consisting of cellular service revenues of $3,702,000 and equipment sales of
$107,000) for the year ended December 31, 1993 were attributable to the disposed
four operating properties mentioned above, whereas operating
39
<PAGE>
revenues of $5,209,000 (consisting of cellular service revenues of $4,825,000
and equipment sales of $384,000) for the year ended December 31, 1994
represented the operations of the newly acquired markets since their respective
dates of acquisition on April 28, 1994 and November 23, 1994.
Total costs and expenses incurred in the year ended December 31, 1994 of
$11,217,000 increased from $4,444,000. The majority of the 1994 total costs and
expenses related to the newly acquired Systems while the total costs and
expenses in 1993 related to the Systems sold as mentioned above. Costs of
cellular service increased to $1,892,000 in 1994 from $835,000 in 1993 due to
the larger number of newly acquired markets in operation incurring system
telephone expenses and rental expenses on leased facilities. Cost of equipment
sold increased to $814,000 in 1994 from $255,000 in 1993 due to an increased
number of phones being sold in 1994. General and administrative expenses
increased to $4,640,000 from $1,280,000 primarily due to costs associated with
operating new markets and opening numerous administrative and retail offices in
1994. Sales and marketing expenses increased in 1994 to $1,151,000 from $379,000
in 1993 due to aggressive marketing kickoff campaigns for certain newly acquired
Systems. Depreciation and amortization increased to $2,720,000 in 1994 from
$1,695,000 in 1993 due to the larger amount of equipment and intangibles that
were owned in 1994.
Gain on sale of investments in cellular operations of $6,819,000 in 1994
related to the sale of the Company's remaining interest in the Wichita Falls
System as compared to the $11,986,000 gain on the sale of the Company's 49.5%
interest in the Wichita Falls System, the Texas-6 License, the South Dakota-7
License and the Company's minority interests in 1993.
Interest expense of $2,245,000 in 1994, increased from $458,000 in 1993 due
to the increase in the average amount of indebtedness outstanding (resulting
primarily from the Senior Subordinated Discount Notes issued in 1994) during the
year ended December 31, 1994.
A provision for income taxes in 1994 was not required as the Company
incurred a net taxable loss. The 1993 tax expense was due to alternative minimum
tax incurred due to the Company utilizing a portion of its net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The cellular telephone business requires substantial capital to acquire,
construct and expand cellular telephone systems and to fund operations. The
Company historically has financed its acquisitions and other capital needs
through 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 September 30, 1996, the Company had $25,234,000 of
cash and cash equivalents and $19,066,000 of working capital.
During February 1996, the Company acquired substantially all of the assets
of the system serving the PA-9 RSA (which represents 188,000 Pops) for $139 per
Pop, or $26,100,000 in cash. The PA-9 RSA abuts the Company's WV-2 RSA and
McCaw/AT&T Wireless' Pittsburgh, PA MSA. The payment was made by Parent, which
simultaneously contributed the System to the Company.
During April 1996, the Company consummated the acquisition of the NY-6 RSA
consisting of approximately 111,000 Pops for approximately $19,800,000.
Additionally, the Company acquired 83% of the Poughkeepsie, NY MSA which has
approximately 263,000 Pops for approximately $38,900,000, with one-half paid in
cash and the balance in the Poughkeepsie Note.
On July 1, 1996, the Company consummated the sale of its stand-alone AL-4
RSA for approximately $27,500,000 in cash, or $200 per Pop.
During July of 1996, the Company consummated the acquisition of the
non-wireline cellular system serving the WV-3 RSA for approximately $34,700,000
in cash. The WV-3 RSA has approximately 269,000 Pops and abuts the Company's
PA-9 RSA and WV-2 RSA.
40
<PAGE>
During October of 1996, the Company consummated an agreement with Vanguard
Cellular Systems, Inc., in which it exchanged certain of its Systems for, among
other things, the Orange County, NY MSA and an additional 11.1% of the Company's
majority-owned Poughkeepsie, NY MSA. Pursuant to the agreement, the Company
exchanged an aggregate of 548,016 Net 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 (324,323 Pops), 11.1% of the
Poughkeepsie, NY MSA (262,663 Pops), 12.2% of the Janesville, WI MSA (18,013 Net
Pops) and approximately 23,571 additional Net 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 Orange County, NY MSA abuts the Company's NY-5 RSA
to the north, the Company's Poughkeepsie, NY MSA to the east and the New York
City MSA of McCaw/AT&T Wireless to the south and east (bordering Westchester,
Putnam and Rockland counties).
On September 4, 1996, the Company entered into an agreement with a
subsidiary of BellSouth Corporation pursuant to which it will exchange, subject
to certain conditions including FCC approval, its stand-alone wireline Systems
in Alabama for both the WI-4 RSA and approximately $18,000,000 in cash ($2.0
million of which is attributable to a two year covenant not to compete). The
Systems to be exchanged are the Company's 136,816 Pop Florence, AL MSA and its
62,035 Pop AL-1B RSA. 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.
On November 18, 1996, the Company consummated an agreement with Wisconsin II
Venture in which it acquired the WI-2 RSA for approximately $4,300,000 in cash
($51 per Pop). The system is contiguous to the Company's Eau Claire MSA, WI-1
and WI-3 RSA's and its MI-1 RSA.
On September 30, 1996, Parent contributed $21,659,000 of capital in the form
of forgiving a junior subordinated note of equal principal amount.
During October 1996, the Company and Parent have entered into an agreement,
subject to certain conditions including FCC approval, with a subsidiary of
Horizon Cellular Telephone Company, L.P. to purchase four RSAs in Kentucky
consisting of approximately 775,000 Net Pops for $116,500,000 (subject to
adjustment) consisting of $94,000,000 in cash and $22,500,000 in the Parent's
Class A Common Stock. Parent has agreed to contribute to the Company $22.5
million in Parent's Class A Common Stock. This will establish the Company's
fourth operating cluster within two years of its initial public offering. The
acquisition will be financed by the issuance of debt securities.
In connection with the disposition of the MI-2 RSA, the Company received
gross proceeds of approximately $6,500,000.
There can be no assurance that the Company will be successful in
consummating the above-mentioned Pending Transactions.
The Company has expanded its marketing efforts significantly over prior
periods, including but not limited to, the increased use of funds for
advertising, cellular telephone inventory purchases and other expenditures
relating to subscriber growth. The Company has plans for future growth through
acquisition which may require additional financing. Although the Company has
historically been able to obtain such financing, there can be no assurances that
such financing will continue to be available.
41
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 1997; provided, however, that if the Company, in its
sole discretion, has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended.
As of the date of this Prospectus, $170,000,000 aggregate principal amount
of the Old Notes was outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about the date set forth on the cover
page to all Holders of Old Notes at the addresses set forth in the security
register with respect to Old Notes maintained by the Trustee. The Company's
obligations to accept Old Notes for exchange pursuant to the Exchange Offer is
subject to certain conditions as set forth under "Certain Conditions to the
Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance of any Old Notes, by giving oral or written notice of
such extension to the Exchange Agent and notice of such extension to the Holders
as described below. During any such extension, all Old Notes previously tendered
will remain subject to the Exchange Offer and may be accepted for exchange by
the Company. Any Old Notes not accepted for exchange for any reason will be
returned without expense to the tendering Holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "Certain Conditions to the Exchange Offer." The Company
will give oral or written notice of any extension, amendment, non-acceptance or
termination to the Holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation
Law of the State of Delaware or the Indenture in connection with the Exchange
Offer. The Company intends to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of the
SEC thereunder.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to The Bank of Montreal Trust Company
(the "Exchange Agent") at one of the addresses set forth below under "Exchange
Agent" on or prior to the Expiration Date. In addition, (i) certificates for
such Old Notes must be received by the Exchange Agent along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company (The "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange
42
<PAGE>
Agent prior to the Expiration Date or (iii) the Holder must comply with the
guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD
NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED
THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY, NO
LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than
the person signing the Letter of Transmittal, the Old Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered Holder with the
signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right in its
sole discretion to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer as to any particular Old Notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with the tenders of
Old Notes for exchange must be cured within such reasonable period of time as
the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered Holder or Holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company of its authority to so act
must be submitted.
By tendering, each Holder will represent to the Company that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, (ii) neither the Holder nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, (iii) if the Holder is not a
broker-dealer, or is a broker-dealer but will not
43
<PAGE>
receive New Notes for its own account in exchange for Old Notes, neither the
Holder not any such other person is engaged in or intends to participate in the
distribution of such New Notes and (iv) neither the Holder nor any such other
person is an "affiliate," as defined under Rule 405 of the Securities Act, of
the Company. If the tendering Holder is a broker-dealer that will receive New
Notes for its owns account in exchange for Old Notes that were acquired as a
result of market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "Certain Conditions to the Exchange Offer" below. For purposes of
the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, a properly completed and duly executed Letter of Transmittal
and all other required documents. If any tendered Old Notes are not accepted for
any reason set forth in the terms and conditions of the Exchange Offer or if
certificates representing Old Notes are submitted for a greater principal amount
than the Holder desires to exchange, such unaccepted or non-exchanged Old Notes
will be returned without expense to the tendering Holder thereof (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from November 6, 1996, payable semiannually
on May 1 and November 1, of each year commencing on May 1, 1997, at the rate of
10 3/4% per annum. Holders of Old Notes whose Old Notes are accepted for
exchange will be deemed to have waived the right to receive any payment in
respect of interest on the Old Notes accrued from November 6, 1996 until the
date of the issuance of the New Notes. Consequently, holders who exchange their
Old Notes for New Notes will receive the same interest payment on May 1, 1997
(the first interest payment date with respect to the Old Notes and the New
Notes) that they would have received had they not accepted the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer promptly after the date of this Prospectus. Any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry delivery of Notes by causing the Book-Entry Transfer
Facility to transfer such Notes into the Exchange Agent's account in accordance
with the Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP")
procedures for transfer. However, the exchange for the Notes so tendered will
only be made after timely confirmation of such book-entry transfer of Notes into
the Exchange Agent's account, and timely receipt by the Exchange Agent of an
Agent's Message (as such term is defined in the next sentence) and any other
documents required by the Letter of Transmittal. The term "Agent's Message"
means a message, transmitted by the Book-Entry Transfer Facility and received by
the Exchange Agent and forming a part of a Book-Entry Confirmation, which states
that the Book-Entry Transfer Facility has
44
<PAGE>
received an express acknowledgment from a participant tendering Notes that are
the subject of such Book-Entry Confirmation that such participant has received
and agrees to be bound by the terms of the Letter of Transmittal, and that the
Company may enforce such agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book- entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the Holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within five New York
Stock Exchange "(NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates of all physically tendered Old Notes,
in proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent, and (iii) the certificates
for all physically tendered Old Notes, in proper for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing Holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
Holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such Holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any note of withdrawal must specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the Holder thereof without cost to such Holder (or, in the case
of Old Notes tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
45
<PAGE>
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, such acceptance or issuance would violate applicable
law or any interpretation of the staff of the SEC.
The foregoing condition is for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise the foregoing rights shall not be deemed a waiver of any such right
and each such right shall be deemed on ongoing right which may be asserted at
any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as amended
(the "TIA").
EXCHANGE AGENT
The Bank of Montreal Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or of
the Letter of Transmittal and requests for Notices of Guaranteed Delivery should
be directed to the Exchange Agent, addressed as follows:
Deliver To:
The Bank of Montreal Trust Company, Exchange Agent
By Mail or By Hand:
77 Water Street
New York, New York 10005
Attention: Amy Roberts
By Facsimile:
(212) 701-7684
Confirm by Telephone:
(212) 701-7650
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by officers and
regular employees of the Company and its affiliates. No additional compensation
will be paid to any such officers and employees who engage in soliciting
tenders. The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the
46
<PAGE>
Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
$125,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that Holders who instruct the
Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer to be returned to, a person other
than the registered tendering Holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
the Old Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company does not
intend to register the Old Notes under the Securities Act. The Company believe
that, based upon interpretations contained in letters issued to third parties by
the staff of the SEC, New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by each Holder thereof (other than a broker-dealer, as set forth
below, and any such Holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such Holder's
business and such Holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes. If any Holder has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such Holder (i) could not rely on
the applicable interpretations of the staff of the SEC and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the New Notes may not be offered or sold
unless they have been registered or qualified for sale in such jurisdiction or
an exemption from registration or qualification is available and is complied
with. The Company does not currently intend to take any action to register or
qualify the New Notes for resale in any such jurisdiction.
47
<PAGE>
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. The Company operates its Systems principally in the
Midwest and Mid-Atlantic regions in addition to markets north of New York City
and south of Albany, NY. As of September 30, 1996 on an actual basis, the
Company owned cellular interests representing approximately 4.2 million Net Pops
and had approximately 136,000 subscribers. The Company sells and markets its
products and services principally under the CELLULARONE-Registered Trademark-
brand name through a distribution network of over 60 full service retail
locations, a direct sales force and a small, select group of agents. In
addition, the Company has formed a strategic alliance with McCaw/AT&T Wireless,
a principal stockholder, allowing it to take advantage of McCaw/AT&T Wireless'
acquisition experience, vendor discounts, centralized "back office" functions
and joint marketing opportunities in markets which are adjacent to McCaw/AT&T
Wireless markets.
Through selective acquisitions and asset swaps, the Company has concentrated
its efforts on creating an integrated network of cellular systems in contiguous
service areas. After giving effect to the Pending Transactions (each of which is
subject to certain conditions, including FCC approval) and the Recent
Transactions, the Company will own cellular interests representing approximately
4.7 million Net Pops with approximately 144,000 subscribers, representing a
penetration rate of 3.0%. These interests consist principally of four large
operating clusters of cellular Systems:
UPPER MIDWEST CLUSTER--a 1.7 million Net Pop cluster of 14 non-wireline
Systems covering approximately 70,000 contiguous square miles in Minnesota,
Wisconsin and Michigan.
MID-ATLANTIC CLUSTER--an 853,000 Net Pop cluster of five contiguous
non-wireline Systems consisting of five RSAs in Ohio, Pennsylvania and West
Virginia covering more than 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 New York City and the Albany, NY MSA of Southwestern Bell.
KENTUCKY CLUSTER--a 775,000 Net Pop cluster of four RSAs adjacent to
Louisville and Lexington, KY. These 38 counties cover more than 13,000
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 260,058 Net Pops, and certain other cellular interests.
During the first nine months of 1996, the Company's customer base increased
from 78,227 to 135,840. This significant growth in subscribers was due to both
acquisitions and increased penetration of its existing markets. Revenues and
EBITDA of the Company were $81.0 million and $30.6 million, respectively, for
the nine months ended September 30, 1996, in each case before giving effect to
the Pending Transactions. On a pro forma basis, after giving effect to the
Recent Transactions and the Pending Transactions, the revenues and EBITDA of the
Company for the nine months ended September 30, 1996 would have been $94.2
million and $35.8 million, respectively. See "Unaudited Pro Forma Condensed
Consolidated Financial Statements".
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
48
<PAGE>
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, they are less likely to
face the level of competition expected to be experienced in large urban areas.
The Company intends to pursue additional acquisitions consistent with its growth
strategy and is currently engaged in a variety of preliminary discussions with
respect to possible acquisitions. There can be no assurances that the Company
will seek to acquire or be successful in acquiring any of such systems.
OPERATING STRATEGY
Management believes that certain of its Systems and the Systems to be
acquired in the Pending Transactions are in the early stages of their growth
cycle and afford significant opportunities for improvements in management and
operating performance. 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 all hiring, marketing,
distributions, 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 cash
flow and reduce churn and their compensation is linked to their ability to meet
or exceed their budgeted goals. The Company believes its decentralized
management structure fosters a strong sense of customer service and community
spirit, enables it to customize its marketing strategy to the needs of the local
market, and eliminates 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
competitive challenges.
AGGRESSIVE MARKETING AND PROMOTING OF CELLULAR SERVICE. After selectively
upgrading the engineering in its cellular network, the Company implements
aggressive marketing programs to increase subscriber activations and reduce
churn. Many of these 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 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 in excess of 60 retail locations.
Management believes that this local presence enhances its ability to provide
higher quality customer service, and that on average customers who purchase
cellular service directly from
49
<PAGE>
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 independent 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, maintaining 24-hour customer service and active ongoing
contact with new customers. The Company believes that its emphasis on superior
customer service has helped reduce its average monthly churn rate. For example,
the Company's average monthly churn rate for the nine months ended September 30,
1996 was 1.6%.
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
in response to 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 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 efficiency of the network.
50
<PAGE>
CELLULAR MARKETS AND SYSTEMS
The Company has concentrated its efforts on creating an integrated network
of cellular systems in each of its operating clusters. The table below
summarizes certain information concerning the Company's markets after giving
effect to the Pending Transactions. See "Acquisitions and Dispositions--Pending
Transactions".
<TABLE>
<CAPTION>
TOTAL DATE OF
MARKET(A) POPS OWNERSHIP NET POPS ACQUISITION
- ------------------------------------------------------------ ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
UPPER MIDWEST CLUSTER
Duluth, MN/Superior, WI MSA............................... 241,467 100.0 % 241,467 04/28/94
Eau Claire, WI MSA........................................ 143,190 97.1 % 139,610 04/28/94
Wausau, WI MSA............................................ 121,262 94.4 % 114,483 03/28/95
MN-2A RSA................................................. 38,236 100.0 % 38,236 07/07/95
MN-3 RSA.................................................. 59,388 100.0 % 59,388 04/28/94
MN-4 RSA.................................................. 15,075 49.0 % 7,387 07/27/95
MN-5 RSA.................................................. 205,456 100.0 % 205,456 07/07/95
MN-6 RSA.................................................. 219,149 100.0 % 219,149 11/23/94(b)
WI-1 RSA.................................................. 109,248 100.0 % 109,248 04/28/94
WI-2 RSA.................................................. 84,925 100.0 % 84,925 11/18/96
WI-3 RSA.................................................. 139,189 100.0 % 139,189 11/23/94(b)
WI-4 RSA.................................................. 117,347 100.0 % 117,347 pending(c)
WI-6A RSA................................................. 32,734 100.0 % 32,734 11/23/94(b)
MI-1 RSA.................................................. 208,779 100.0 % 208,779 03/07/95
MID-ATLANTIC CLUSTER
OH-7 RSA.................................................. 254,949 100.0 % 254,949 09/27/95
OH-10A RSA................................................ 61,785 100.0 % 61,785 09/29/95
PA-9 RSA.................................................. 187,551 100.0 % 187,551 02/02/96
WV-2 RSA.................................................. 79,307 100.0 % 79,307 12/20/95
WV-3 RSA.................................................. 269,413 100.0 % 269,413 07/23/96
NEW YORK CLUSTER
Orange County, NY MSA..................................... 324,323 100.0 % 324,323 10/17/96
Poughkeepsie, NY MSA...................................... 262,663 94.8 % 248,932 04/23/96
NY-5 RSA.................................................. 383,960 100.0 % 383,960 12/29/95
NY-6 RSA.................................................. 111,023 100.0 % 111,023 04/23/96
KENTUCKY CLUSTER
KY-4 RSA.................................................. 242,816 100.0 % 242,816 pending(c)
KY-5 RSA.................................................. 156,107 100.0 % 156,107 pending(c)
KY-6 RSA.................................................. 256,852 100.0 % 256,852 pending(c)
KY-8 RSA.................................................. 118,814 100.0 % 118,814 pending(c)
SOUTHWESTERN BELL JOINT VENTURE
Laredo, TX MSA............................................ 168,924 44.5 % 75,171 11/30/95(b)
IL-4 RSA.................................................. 216,023 44.5 % 96,130 11/30/95(b)
IL-6 RSA.................................................. 199,453 44.5 % 88,757 11/30/95(b)
OTHER INTERESTS............................................. n/a n/a 74,646 various
---------- ----------
Total................................................. 5,029,408 4,747,934
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(a) All of the Company's licenses are non-wireline licenses with the exception
of the license for the Laredo, TX MSA.
(b) Assumes the acquisition of the remaining shares of CIS. On November 23,
1994, the Company acquired approximately 90.8% (on a fully diluted basis) of
the equity of CIS. As of September 30, 1996, the Company owned approximately
93.3% (on a fully diluted basis) of the equity of CIS.
(c) Represents systems to be acquired by the Company as described under
"Acquisitions and Dispositions--Pending Transactions". These acquisitions
are not expected to be consummated prior to the closing of this Offering.
There can be no assurances that the Company will be successful in
consummating the Pending Transactions.
51
<PAGE>
MARKETS
UPPER MIDWEST CLUSTER
The Upper Midwest Cluster consists of approximately 1.7 million Net Pops in
14 contiguous Systems and covers approximately 70,000 square miles. The Systems
in the Upper Midwest Cluster all operate under the
CELLULARONE-Registered Trademark- brand name.
The Duluth/Superior market is the second largest market in Minnesota in
terms of population, according to Donnelly Market Information Service, and the
largest tourist destination in the upper Midwest, attracting more than 3.5
million tourists annually. The Company collects substantial roaming revenues in
this market from cellular telephone subscribers from other Systems who visit the
Duluth/ Superior area. The market also includes two universities each with more
than 10,000 students, the University of Minnesota at Duluth and the University
of Wisconsin at Superior.
The Eau Claire market is strategically located between Minneapolis/St. Paul
and other large midwest cities such as Milwaukee, Madison and Chicago. In 1994,
Entrepreneur magazine named Eau Claire one of the 25 best cities in America for
small businesses and ranked Eau Claire as the third best small city in America
for small businesses.
The largest cellular service area in the Upper Midwest Cluster in terms of
population, according to the Donnelley Market Information Service, is the MN-6
market, a significant resort and tourist destination. The market covers more
than 75 miles of I-35, the main interstate between Duluth and Minneapolis.
The MN-5 RSA, situated between Minneapolis/St. Paul and Fargo, ND, includes
more than 80 miles of I-94. It includes Becker County with over 300 lakes and
the towns of Alexandria and Fergus Falls, MN. The MN-2 market, which consists of
Beltrami County, sits to the north of the MN-6 RSA and includes the resort
destination of Bemidji, MN. MN-3's main population centers are International
Falls and Grand Rapids, MN, which the Company believes have strong communities
of interest with Duluth.
The WI-3 market includes important recreational and vacation areas in
northeastern Wisconsin. Rhinelander, the RSA's largest city, serves as a
regional economic and cultural hub. The Wausau, WI MSA comprises Marathon
County.
In addition, the Company's Upper Midwest Cluster includes the western
portion of the upper peninsula of Michigan. The MI-1 RSA has more than 200,000
Pops and is an important year-round vacation destination for many residents of
Detroit and other midwest cities.
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-Registered Trademark- 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, being a single cellular service provider
to corporate accounts, allowing calls to be handed-off between cell sites that
cross market borders and reducing the number of dropped calls as subscribers
exit an individual license area.
THE MID-ATLANTIC CLUSTER
The Mid-Atlantic Cluster comprises approximately 853,000 Net Pops and
includes portions of southeastern Ohio as well as adjacent portions of
Pennsylvania and northern West Virginia south of Pittsburgh. This contiguous
region spans five RSAs. Prior to the Company's acquisition of the Mid-Atlantic
Cluster, the Systems constituting the Mid-Atlantic Cluster were owned by three
distinct companies and operated as separate markets with separate switching
equipment. Management believes that the operation of these contiguous Systems as
a cluster will generate significant operational and marketing synergies. In
52
<PAGE>
addition, the Mid-Atlantic Cluster abuts Columbus, OH and three MSAs owned by
McCaw/AT&T Wireless including its Pittsburgh, PA System, affording the
opportunity for joint marketing and promotions.
The OH-7 RSA is an important RSA east of Columbus, OH and abuts four MSAs
including Canton, OH, the Parkersburg, WV/Marietta, OH MSA and two McCaw/AT&T
Wireless MSAs. The OH-7 RSA's principal population center is the city of
Zanesville, OH, which serves as a manufacturing, retail and medical center for
much of southeastern Ohio. The RSA includes over 60 miles of I-70 between
Columbus, OH and Pittsburgh, PA and over 75 miles of I-77 south of Cleveland,
OH.
The WV-3 RSA (269,413 Pops) is situated between the Company's PA-9 and WV-2
RSAs. This RSA includes the cities of Morgantown and Clarksburg, WV and is part
of the Pittsburgh, PA MSA. The Monongalia region of nearly 100,000 Pops,
centered in Morgantown, has experienced increased economic growth in recent
years, with strong growth coming from West Virginia University as well as the
relocation of the FBI's main fingerprinting facility to the RSA. The region is a
medical hub for adjacent counties, due in part to recent expansions of the
Robert C. Byrd Health Sciences Center. The region includes significant tourist
attractions such as white water rafting and other recreational activities. Major
highways I-79 and I-68 intersect in Morgantown and I-79 serves as the main route
south from Pittsburgh. The Mid-Atlantic Cluster also includes Uniontown, PA, a
residential community of Pittsburgh, PA.
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 McCaw/AT&T Wireless' New York City MSA and is located between the
New York City MSA and Southwestern Bell's Albany, NY MSA. See "Acquisitions and
Dispositions--Recent Transactions". With the recent 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 the 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 destinations 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 Thruway (I-87), approximately 50 miles of I-84 and 35
miles of Route 17.
The Dutchess County, NY MSA includes the towns of Poughkeepsie, Hyde Park,
Rhinebeck and Fishkill, NY and is one of the wealthiest metropolitan areas in
the country. It contains over 80 highway miles, including 18 miles of I-84 and
40 miles of the Taconic State Parkway and is the home of Vassar College. The
Hudson Valley area has become an attractive location for small high technology
ventures, due, in part, to aggressive government and community support.
The NY-5 RSA consists of the central New York counties of Sullivan, Ulster,
Ostego, Delaware and Schohaire. The 383,960 Pop RSA abuts six other New York
MSAs including the Albany, Binghamton and Orange County MSAs. The southern
portion of the RSA consists of the Catskills Region, renowned for summer resorts
(such as the Concord) and vacation homes. The RSA includes the Baseball Hall of
Fame in Cooperstown; the Soccer Hall of Fame in Oneonta, NY; Woodstock, NY;
Monticello Raceway and many other notable destinations in the Hudson River
Valley. Much of the northeast portion of the RSA serves as a residential
community of the Albany/Schenectady, NY area.
The NY-5 RSA market is the eighth largest RSA (out of 415) and ranks 29th in
terms of household incomes greater than $50,000. It contains 112 miles of
interstate highways, including portions of I-87 between New York City and
Albany, portions of I-88 between Albany and Binghamton and approximately
53
<PAGE>
90 miles of Route 17. In addition, the RSA contains two bridge crossings of the
Hudson River, each used by more than four million vehicles per year.
The NY-6 RSA comprises Greene and Columbia counties and contains numerous
recreational and transit destinations such as the Hunter Mountain ski resort
area and Ski Windham. The market also contains 30 miles of the New York State
Thruway and other highway corridors.
THE KENTUCKY CLUSTER
The Kentucky Cluster consists of four RSAs consisting of approximately
775,000 Pops and 13,000 square miles. Three of the 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
119,000 Pop KY-8 RSA serves the northeastern suburbs of Lexington.
The economy in the region is diverse, supported by tourism as well as
rubber, automotive and apparel manufacturing (including plants of Oshkosh
B'Gosh, Fruit-of-the-Loom and Jockey International). The region also includes
Fort Knox, an important military base and the nation's gold depository.
This 38 county cluster contains important highways which serve as major
roaming corridors. The cluster boasts more that 50 miles of I-65 between
Louisville and Nashville, 70 miles of I-75 between Lexington and Knoxville and
50 miles of I-64 between Lexington and Huntington, WV.
The RSAs, particularly the KY-5 RSA, serve as a regional resort destination
and include Lake Cumberland, a recreational attraction that drew over six
million tourists in 1995.
The cluster's main administrative office is in Richmond, KY approximately 30
miles from downtown Lexington, KY and the home of Eastern Kentucky University.
The Kentucky Cluster also includes the cities of Elizabethtown, Somerset,
Glasgow and Danville, KY.
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 Bell Joint Venture"). The Company owns 44.5% of the Systems
serving the combined 584,400 Pops, or 260,058 Net Pops. The Southwestern Bell
Joint Venture was consummated on November 30, 1995.
Pursuant to the Southwestern Bell Joint Venture, the Company will receive
distributions in the first four years of the Southwestern Bell Joint Venture
increasing from $3.3 million in the first year to $5.8 million in the last year.
The Company will have the option to remain in the Southwestern Bell Joint
Venture for four years or "put" its Joint Venture interest in the Southwestern
Bell 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 will have the
right to purchase the Company's interest during the first year at approximately
$56.0 million or on the day prior to Southwestern Bell 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 Bell Joint
Venture.
CELLULAR OPERATIONS
GENERAL
The Company has concentrated its recent efforts on creating an integrated
network of Systems in its operating clusters. The Company operates four clusters
of Systems as well as Systems in certain other markets and holds minority
interests in several Systems. As of September 30, 1996 on a pro forma basis,
54
<PAGE>
the Company had approximately 144,000 subscribers. Through the participation of
its non-wireline Systems in NACN (as described below) 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.
The following table sets forth certain information with respect to the
performance of the Company's Systems for the periods indicated. The pro forma
results give effect to the Pending Transactions and other transactions described
under "Unaudited Pro Forma Condensed Consolidated Financial Data". Accordingly,
the pro forma results set forth below principally relate to periods during which
the Company did not own or operate certain of such Systems and therefore the
Company does not believe they are necessarily indicative of the performance of
these Systems under the Company's management.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, 1996 ---------------------------------
---------------------- PRO FORMA ACTUAL ACTUAL
PRO FORMA ACTUAL 1995 1995 1994
----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ending subscribers(1)...................................... 143,953 135,840 99,651 78,227 17,344
Ending penetration(2)...................................... 3.0% 3.2% 2.1% 2.2% 1.0%
Average marketing costs per net subscriber addition(3)..... $ 428 $ 377 $ 544 $ 403 n/a
Average monthly revenue per subscriber(4).................. $ 80 $ 85 $ 84 $ 107 n/a
Churn(5)................................................... 1.8% 1.6% 2.8% 2.3% n/a
</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) Determined by dividing the amount of marketing costs for such period by the
net subscribers added during such period. Marketing cost represents all
selling expenses and losses incurred on equipment sales.
(4) Represents the ratio of total service revenues to average monthly
subscribers.
(5) Represents the average monthly churn for the periods presented. Churn equals
the ratio of disconnected monthly subscribers to average monthly
subscribers.
55
<PAGE>
Management believes that each of its Systems and certain of the Systems to
be acquired pursuant to the Pending Transactions 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.
Management believes that, prior to the Company's assumption of ownership, many
of the 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. 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.
The Company has formed a strategic alliance with McCaw/AT&T Wireless which
allows it to take advantage of McCaw/AT&T Wireless' acquisition experience,
certain vendor discounts and certain services provided by McCaw/AT&T Wireless
including a variety of centralized "back office" functions. The Company believes
that purchasing cellular telephones at the volume discounts afforded by the
McCaw/ AT&T Wireless relationship allows the Company to minimize one of the
major costs associated with new subscriber additions. The volume discounts also
permit the Company to reduce the capital expenditures required for the Company's
system development and expansion. PriCellular believes that the proximity of
three of its operating clusters to McCaw/AT&T Wireless' Systems affords
significant opportunities for joint marketing, promotions and other programs.
The Company's Upper Midwest Cluster is contiguous to McCaw/AT&T Wireless'
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 MSA
and Wheeling, WV MSAs owned by McCaw/AT&T Wireless. The Company's New York
Cluster abuts the northern border of McCaw/AT&T Wireless' 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).
SUBSCRIBERS AND SYSTEM USAGE
The Company's cellular subscribers have increased from approximately 17,000
as of December 31, 1994 to, on a pro forma basis, approximately 144,000 as of
September 30, 1996. 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 nonbusiness 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-Registered Trademark-, 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 the Company's service areas and with potential new subscribers
moving into the Company's service areas. In addition, travelers who subscribe to
CELLULARONE-Registered Trademark- service in other markets may be more likely to
use the Company's service when they travel in the Company's service areas,
primarily due to the technical operation of the cellular telephone. Cellular
56
<PAGE>
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 subscribers in
its 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 4,500 cities, or approximately 90% of the cities in the United States
and Canada. By dialing subscribers' cellular telephone numbers, the caller can
reach 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 average monthly revenues and lower than average churn rates, while
simultaneously maintaining a relatively 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 low both directly, because commissions are lower, and
indirectly, because subscriber retention is higher than when independent agents
are used.
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
September 30, 1996, the Company maintained approximately 60 retail locations (70
locations on a pro forma basis). 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. The Company also sells cellular equipment at discount prices as
a way to encourage use of its mobile services. The Company continually reviews
its equipment and service pricing in order to maintain its competitive position.
57
<PAGE>
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. Generally, 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, 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 servicing pricing is
maintained to ensure the Company's competitiveness. As appropriate, revisions to
pricing of service plans and equipment are made to meet the demands of the local
marketplace.
Reciprocal agreements between each of the Company's cellular systems and the
cellular systems of other operators allow their respective subscribers to place
calls in most cellular service areas throughout the country. Roamers are charged
usage fees which are generally higher than a given cellular system's regular
usage fees, thereby resulting in a higher profit margin on roaming revenue.
Roaming revenue is a substantial source of incremental revenue for the Company
due in part to the fact that a number of the Company's cellular systems are
located along major travel corridors and because certain of the Company's
Systems are in the early stages of their growth cycle.
In an effort to provide comprehensive availability of mobile communications
services to its customers throughout North America, the Company has entered into
a distribution agreement with American Mobile Satellite Corporation ("AMSC").
AMSC is licensed by the FCC to provide mobile satellite communication services
which will complement and may compete with the existing terrestrial cellular
system, providing mobile voice, fax and data communications in all areas whether
or not covered by cellular service. Subscribers will gain access to AMSC's
satellite through a cellular/satellite mobile phone which will route calls
through the cellular network in those areas covered by cellular service and will
process the call via satellite in the absence of cellular coverage.
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
installation and repair facilities and a local staff, including a market
manager, customer service representatives, technical and engineering staff and
sales representatives. 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 service customers better, 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 service areas.
In addition, the Company's customers generally are able to report cellular
telephone service or account problems 24-hours a day 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 designed to increase capacity and to improve coverage in response
to projected subscriber demand and in response to competitive factors. Projected
subscriber demand is
58
<PAGE>
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 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 efficiency of the network. The Company believes that
the increased cellular coverage will have a positive impact on market
penetration and subscriber usage.
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.
DIGITAL CELLULAR TECHNOLOGY
Over the next decade, it is expected that many cellular systems will convert
from analog to digital technology. This conversion is 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, certain calls
may be unable to be completed, especially during peak hours. Digital technology
increases system capacity and offers other advantages, often including improved
overall average signal quality, improved call security, potentially lower
incremental costs for additional subscribers and the ability to provide data
transmission services. The conversion from analog to digital technology is
expected to be an industry-wide process that will take a number of years to
complete. The exact timing and overall costs of such conversion are not yet
known. 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.
The Company prefers the TDMA technology for its Systems. The Company's
switches and many of its cell sites are equipped to provide such digital
service. The Company expects to install digital cells in certain of its Systems
beginning in early 1997. The Company's preference for TDMA ensures that the
services provided by the Company will be compatible with the digital cellular
systems currently operated by McCaw/AT&T Wireless in the New York, NY MSA, the
Minneapolis/St. Paul MSA and the Pittsburgh, PA MSA, as well as the cellular
systems operated by Southwestern Bell in upstate New York.
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-Registered Trademark- 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 expects to compete against three distinct operators.
59
<PAGE>
The following chart lists the Company's cellular competitors in each of its
main clusters and the major adjoining operators.
<TABLE>
<CAPTION>
COMPANY CLUSTER CELLULAR COMPETITORS ADJOINING SYSTEMS
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Upper Midwest Cluster US West Cellular McCaw/AT&T Wireless
United States Cellular Corp. BellSouth
CelluLink Western Wireless
Cellular 2000
CellCom
Century Telephone Enterprises
Mid-Atlantic Cluster United States Cellular Corp. McCaw/AT&T Wireless
Wireless One Network Airtouch/Cellular
Ameritech Communications, Inc.
Bell Atlantic NYNEX Vanguard
New York Cluster Bell Atlantic NYNEX Bell Atlantic NYNEX
McCaw/AT&T Wireless
Southwestern Bell
Vanguard
Kentucky Cluster BellSouth Mobility GTE Corp.
Ramcell, Inc. United States Cellular Corp.
Bluegrass Cellular
</TABLE>
TELECOMMUNICATIONS ACT OF 1996; OTHER REGULATORY DEVELOPMENTS
The Telecommunications Act of 1996 ("Telecom Act") is the first legislation
enacted in over sixty years that attempts comprehensive reform of
telecommunications regulation, although the legislation did not have as a
principal focus the cellular industry. In general, the Telecom Act's goal is to
remove the statutory, regulatory and court-ordered barriers that historically
prohibited new entrants into many segments of the telecommunications industry.
To facilitate the entry of competitors, the Telecom Act imposes certain
interconnection and equal access requirements on local exchange carriers. The
FCC adopted rules on telephone number portability pursuant to which subscribers
will be able to migrate their landline telephone numbers to a cellular carrier
or other CMRS or landline carrier, or from a cellular carrier to another CMRS
carrier or a landline carrier.
In August 1996, the FCC released its decision implementing the
interconnection portions of the Telecom Act. In September 1996, the FCC issued a
reconsideration of certain aspects of that decision. The FCC's decision is
complex and has been the subject of a number of petitions for additional
reconsideration and judicial review. In September 1996, the United States Court
of Appeals for the Eighth Judicial Circuit temporarily stayed the effectiveness
of the FCC's interconnection decision. The Company cannot predict the eventual
outcome of the interconnection proceeding and judicial review or the effects of
the eventual implementation of the interconnection provisions or other aspects
of the Telecom Act.
The FCC's interconnection decision concluded that CMRS providers are
entitled to reciprocal compensation arrangements with incumbent local exchange
carriers and prohibited a local exchange carrier 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. Under these
guidelines, states must set arbitrated rates for interconnection and access to
unbundled elements based upon local exchange carriers' long-run incremental
costs, plus a reasonable share of forward-looking joint and common costs. In
lieu of such cost-based rates, the FCC also established for use
60
<PAGE>
by states a benchmark range of 0.2 per minute for end office termination pending
further cost-based studies, and subject to a possible "true-up" payment later.
In its interconnection decision, the FCC declined to require cellular
carriers to comply with certain interconnection provisions of the
Telecommunications Act of 1996 applicable to local exchange carriers. Prior to
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. Since then,
the FCC has stated that it would revisit this issue in the future.
The Telecom Act requires all carriers providing interstate services to
contribute to a federal universal service support mechanism to be established by
the FCC. The Company cannot predict the outcome of the FCC's proceeding, which
may require cellular carriers to pay charges to support universal service.
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 PCS and 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 which 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 to the Communications Act of 1934, as
amended, Congress preempted state or local regulation of the entry of, or rates
charged by, any CMRS or private mobile service carrier. However, states were
allowed to petition the FCC for authority to continue their authority to
regulate rates and entry by August 10, 1994. Eight states filed petitions for
authority to continue such regulation and the FCC denied all of them. States may
also petition to engage in new rate and entry regulation of CMRS carriers, but
to date no state has filed such a petition.
SERVICE MARKS
CELLULARONE-Registered Trademark- 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 McCaw/AT&T Wireless and Vanguard Cellular Systems, Inc.
The Company uses the CELLULARONE-Registered Trademark- 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
As of September 30, 1996, the Company had approximately 500 employees. In
addition, as of such date, the Company had agreements with numerous 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.
61
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ----------------------------------------------------- ----------- -----------------------------------------------------
<S> <C> <C>
Robert Price......................................... 64 Director, President and Assistant Treasurer
Stuart B. Rosenstein................................. 36 Senior Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
Kim I. Pressman...................................... 39 Director, Vice President, Assistant Treasurer and
Secretary
Steven Price......................................... 34 Director, Senior Vice President, Corporate
Development
Andrew M. Davies..................................... 34 Vice President, Intercarrier Services
Steven D. Flatow..................................... 42 Vice President, Marketing
Michael H. Wasserman................................. 53 Controller
Brion B. Applegate................................... 42 Director
Scott M. Sperling.................................... 38 Director
</TABLE>
Robert Price has been a Director, President and Assistant Treasurer of
PriCellular since August 1994 and of Parent since 1990. Mr. Price concurrently
serves as and has been a director and the Chief Executive Officer and President
of Price Communications since 1979. In 1992 Price Communications filed for
protection from creditors pursuant to Chapter 11 of the United States Bankruptcy
Code. Price Communications' Amended Plan of Reorganization was confirmed on June
11, 1992 and became effective on December 30, 1992. 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, Mr. Price became Executive Vice
President of The Dreyfus Corporation and an Investment Officer of The Dreyfus
Fund. In 1972 he joined Lazard Freres & Co. Mr. 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. Mr. Price serves as the Representative of The
Majority Leader and President Pro Tem of the New York Senate on the Board of
Directors of the Municipal Assistance Corporation for the City of New York. In
May 1996 Mr. Price was appointed by Governor George Pataki of New York, and
unanimously approved by the New York State Senate in June 1996, to a seven year
term as a Member of the Board of Trustees of the City University of New York.
Mr. Price is also a Director and President of TLM Corporation. Mr. 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 ("Stockholders Agreement").
Stuart B. Rosenstein has been Senior Vice President, Chief Financial Officer
and Assistant Secretary of PriCellular since August 1994 and of Parent since
December 1993. Mr. Rosenstein has also served as Treasurer of the Company since
December 1994. From 1990 to December 1993, he was Parent's Vice President and
Controller. 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.
62
<PAGE>
Kim I. Pressman has been a Director, Vice President and Secretary of
PriCellular since August 1994 and of Parent since 1990. Ms. Pressman also served
as the Treasurer of Parent from 1990 and of PriCellular from August 1994, in
each case, 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.
Steven Price has been a Senior Vice President, Corporate Development of
PriCellular and Parent since December 1994 and prior thereto was Director of
Business Development of PriCellular since August 1994 and of Parent since April
1993. He has been a Director since September 1996. 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. Mr. Price is a member of the Board of
Directors of the Cellular Telecommunications Industry Association (CTIA). Steven
Price is a director of Price Communications, Vice President and Secretary of TLM
Corporation and is the son of Robert Price.
Andrew M. Davies has been Vice President, Intercarrier Operations of the
Company and Parent since October 1996. Prior to joining the Company, Mr. Davies
spent more than four years at AT&T Wireless Services, Inc. (and its predecessor,
McCaw Cellular Communications, Inc.) including stints as Manager of Intercarrier
Services and Senior Analyst, Finance. Mr. Davies, a certified public accountant
and certified managerial accountant, graduated with a B.A. in accounting from
the University of Washington.
Steven D. Flatow has been a Vice President of Marketing of the Company and
Parent since August 1996. From 1994 to 1996, Mr. Flatow owned and operated SDF
Management Group, a retainer-based consulting firm serving clients in the
sports, television and promotion industries. From 1986 to 1994, Mr. Flatow
worked for National Hockey League Enterprises, Inc., where he held many
positions from Director of Marketing and Sales to Vice President, Director of
Marketing. Mr. Flatow has a B.A. degree from Cornell University and an MBA from
the University of Chicago Graduate School of Business.
Michael H. Wasserman has been Controller of the Company and Parent since
March 1996. Prior to joining the Company, Mr. Wasserman served as Vice
President, Finance for Sam & Libby, Inc. and prior thereto worked in the apparel
business. Mr. Wasserman, a certified public accountant, has a B.S. degree from
Hunter College.
Brion B. Applegate has been a Director of PriCellular and of Parent since
June 1994. He is a founder and general partner of 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. The right of Spectrum
to nominate a director and a member of the Executive Committee has subsequently
terminated.
Scott M. Sperling has been a director of PriCellular and Parent 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 a Managing Director of Harvard Private Capital Group,
Inc. From 1981-1984, Mr. Sperling was a Senior Consultant with the Boston
Consulting Group, Inc. He
63
<PAGE>
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.
The Board of Directors of the Company has established an Audit Committee and
a Compensation and Stock Option Committee. Ms. Pressman serves on the Audit
Committee. Mr. Applegate serves on the Compensation and Stock Option 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 needed to ensure that a majority of the Audit Committee members are
independent directors. 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 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 four members, one of which shall
be designated by each of the Price family, McCaw/AT&T Wireless, Harvard Private
Capital and 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 McCaw/AT&T Wireless, AT&T 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 three members one of
which shall be designated by each of the Price family, Harvard Private Capital
and THL Equity Fund.
The affirmative vote of the Executive Committee of the Company with no
members voting against is 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 McCaw/AT&T Wireless and the THL Equity Fund
to nominate a member to the Executive Committee shall terminate (a) with respect
to McCaw/AT&T Wireless on the earlier to occur of (i) April 28, 2001 or (ii)
such time as the number of fully diluted shares held by McCaw/ AT&T Wireless is
less than 7% of the total number of fully diluted shares then outstanding and
(b) with respect to THL Equity Fund at such time as the number of fully diluted
shares held by THL Equity Fund and certain other purchasers of shares of Series
A Cumulative Convertible Preferred Stock, par value $.01 per share, of Parent 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. Price and Sperling. The right of
Harvard Private Capital to nominate a director and a member of the Executive
Committee has terminated and Harvard Private Capital's nominee has resigned.
The Company's directors will serve until their respective successors are
elected or until death, resignation or removal. Officers are appointed by, and
serve at the pleasure of, the Board of Directors.
64
<PAGE>
OTHER KEY EMPLOYEES
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ----------------------------------------------------- ----------- -----------------------------------------------------
<S> <C> <C>
D. Michael Key....................................... 49 Director of Engineering
Pamela Fontana....................................... 31 Director of Corporate Development
Donald L. Anderson................................... 52 Regional Operations Manager--Mid-Atlantic Cluster
Thomas Buckley....................................... 34 Regional Operations Manager--New York Cluster
Randall S. Mattson................................... 37 Regional Operations Manager--Upper Midwest Cluster
Mark Dilcom.......................................... 32 Director of Market Development
</TABLE>
D. Michael Key is the Company's Director of Engineering. Prior to joining
the Company in March 1995, Mr. Key was Director of Technical Operations with
Sterling Cellular since 1990. Mr. Key has worked in the cellular industry since
1987.
Pamela Fontana is Director of Corporate Development. Prior to joining the
Company, Ms. Fontana served in a similar capacity at Cellular Communications
International, Inc. Ms. Fontana has an M.A. degree in international economics
from the Johns Hopkins University and a B.A. degree from the University of
Michigan.
Donald L. Anderson is the Regional Operations Manager--Mid-Atlantic Cluster.
Mr. Anderson has been involved in the telephone business for over thirty years.
He worked for Citizens Telecom, formerly General Telephone Company, and prior to
joining the Company he was Systems Manager for Highland Cellular D/B/A Cellular
One.
Thomas Buckley is Regional Operations Manager--New York Cluster. Prior to
joining the Company, Mr. Buckley was the senior engineering person in the
Poughkeepsie, NY MSA for United States Cellular Corporation for the past eight
years.
Randall L. Mattson is the Regional Operations Manager--Upper Midwest
Cluster. Mr. Mattson previously served as the Senior System Manager for the
Company's MI-1 RSA. Prior thereto, Mr. Mattson has worked in the cellular
industry since 1987, including as Technical Manager for Metro Mobile and
Operations Manager for C-TEC.
Mark Dilcom is the Director of Market Development. Prior to joining
PriCellular in 1995, he was Senior Account Manager for Nextel and prior thereto,
held positions with Western Wireless Corporation.
65
<PAGE>
PRINCIPAL STOCKHOLDERS
All of the outstanding Capital Stock of the Company, consisting of 100
Shares of Common Stock, is owned by Parent. The following table provides certain
information regarding the beneficial ownership of Parent's Common Stock as of
September 30, 1996 (reflecting the 5-for-4 stock split of Parent's Common Stock
effective October 21, 1996) by (i) each of the Company's directors and officers
listed in the summary compensation table, (ii) all directors and officers as a
group and (iii) each person known to the Company to be the beneficial owner of
5% or more of any class of Parent's voting securities.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
CLASS A AND B COMMON STOCK(1)
----------------------------------------------
<S> <C> <C> <C>
PERCENTAGE OF PERCENTAGE OF
COMBINED COMBINED
NAME OF BENEFICIAL OWNER SHARES CLASSES VOTING
- ----------------------------------------------------------------------- ------------ --------------- ---------------
DIRECTORS AND OFFICERS
Robert Price(2)........................................................ 7,464,272 18.2% 22.4%
Stuart B. Rosenstein(3)................................................ 184,177 0.5 0.1
Kim I. Pressman(4)..................................................... 77,735 0.2 --
Steven Price(5)........................................................ 4,461,406 11.5 19.3
Brion B. Applegate(6).................................................. 2,975,980 7.6 9.9
Scott Sperling(7)...................................................... 6,215,000 13.7 2.8
All directors and officers as a group (6 persons)...................... 19,986,601 39.1 44.1
Other 5% Stockholders
AT&T Wireless Services, Inc.(8)........................................ 6,537,544 17.0 19.4
(formerly McCaw)
5400 Carillon Point
Kirkland, WA 98033
Aeneas Venture Corporation............................................. 4,051,220 10.5 18.5
(an affiliate of Harvard Private Capital Group, Inc.)(9)
600 Atlantic Avenue, 26th Floor
Boston, MA 02210
The Thomas H. Lee Company(10).......................................... 6,215,000 13.9 2.8
75 State Street
Boston, MA 02109
Putnam Investments, Inc.(11)........................................... 5,177,485 12.2 2.4
One Post Office Square
Boston, MA 02109
Eileen Farbman(12)..................................................... 4,642,579 12.1 21.6
c/o Suite 3200
45 Rockefeller Plaza
NY, NY 10020
Janus Capital Corp.(13)................................................ 3,829,298 9.9 1.8
100 Fillmore Street
Denver, CO 80206
Spectrum Equity Investors, L.P.(14).................................... 2,975,980 7.6 9.9
121 High Street, 26th Floor
Boston, MA 02110
The Public School Employes' Retirement System(15)...................... 3,108,000 7.5 1.4
5 North 5th Street, Box 125
Harrisburg, PA 17108
Price Communications Corporation(16)................................... 3,534,585 8.8 8.5
Suite 3200
45 Rockefeller Plaza
NY, NY 10020
Leo Farbman(17)........................................................ 1,523,438 4.0 7.1
c/o Suite 3200
45 Rockefeller Plaza
NY, NY 10020
</TABLE>
66
<PAGE>
<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>
Alexandra Farbman(18).................................................. 1,523,438 4.0 7.1
c/o Suite 3200
45 Rockefeller Plaza
NY, NY 10020
Stein Roe & Farnham Incorporated(19)................................... 1,406,250 3.7 0.7
One South Wacker Drive
Chicago, IL 60606
Neuberger & Berman L.P.(20)............................................ 998,048 2.6 0.5
605 Third Avenue
New York, NY 10158
Sandler Capital Management(21)......................................... 974,960 2.5 0.5
767 Fifth Avenue
New York, NY 10153
</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 425,781 shares of Class B Common Stock owned directly by Mr.
Price, 1,380,859 shares of Class B Common Stock held by Robert Price and
Eileen Farbman, as joint tenants, 1,380,859 shares of Class B Common
Stock held by Robert Price and Steven Price, as joint tenants, options
to purchase 742,188 shares of Class A Common Stock granted pursuant to
Parent's 1994 Stock Option Plan that are currently exercisable,
1,715,000 shares of Class A Common Stock held by Price Communications
and warrants to purchase 1,819,585 shares of Class B Common Stock held
by Price Communications that are currently exercisable. See footnote
(17).
(3) Consists of 3,906 shares of Class B Common Stock owned directly by Mr.
Rosenstein, 4,178 shares of Class A Common Stock owned directly by Mr.
Rosenstein, 5,078 shares of Class A Common Stock held by Stuart
Rosenstein as custodian for his daughter, 195 shares of Class A Common
Stock held by Stuart Rosenstein as custodian for his son and options to
purchase 153,320 shares of Class A Common Stock granted pursuant to
Parent's 1994 Stock Option Plan that are currently exercisable. Includes
17,500 options to purchase shares of Class A Common Stock held in
custody for his children that are currently exercisable. Does not
include options to purchase 190,234 shares of Class A Common Stock
granted pursuant to Parent'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 48,829 shares of Class A Common Stock
granted pursuant to Parent's 1994 Stock Option Plan that are currently
exercisable. Does not include options to purchase 53,125 shares of Class
A Common Stock granted pursuant to Parent's 1994 Stock Option Plan that
are not exercisable within 60 days. Includes 25,000 options to purchase
shares of Class A Common Stock held in custody for her children that are
currently exercisable.
(5) Consists of 2,754,609 shares of Class B Common Stock owned directly by
Mr. Price, 1,380,859 shares of Class B Common Stock held by Robert Price
and Steven Price, as joint tenants, 68,633 shares of Class A Common
Stock owned directly by Mr. Price and options to purchase 153,320 shares
of Class A Common Stock granted pursuant to Parent's 1994 Stock Option
Plan that are currently exercisable. Includes 103,985 options to
purchase shares of Class A Common Stock held in custody for his
daughter. Does not include options to purchase 146,484 shares of Class A
67
<PAGE>
Common Stock granted pursuant to Parent's 1994 Stock Option Plan that
are not exercisable within 60 days. Steven Price is the son of Robert
Price.
(6) All of such shares of Class A Common stock and Class B Common Stock are
owned by Spectrum and attributed to Mr. Applegate, a General Partner of
Spectrum, pursuant to the definition of beneficial ownership provided in
footnote (1).
(7) All such shares of Class A Common Stock are owned by The Thomas H. Lee
Company and attributed to Mr. Sperling, a Managing Director of The
Thomas H. Lee Company, pursuant to the definition of beneficial
ownership provided in footnote (1).
(8) Consists of 3,925,781 shares of Class B Common Stock and 2,611,763
shares of Class A Common Stock.
(9) Consists of 3,994,945 shares of Class B Common Stock currently
outstanding and warrants to purchase 56,275 shares of Class B Common
Stock that are currently exercisable. The per share price at which
shares may be purchased pursuant to the warrants is $4.75 subject to
adjustment.
(10) Consists of 6,215,000 shares of Class A Common Stock currently issuable
(subject to adjustments) upon conversion of 54,728 shares of Parent's
Series A Cumulative Convertible Preferred Stock (the "Convertible
Preferred Stock") held by Thomas H. Lee Equity Fund III L.P. and 5,272
shares of Convertible Preferred Stock held by THL-CCI Investors Limited
Partnership.
(11) Consists of 4,031,000 shares of Class A Common Stock issuable upon
conversion of Parent'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.
(12) Consists of 214,844 shares of Class B Common Stock owned directly by Ms.
Farbman, 1,380,859 shares of Class B Common Stock held by Robert Price
and Eileen Farbman, as joint tenants, 761,719 shares of Class B Common
Stock held by Eileen Farbman and Leo Farbman, as joint tenants, 761,719
shares of Class B Common Stock held by Eileen Farbman and Alexandra
Farbman, as joint tenants and 761,719 shares of Class B Common Stock
held by Eileen Farbman as custodian for Leo Farbman UGTMA until age 21
and 761,719 shares of Class B Common Stock held by Eileen Farbman as
custodian for Alexandra Farbman UGTMA until age 21. Eileen Farbman is
the daughter of Robert Price.
(13) Consists of 3,829,298 shares of Class A Common Stock.
(14) Consists of 2,055,989 shares of Class B Common Stock, 298,491 shares of
Class A Common Stock currently outstanding and 621,500 shares of Class A
Common Stock currently issuable upon conversion of 6,000 shares of the
Convertible Preferred Stock.
(15) Consists of 3,051,954 shares of Class A Common Stock currently issuable
upon conversion of 30,000 shares of the Convertible Preferred Stock.
(16) Consists of 1,715,000 shares of Class A Common Stock currently
outstanding and 1,819,585 shares of Class B Common Stock issuable
pursuant to warrants that are currently exercisable. The per share price
at which shares may be purchased pursuant to the warrants is $5.01
subject to adjustment.
(17) Consists of 761,719 shares of Class B Common Stock held by Eileen
Farbman and Leo Farbman, as joint tenants and 761,719 shares of Class B
Common Stock held by Eileen Farbman as
68
<PAGE>
custodian for Leo Farbman UGTMA until age 21. Leo Farbman is the son of
Eileen Farbman and grandson of Robert Price.
(18) Consists of 761,719 shares of Class B Common Stock held by Eileen
Farbman and Alexandra Farbman, as joint tenants and 761,719 shares of
Class B Common Stock held by Eileen Farbman as custodian for Alexandra
Farbman UGTMA until age 21. Alexandra Farbman is the daughter of Eileen
Farbman and granddaughter of Robert Price.
(19) Represents 1,406,250 shares of Class A Common Stock. Information is
based on a Schedule 13G dated February 12, 1996, which reflects the
collective beneficial ownership of Stein Roe & Farnham Incorporated
("SR&F") and the Stein Roe Special Fund, Inc. (the "Special Fund").
According to the Schedule 13G, the Special Fund has the sole power to
vote such shares of Class A Common Stock and SR&F has the sole power to
dispose of such shares.
(20) Represents 998,048 shares of Class A Common Stock. Information is based
on a Schedule 13G dated February 12, 1996, which reflects the collective
beneficial ownership of Neuberger & Berman L.P., Neuberger & Berman
Management Inc. and Neuberger & Berman Focus Portfolio (collectively,
the "Neuberger Entities"). According to the Schedule 13G, each of the
Neuberger Entities has shared power to vote or dispose of any of such
shares of Class A Common Stock.
(21) Represents 974,960 shares of Class A Common Stock. Information is based
on a Schedule 13D dated June 27, 1996, which reflects the collective
beneficial ownership of Sandler Capital Management ("SCM"), Harvey
Sandler, Barry Lewis, John Kornreich, Michael Marocco, Andrew Sandler
and Phyllis Sandler. Harvey Sandler and Phyllis Sandler have sole power
to vote and to dispose of 187,773 and 20,969 of such shares of Class A
Common Stock, respectively. SCM and each of Harvey Sandler, Barry Lewis,
John Kornreich, Michael Marocco and Andrew Sandler have shared power to
vote and to dispose of 348,719 and 417,500 of such shares, respectively.
69
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The New Notes will be issued under the Indenture, dated as of November 1,
1996 (the "Indenture"), by and among the Company and The Bank of Montreal Trust
Company, as trustee (the "Trustee"), which has been filed as an exhibit to the
Registration Statement of which this Prospectus constitutes a part. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture
Act"). The Notes are subject to all such terms, and holders of Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summaries of certain provisions of the Indenture are summaries
only, do not purport to be complete and are qualified in their entirety by
reference to all of the provisions of those documents. Capitalized terms used
herein and not otherwise defined shall have the meanings assigned to them in the
Indenture. Wherever particular provisions of the Indenture are referred to in
this summary, such provisions are incorporated by reference as a part of the
statements made and such statements are qualified in their entirety by such
reference.
The terms of the New Notes are identical in all material respects to the
terms of the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes and except that, if the Exchange
Offer is not consummated by , 1997, Holders that have complied with
their obligations under the Registration Rights Agreement will be entitled,
subject to certain exceptions, to liquidated damages in an amount equal to $.05
per calendar week per $1,000 principal amount of Old Notes held by such Holder
until , 1997 and up to $.25 per calendar week per $1,000 principal
amount thereafter until the consummation of the Exchange Offer.
The Notes will be general unsecured obligations of the Company ranking
senior to all subordinated Indebtedness of the Company and PARI PASSU in right
of payment to all other existing and future Indebtedness of the Company. As of
September 30, 1996, on a pro forma basis after giving effect to the issuance and
sale of the Notes, the application of the estimated net proceeds therefrom and
the Pending Transactions described herein under "Unaudited Pro Forma Condensed
Consolidated Financial Statements," the Company would have had no senior
Indebtedness outstanding other than the Notes offered hereby and $303.5 million
of subordinated Indebtedness. The Company is a holding company and, therefore,
the Notes will be effectively subordinated to all liabilities (including trade
payables) of the Company's subsidiaries, which at September 30, 1996, on a pro
forma basis as described above, would have been $28.2 million. The Notes will be
issued only in fully registered form, without coupons, in denominations of
$1,000 and integral multiples thereof.
The Notes will mature on November 1, 2004. The Notes will bear interest at
the rate per annum stated on the cover page of this Prospectus from November 6,
1996 or from the most recent Interest Payment Date to which interest has been
paid or provided for, payable semi-annually on May 1 and November 1 of each
year, commencing May 1, 1997 to the Persons in whose names such Notes are
registered at the close of business on the April 15 or October 15 preceding such
Interest Payment Date.
The Indenture does not contain provisions which would afford Holders of the
Notes protection in the event of a decline in the Company's credit quality
resulting from highly leveraged or other similar transactions involving the
Company.
Principal of, premium, liquidated damages, if any, and interest on the Notes
will be payable, and, subject to the following provisions, the Notes may be
presented for registration of transfer or exchange, at the office or agency of
the Company maintained for such purpose, which office or agency shall be
maintained in the Borough of Manhattan of The City of New York. At the option of
the Company, payment of interest may be made by check mailed to the Holders of
the Notes at the addresses set forth upon the registry books of the Company. No
service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any tax
or other
70
<PAGE>
governmental charge payable in connection therewith. Until otherwise designated
by the Company, the Company's office or agency will be the corporate trust
office of the Trustee presently located at 77 Water Street, 4th Floor, New York,
New York 10005 c/o Corporate Trust Department.
The Company conducts its operations through its subsidiaries. Accordingly,
the Company's ability to meet its cash obligations is dependent upon the ability
of its subsidiaries to make cash distributions to the Company. Furthermore, any
right of the Company to receive the assets of any of its subsidiaries upon any
such subsidiary's liquidation (and the consequent right of the Holders of the
Notes to participate in the distribution of the proceeds of those assets)
effectively will be subordinated by operation of law to the claims of such
subsidiary's creditors (including trade creditors) and holders of its preferred
stock, except to the extent that the Company is itself recognized as a creditor
or preferred stockholder of such subsidiary, in which case the claims of the
Company would still be subordinate to any indebtedness or preferred stock of
such subsidiary senior in right of payment to that held by the Company. In the
event of the liquidation, bankruptcy, reorganization, insolvency, receivership
or similar proceeding or any assignment for the benefit of the creditors of the
Company or a marshalling of assets or liabilities of the Company, Holders of the
Notes may receive ratably less than other such creditors or interest holders.
OPTIONAL REDEMPTION
The Company will not have the right to redeem any Notes prior to November 1,
2000. On or after November 1, 2000, the Company will have the right to redeem
all or any part of the Notes in cash at the redemption prices (expressed as a
percentage of the aggregate principal amount thereof) set forth below, in each
case including accrued and unpaid interest, if any, to the applicable Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date to receive interest due on an Interest Payment Date that is on or prior to
the Redemption Date) if redeemed during the 12-month period beginning November
1, of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2000............................................................................. 105.375%
2001............................................................................. 103.583%
2002............................................................................. 101.791%
2003 and thereafter.............................................................. 100.000%
</TABLE>
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a PRO RATA basis or in such other manner as
it deems appropriate and fair. The Notes may be redeemed in part in multiples of
$1,000 only.
The Notes will not have the benefit of a sinking fund.
Subject to the following, notice of any redemption will be sent, by
first-class mail, at least 30 days and not more than 60 days prior to the date
fixed for redemption to the Holder of each Note to be redeemed to such Holder's
last address as then shown upon the books of the Registrar. Any notice which
relates to a Note to be redeemed in part only must state the portion of the
principal amount to be redeemed and must state that on and after the date fixed
for redemption, upon surrender of such Note, a new Note or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after the
date fixed for redemption, interest will cease to accrue on the portions of the
Notes called for redemption.
CERTAIN COVENANTS
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such holder's option,
pursuant to an irrevocable and unconditional offer by the
71
<PAGE>
Company (the "Change of Control Offer"), to require the Company to repurchase
all or any part (equal to $1,000 principal amount or an integral multiple
thereof) of such Holder's Notes, on a date (the "Change of Control Purchase
Date") that is no later than 45 Business Days after the occurrence of such
Change of Control at a cash price (the "Change of Control Purchase Price") equal
to 101% of the aggregate principal amount thereof, together with any accrued and
unpaid interest to the Change of Control Purchase Date. The Change of Control
Offer shall be made within 20 Business Days following a Change of Control and
shall remain open for 20 Business Days following its commencement (the "Change
of Control Offer Period"). Upon expiration of the Change of Control Offer
Period, the Company shall purchase all Notes properly tendered in response to
the Change of Control Offer.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest) of all Notes so tendered and (iii) deliver to the Trustee Notes so
accepted together with an Officers' Certificate listing the Notes or portions
thereof being purchased by the Company. The Paying Agent promptly will deliver
to the Holders of Notes so accepted payment in an amount equal to the Change of
Control Purchase Price (together with any accrued and unpaid interest), and the
Trustee will promptly authenticate and mail or deliver to such Holders a new
Note equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted will be promptly mailed or delivered by
the Company to the Holder thereof. The Company will announce publicly the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Purchase Date.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company or Parent, and, thus, the removal of
incumbent management. The Change of Control purchase feature resulted from
negotiations between the Company, Parent and the Initial Purchasers and is not
the result of any intention on the part of the Company or Parent or their
management to discourage the acquisition of the Company or Parent.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws and the Company may modify a Change of Control Offer to the
extent necessary to effect such compliance.
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS
The Indenture provides that after the Issue Date the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
issue, create, incur, assume, guarantee or otherwise directly or indirectly
become liable for (including as a result of an acquisition), or otherwise become
responsible for, contingently or otherwise (individually or collectively, to
"Incur" or, as appropriate, an "Incurrence"), any Indebtedness. Neither the
accrual of interest (including the issuance of "pay in kind" securities or
similar instruments in respect of such accrued interest) pursuant to the terms
of Indebtedness Incurred in compliance with this covenant, nor the accretion of
original issue discount, nor the mere extension of the maturity of any
Indebtedness shall be deemed to be an Incurrence of Indebtedness.
Notwithstanding the foregoing, if there exists no Default or Event of
Default immediately prior and subsequent thereto, the Company may incur
Indebtedness if the Company's Annualized Operating Cash Flow Ratio, after giving
effect to the Incurrence of such Indebtedness, would have been less than 8 to 1.
In addition, if there exists no Default or Event of Default immediately
prior and subsequent thereto, the foregoing limitations will not apply to the
Incurrence of (i) Indebtedness by the Company or any of its Restricted
Subsidiaries constituting Existing Indebtedness, reduced by repayments of and
permanent reductions in commitments in satisfaction of the Net Cash Proceeds
application requirement set forth in the "Limitation on Asset Sales and Sales of
Subsidiary Stock" covenant and by repayments and permanent reductions in amounts
outstanding pursuant to scheduled amortizations and mandatory prepayments in
72
<PAGE>
accordance with the terms thereof, (ii) Indebtedness by the Company evidenced by
the Notes, (iii)(A) Permitted Acquisition Indebtedness by the Company that
satisfies the provisions of clause (x) of the definition thereof or (B)
Permitted Acquisition Indebtedness by any Restricted Subsidiary that satisfies
the provisions of clause (y) of the definition thereof, (iv) Indebtedness
between the Company and any Restricted Subsidiary of the Company or between
Restricted Subsidiaries of the Company, PROVIDED that, in the case of
Indebtedness of the Company, such obligations shall be unsecured and
subordinated in all respects to the Holders' rights pursuant to the Notes, (v)
Capitalized Lease Obligations and Purchase Money Indebtedness in an aggregate
amount or aggregate principal amount, as the case may be, outstanding at any
time not to exceed in the aggregate $10,000,000, PROVIDED that in the case of
Purchase Money Indebtedness, such Indebtedness shall not constitute less than
75% nor more than 100% of the cost (determined in accordance with GAAP) to the
Company or such Restricted Subsidiary of the property purchased or leased with
the proceeds thereof, (vi) Indebtedness of the Company or any Restricted
Subsidiary arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from guarantees or letters of credit,
surety bonds or performance bonds securing any obligations of the Company or its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
of the Company to the extent none of the foregoing results in the obligation to
repay an obligation for money borrowed by any Person and are limited in
aggregate amount to no greater than 10% of the fair market value of such
business, assets or Restricted Subsidiary so disposed of, (vii) any guarantee by
any Restricted Subsidiary of any (A) Senior Indebtedness Incurred in compliance
with this covenant or (B) Indebtedness Incurred pursuant to clause (ix) of this
paragraph, (viii) Indebtedness of the Company or any Restricted Subsidiary under
standby letters of credit or reimbursement obligations with respect thereto
issued in the ordinary course of business and consistent with industry practices
limited in aggregate amount to $2,000,000 at any one time outstanding, (ix)
Indebtedness of the Company (other than Indebtedness permitted by clauses (i)
through (viii) or (x) hereof) not to exceed $50,000,000 at any one time
outstanding and (x) Refinancing Indebtedness Incurred to extend, renew, replace
or refund Indebtedness permitted under clauses (i) (as so reduced in amount),
(ii), (iii) and (x) of this paragraph.
Indebtedness of any Person that is not a Restricted Subsidiary of the
Company (or that is a Non-Recourse Restricted Subsidiary designated to be a
Restricted Subsidiary, but no longer a Non-Recourse Restricted Subsidiary),
which Indebtedness is outstanding at the time such Person becomes such a
Restricted Subsidiary of the Company or is merged with or into or consolidated
with the Company or a Restricted Subsidiary of the Company shall be deemed to
have been Incurred, as the case may be, at the time such Person becomes such a
Restricted Subsidiary of the Company, or is merged with or into or consolidated
with the Company or a Restricted Subsidiary of the Company.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture provides that after the Issue Date the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
make any Restricted Payment, if, immediately prior or after giving effect
thereto (a) a Default or an Event of Default would exist, (b) the Company's
Annualized Operating Cash Flow Ratio for the Reference Period would exceed 8.7
to 1, or (c) the aggregate amount of all Restricted Payments made by the Company
and its Restricted Subsidiaries, including such proposed Restricted Payment (if
not made in cash, then the fair market value of any property used therefor) from
and after the Issue Date and on or prior to the date of such Restricted Payment,
shall exceed the sum of (i) the amount determined by subtracting (x) 2.0 times
the aggregate Consolidated Interest Expense of the Company for the period (taken
as one accounting period) from the Issue Date to the last day of the last full
fiscal quarter prior to the date of the proposed Restricted Payment (the
"Computation Period") from (y) Operating Cash Flow of the Company for the
Computation Period, plus (ii) the aggregate Net Proceeds received by the Company
from the sale (other than to a Subsidiary of the Company) of its Qualified
Capital Stock after the Issue Date and on or prior to the date of such
Restricted Payment, plus (iii) to the extent not otherwise included in clauses
(i) or (ii), above, an amount equal to the net reduction in
73
<PAGE>
Investments in Unrestricted Subsidiaries resulting from payments of dividends,
repayment of loans or advances, or other transfers of assets, in each case to
the Company or any Wholly Owned Restricted Subsidiary of the Company from
Unrestricted Subsidiaries, or from redesignations of Unrestricted Subsidiaries
as Restricted Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company and any Restricted
Subsidiary in such Unrestricted Subsidiary.
Notwithstanding the foregoing, the provisions set forth in clause (b) or (c)
of the immediately preceding paragraph will not prohibit (i) the use of an
aggregate of $12,000,000 to be used for Restricted Payments not otherwise
permitted by this "Limitation on Restricted Payments" covenant, (ii) the payment
of any dividend within 60 days after the date of its declaration if such
dividend could have been made on the date of its declaration in compliance with
the foregoing provisions and (iii) the redemption, defeasance, repurchase or
other acquisition or retirement of any Indebtedness or Capital Stock of the
Company or its Restricted Subsidiaries either in exchange for or out of the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company) of Qualified Capital Stock (in the case of any redemption, defeasance,
repurchase or other acquisition or retirement of any Junior Indebtedness or
Capital Stock of the Company or its Restricted Subsidiaries) or Junior
Indebtedness (in the case of any redemption, defeasance, repurchase or other
acquisition or retirement of any Indebtedness of the Company or its Restricted
Subsidiaries) of the Company.
In determining the aggregate amount expended for Restricted Payments in
accordance with clause (c) of the first paragraph of this description of the
"Limitations on Restricted Payments" covenant, 100% of the amounts expended
under clauses (i) through (iii) of the immediately preceding paragraph shall be
deducted.
LIMITATION ON RESTRICTING SUBSIDIARY DIVIDENDS
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, assume or suffer
to exist any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to pay dividends or make other
distributions on the Capital Stock of any Restricted Subsidiary of the Company
or pay or satisfy any obligation to the Company or any of its Restricted
Subsidiaries or otherwise transfer assets or make or pay loans or advances to
the Company or any of its Restricted Subsidiaries, except encumbrances and
restrictions existing under (i) the Indenture and the Notes, (ii) any Existing
Indebtedness, (iii) the Credit Agreement, (iv) any applicable law or any
governmental or administrative regulation or order, (v) Refinancing Indebtedness
permitted under the Indenture, PROVIDED that the restrictions contained in the
instruments governing such Refinancing Indebtedness are no more restrictive in
the aggregate than those contained in the instruments governing the Indebtedness
being refinanced immediately prior to such refinancing, (vi) restrictions with
respect solely to a Restricted Subsidiary of the Company imposed pursuant to a
binding agreement which has been entered into for the sale or disposition of all
or substantially all of the Capital Stock or assets of such Restricted
Subsidiary, PROVIDED such restrictions apply solely to the Capital Stock or
assets being sold of such Restricted Subsidiary, (vii) restrictions contained in
any agreement relating to the financing of the acquisition of a Person or real
or tangible personal property after the Issue Date which are not applicable to
any Person or property, other than the Person or property so acquired and which
either (A) were not put in place in anticipation of or in connection with such
acquisition or (B) constituted Permitted Acquisition Indebtedness of a Person
satisfying the provisions of clause (y) of the definition thereof or (viii) any
agreement (other than those referred to in clause (vii)) of a Person acquired by
the Company or a Restricted Subsidiary of the Company, which restrictions
existed at the time of acquisition. Notwithstanding the foregoing, neither (a)
customary provisions restricting subletting or assignment of any lease entered
into the ordinary course of business, consistent with past practices nor (b)
Liens on assets securing Senior Indebtedness, shall in and of themselves be
considered a
74
<PAGE>
restriction on the ability of the applicable Restricted Subsidiary to transfer
such agreement or assets, as the case may be.
LIMITATION ON USE OF PROCEEDS; OFFER TO PURCHASE
At least $95,000,000 of all proceeds (net of underwriting discounts and
commissions and other transaction expenses received by the Company from the sale
of the Old Notes) shall be applied by the Company to Permitted Proceeds Uses.
Simultaneously with the closing of the sale of the Notes, the net proceeds
therefrom shall either be applied concurrently with the closing of the sale of
the Notes to the purchase of properties constituting Pending Transactions or be
held by the Company in a segregated account, pending the application of such net
proceeds in compliance with this covenant.
In the event that at least $95,000,000 of the proceeds have not been so
applied by the Company on or before March 26, 1997 the Company will make an
unconditional and irrevocable pro rata offer to all Holders of the Notes (a
"Proceeds Purchase Offer") to repurchase for cash, such Holders' outstanding
Notes with an original aggregate issue price equal to the net proceeds (as
determined above) from the sale of the Notes, less the amount thereof previously
applied to Permitted Proceeds Uses (the "Proceeds Purchase Offer Amount"), at a
purchase price (the "Proceeds Purchase Offer Price") equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest to the date
of repurchase. The Company will be required to keep the Proceeds Purchase Offer
open for 20 Business Days following its commencement and no longer, except to
the extent that a longer period is required by applicable law (the "Proceeds
Purchase Offer Period"). Upon the expiration of the Proceeds Purchase Offer
Period, the Company shall apply the Proceeds Purchase Offer Amount to the
repurchase, on a pro rata basis, of all outstanding Notes tendered pursuant to
the Proceeds Purchase Offer at the Proceeds Purchase Offer Price.
LIMITATION ON TRANSACTIONS WITH RELATED PERSONS
The Indenture provides that, after the Issue Date, the Company will not, and
will not permit any of its Restricted Subsidiaries or Unrestricted Subsidiaries
to, enter into any contract, agreement, arrangement or transaction with any
Related Person (each a "Related Person Transaction"), or any series of Related
Person Transactions, except for transactions made in good faith, the terms of
which are (i) fair and reasonable to the Company or such Subsidiary, as the case
may be, and (ii) are at least as favorable as the terms which could be obtained
by the Company or such Subsidiary, as the case may be, in a comparable
transaction made on an arm's length basis with Persons who are not Related
Persons.
Without limiting the foregoing, (a) any Related Person Transaction or series
of Related Person Transactions with an aggregate value in excess of $1,000,000
must first be approved by a majority of the Board of Directors of the Company
who are disinterested in the subject matter of the transaction pursuant to a
Board Resolution, and (b) with respect to any Related Person Transaction or
series of Related Person Transactions with an aggregate value in excess of
$5,000,000, the Company must first obtain a favorable written opinion from an
independent financial advisor of national reputation as to the fairness from a
financial point of view of such transaction to the Company or such Subsidiary,
as the case may be.
Notwithstanding the foregoing, the following shall not constitute Related
Person Transactions: (i) reasonable and customary payments on behalf of
directors, officers or employees of the Company or any of its Restricted
Subsidiaries, or in reimbursement of reasonable and customary payments or
reasonable and customary expenditures made or incurred by such Persons as
directors, officers or employees, (ii) any contract, agreement, arrangement, or
transaction solely between or among the Company and any of its Restricted
Subsidiaries or between or among Restricted Subsidiaries of the Company, (iii)
any Restricted Payment of the type described by clauses (i) and (ii) of the
definition thereof made to all stockholders on a PRO RATA basis and not
prohibited by the "Limitation on Restricted Payments" covenant, (iv) any loan or
advance by the Company or a Restricted Subsidiary to employees of the
75
<PAGE>
Company or a Restricted Subsidiary in the ordinary course of business, in an
aggregate amount at any one time outstanding not to exceed $300,000, (v) any
payment pursuant to a tax-sharing agreement between the Company and any other
Person with which the Company is required or permitted to file a consolidated
tax return or with which the Company is or could be part of a consolidated group
for tax purposes, which payments are not in excess of the tax liabilities
attributable solely to the Company and its Restricted Subsidiaries (as a
consolidated group) and (vi) any transaction pursuant to an agreement described
in or referred to under "Acquisitions and Dispositions" as in effect on the
Issue Date.
LIMITATION ON ASSET SALES AND SALES OF SUBSIDIARY STOCK
The Indenture provides that after the Issue Date the Company will not, and
will not permit any of its Restricted Subsidiaries to, in one or a series of
related transactions, convey, sell, transfer, assign or otherwise dispose of,
directly or indirectly, any of its property, businesses or assets, including by
merger or consolidation, and including any sale or other transfer or issuance of
any Capital Stock of any Restricted Subsidiary of the Company, whether by the
Company or a Restricted Subsidiary (an "Asset Sale"), unless (1)(a) within 360
days after the date of such Asset Sale, an amount equal to the Net Cash Proceeds
therefrom (the "Asset Sale Offer Amount") are applied to the optional redemption
of the Notes in accordance with the terms of the Indenture and other
Indebtedness of the Company ranking on a parity with the Notes from time to time
outstanding with similar provisions requiring the Company to make an offer to
purchase or to redeem such Indebtedness with the proceeds from asset sales, pro
rata in proportion to the respective principal amounts (or accreted values in
the case of Indebtedness issued with an original issue discount) of the Notes
and such other Indebtedness then outstanding or to the repurchase of the Notes
and such other Indebtedness pursuant to an irrevocable, unconditional offer (the
"Asset Sale Offer") to repurchase such Indebtedness at a purchase price (the
"Asset Sale Offer Price") of 100% of the principal amount thereof in the case of
the Notes or 100% of the principal amount (or accreted value in the case of
Indebtedness issued with an original issue discount) plus, in each case, accrued
interest to the date of payment, made within 330 days of such Asset Sale, or (b)
within 330 days of such Asset Sale, the Asset Sale Offer Amount is (i) invested
(or committed, pursuant to a binding commitment subject only to reasonable,
customary closing conditions, to be invested, and in fact is so invested, within
an additional 90 days) in tangible assets and property (other than notes,
obligations or securities), which in the good faith reasonable judgment of the
Board of Directors of the Company are of a type used in a Related Business, or
Capital Stock of a Person (which, if such Person becomes a Subsidiary of the
Company by virtue of such Asset Sale, shall initially be designated a Restricted
Subsidiary) all or substantially all of whose assets and property (in the good
faith reasonable judgment of the Board of Directors of the Company) are of a
type used in a Related Business (PROVIDED that, with respect to such Capital
Stock, all of the requirements of the last proviso of clause (v) of the
following paragraph shall have been satisfied) or (ii) used to retire Senior
Indebtedness, (2) with respect to any transaction or related series of
transactions of securities, property or assets with an aggregate fair market
value in excess of $1,000,000, at least 75% of the value of consideration for
the assets disposed of in such Asset Sale (excluding (a) Senior Indebtedness
(and any Refinancing Indebtedness issued to refinance any such Indebtedness)
assumed by a transferee which assumption permanently reduces the amount of
Indebtedness outstanding on the Issue Date and permitted to have been Incurred
pursuant to the covenant "Limitation on Incurrence of Additional Indebtedness"
(including that in the case of a revolver or similar arrangement that makes
credit available, such commitment is permanently reduced by such amount), (b)
Purchase Money Indebtedness secured exclusively by the assets subject to such
Asset Sale which is assumed by a transferee and (c) marketable securities that
are promptly converted into cash or Cash Equivalents) consists of cash or Cash
Equivalents, provided that any cash or Cash Equivalents received within 12
months following any such Asset Sale upon conversion of any property or assets
(other than in the form of cash or Cash Equivalents) received in consideration
of such Asset Sale shall be applied promptly in the manner required of Net Cash
Proceeds of any such Asset Sale as set forth above, (3) no Default or Event of
Default shall occur or be continuing after giving effect to, on a pro forma
basis, such Asset Sale, and (4) the Board of Directors of the Company determines
in good faith that the Company or such Restricted Subsidiary, as applicable,
would receive fair
76
<PAGE>
market value in consideration of such Asset Sale. The Indenture provides that an
Asset Sale Offer may be deferred until the accumulated Net Cash Proceeds from
Asset Sales not applied to the uses set forth in (1)(b) above exceeds $5,000,000
and that each Asset Sale Offer shall remain open for 20 Business Days following
its commencement and no longer, except as otherwise required by applicable law
(the "Asset Sale Offer Period"). Upon expiration of the Asset Sale Offer Period,
the Company shall apply the Asset Sale Offer Amount, plus an amount equal to
accrued interest to the purchase of all Indebtedness properly tendered (on a PRO
RATA basis as described above if the Asset Sale Offer Amount is insufficient to
purchase all Indebtedness so tendered) at the Asset Sale Offer Price (together
with accrued interest).
Notwithstanding the foregoing provisions of the prior paragraph:
(i) the Company and its Restricted Subsidiaries may, in the ordinary
course of business, convey, sell, lease, transfer, assign or otherwise
dispose of assets acquired and held for resale in the ordinary course of
business;
(ii) the Company and its Restricted Subsidiaries may convey, sell,
lease, transfer, assign or otherwise dispose of assets pursuant to and in
accordance with the "Limitation on Mergers, Sales or Consolidations";
(iii) the Company and its Restricted Subsidiaries may sell or dispose of
damaged, worn out or other obsolete property in the ordinary course of
business so long as such property is no longer necessary for the proper
conduct of the business of the Company or such Restricted Subsidiary, as
applicable;
(iv) the Company and its Restricted Subsidiaries may convey, sell,
lease, transfer, assign or otherwise dispose of assets to the Company or any
of its Restricted Subsidiaries; and
(v) the Company and its Restricted Subsidiaries may, in the ordinary
course of business (or, if otherwise than in the ordinary course of
business, upon receipt of a favorable written opinion by an independent
financial advisor of national reputation as to the fairness from a financial
point of view to the Company or such Restricted Subsidiary of the proposed
transaction), exchange all or a portion of its property, businesses or
assets for property, businesses or assets which, or Capital Stock of a
Person all or substantially all of whose assets, are of a type used in a
Related Business (provided that such Person shall initially be designated a
Restricted Subsidiary if such Person becomes a Subsidiary of the Company by
virtue of such Asset Sale), or a combination of any such property,
businesses or assets, or Capital Stock of such a Person and cash or Cash
Equivalents; provided that (i) there shall not exist immediately prior or
subsequent thereto a Default or an Event of Default, (ii) a majority of the
independent directors of the Board of Directors of the Company shall have
approved a resolution of the Board of Directors that such exchange is fair
to the Company or such Restricted Subsidiary, as the case may be, and (iii)
any cash or Cash Equivalents received pursuant to any such exchange shall be
applied in the manner applicable to Net Cash Proceeds from an Asset Sale as
set forth pursuant to the provisions of the immediately preceding paragraph
of this covenant; and PROVIDED, further, that any Capital Stock of a Person
received in an Asset Sale pursuant to this clause (v) shall be owned
directly by the Company or a Restricted Subsidiary and, when combined with
the Capital Stock of such Person already owned by the Company and its
Restricted Subsidiaries, shall constitute a majority of the voting power and
Capital Stock of such Person, unless (A)(i) the Company has received a
binding commitment from such Person (or the direct or indirect parent of
such Person) that such Person (or the direct or indirect parent of such
Person) will distribute to the Company in cash an amount equal to the
Company's Annualized Operating Cash Flow (determined as of the date of such
Asset Sale) attributable to the property, business or assets of the Company
and its Restricted Subsidiaries exchanged in connection with such Asset Sale
during each consecutive 12-month period subsequent to such Asset Sale
(unless and until the Company shall have sold all of such Capital Stock,
provided that the provisions of clause (B) below, if applicable, shall have
been satisfied), (ii) immediately after such Asset Sale the aggregate number
of Net Pops of the wireless communications systems in which the Company or
any of its Restricted Subsidiaries has ownership interests ("Company
Systems") that are
77
<PAGE>
owned directly by a Person or Persons a majority of whose voting power and
Capital Stock is owned directly or indirectly by the Company is no less than
80% of the aggregate number of Net Pops of Company Systems immediately prior
to such Asset Sale and (iii) upon consummation of such Asset Sale, on a pro
forma basis, the ratio of such Person's Annualized Operating Cash Flow to
the product of Consolidated Interest Expense for the Reference Period
multiplied by four (but excluding from Consolidated Interest Expense all
amounts that are not required to be paid in cash on a current basis) shall
be at least 1 to 1, or (B) in the case of Capital Stock of a Person that is
not a Subsidiary of the Company owned by the Company or a Restricted
Subsidiary that is exchanged (the "Exchanged Capital Stock") for Capital
Stock of another Person all or substantially all of whose assets are of a
type used in a Related Business, either (i) the Exchanged Capital Stock
shall not have been acquired prior to such Asset Sale in reliance upon
clause (A) of this proviso or (ii) the requirements of subclauses (A)(i)
(based on the original guaranteed cash flow) and (A)(iii) shall be satisfied
with respect to any Capital Stock acquired in consideration of the Exchanged
Capital Stock.
Restricted Payments that are made in compliance with, and are counted
against amounts available to be made as Restricted Payments pursuant to clause
(c) of, the "Limitation on Restricted Payments" covenant, without giving effect
to clause (i) of the second paragraph thereof, shall not be deemed to be Asset
Sales.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the Exchange
Act and the rules and regulations thereunder and all other applicable Federal
and state securities laws.
LIMITATIONS ON LIENS
The Indenture provides that the Company will not and will not permit any
Restricted Subsidiary, directly or indirectly, to Incur or suffer to exist any
Lien (other than Permitted Liens) upon any of its property or assets, whether
now owned or hereafter acquired.
LIMITATION ON STATUS AS INVESTMENT COMPANY
The Indenture prohibits the Company and its Restricted Subsidiaries from
becoming "investment companies" (as that term is defined in the Investment
Company Act of 1940, as amended), or from otherwise becoming subject to
regulation under the Investment Company Act.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture provides that the Company will not consolidate with or merge
with or into another Person, or sell, lease, convey, transfer or otherwise
dispose of all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions, to
another Person or group of affiliated Persons, unless (i) either (a) the Company
is the continuing entity or (b) the resulting, surviving or transferee entity is
a corporation organized under the laws of the United States, any state thereof
or the District of Columbia and expressly assumes by supplemental indenture all
of the obligations of the Company in connection with the Notes and the
Indenture; (ii) no Default or Event of Default shall exist or shall occur
immediately after giving effect on a pro forma basis to such transaction;
(iii)(A) immediately after giving effect to such transaction on a pro forma
basis, the consolidated resulting surviving or transferee entity would
immediately thereafter be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Annualized Operating Cash Flow Ratio provision set
forth in the second paragraph of the "Limitation on Incurrence of Additional
Indebtedness" covenant or (B), if the requirement of clause (A) is not
satisfied, (x) any Indebtedness of the resulting surviving or transferee entity
in excess of the amount of the Company's Indebtedness immediately prior to such
transaction is Permitted Acquisition Indebtedness and (y) the requirement of
clause (A) is not satisfied solely due to the Incurrence of such Permitted
Acquisition Indebtedness; and (iv) the Company shall have delivered to the
Trustee an Officers' Certificate confirming compliance with the requirements of
this covenant.
78
<PAGE>
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such transfer is made, shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture with the
same effect as if such successor corporation had been named therein as the
Company, and the Company shall be released from the obligations under the Notes
and the Indenture.
LIMITATION ON LINES OF BUSINESS
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries shall directly or indirectly engage in any line or lines of
business activity other than that which, in the reasonable, good faith judgment
of the Board of Directors of the Company, is a Related Business.
RESTRICTION ON SALE AND ISSUANCE OF SUBSIDIARY STOCK
The Indenture provides that the Company will not sell, and will not permit
any of its Restricted Subsidiaries to issue or sell, any shares of Capital Stock
of any Restricted Subsidiary of the Company to any Person other than the Company
or a Wholly Owned Restricted Subsidiary of the Company, except for shares of
common stock with no preferences or special rights or privileges and with no
redemption or prepayment provisions ("Special Rights"); PROVIDED that, in the
case of a Restricted Subsidiary that is a partnership or joint venture
partnership (a "Restricted Partnership") the Company or any of its Restricted
Subsidiaries may sell or such Restricted Partnership may issue or sell Capital
Stock of such Restricted Partnership with Special Rights no more favorable than
those held by the Company or such Restricted Subsidiary in such Restricted
Partnership.
REPORTS
The Indenture provides that whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall deliver to the Trustees to each Holder, and to prospective purchasers of
the Notes identified to the Company by an Initial Purchaser, within 15 days
after it is or would have been required to file such with the Commission, annual
and quarterly financial statements substantially equivalent to financial
statements that would have been included in reports filed with the Commission,
if the Company were subject to the requirements of Section 13 or 15(d) of the
Exchange Act, including, with respect to annual information only, a report
thereon by the Company's certified independent public accountants as such would
be required in such reports to the Commission, and in each case, together with a
management's discussion and analysis of financial condition and results of
operations which would be so required.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure by the Company
to pay any installment of interest on the Notes as and when the same becomes due
and payable and the continuance of any such failure for 30 days, (ii) the
failure by the Company to pay all or any part of the principal, or premium, if
any, on the Notes when and as the same becomes due and payable at maturity,
redemption, by acceleration or otherwise, including, without limitation, payment
of the Change of Control Purchase Price, the Proceeds Purchase Offer Amounts, or
the Asset Sale Offer Price, (iii) the failure by the Company to observe or
perform any other covenant or agreement contained in the Notes or the Indenture
and, subject to certain exceptions, the continuance of such failure for a period
of 30 days after written notice is given to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in aggregate principal
amount of the Notes outstanding, (iv) certain events of bankruptcy, insolvency
or reorganization in respect of the Company or, after delivery of the notice
specified in the next following paragraph, any of its Significant Restricted
Subsidiaries, (v)(1) a default in any Indebtedness (other than the Credit
Agreement) of the Company or any of its Restricted Subsidiaries with an
aggregate principal amount in excess of $5,000,000 (a) resulting from the
failure to pay principal or interest (in the case of an interest
79
<PAGE>
default or a default in the payment of principal other than at its stated
maturity, after the expiration of the applicable grace period) when due or (b)
as a result of which the maturity of such Indebtedness has been accelerated
prior to its stated maturity, or (2) a default in the Credit Agreement (with an
aggregate principal amount in excess of $5,000,000 outstanding with respect
thereto) (a) resulting from the failure to pay principal at maturity or (b) as a
result of which the maturity of such Indebtedness has been accelerated prior to
its stated maturity and (vi) final unsatisfied judgments not covered by
insurance aggregating in excess of $5,000,000, at any one time rendered against
the Company or any of its Restricted Subsidiaries and not stayed, bonded or
discharged within 60 days. The Indenture will provide that if a default occurs
and is continuing, the Trustee must, within 90 days after the occurrence of such
default, give to the Holders notice of such default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv) above) relating to the Company or any
Restricted Subsidiary, then in every such case, unless the principal of all of
the Notes shall have already become due and payable, either the Trustee or the
Holders of 25% in aggregate principal amount of the Notes then outstanding, by
notice in writing to the Company (and to the Trustee if given by Holders) (an
"Acceleration Notice"), may declare all principal and accrued interest thereon
to be due and payable immediately. If an Event of Default specified in clause
(iv) above, relating to the Company or any significant Restricted Subsidiary
occurs, all principal and accrued interest thereon will be immediately due and
payable on all outstanding Notes without any declaration or other act on the
part of Trustee or the Holders. The Holders of a majority in aggregate principal
amount of Notes generally are authorized to rescind such acceleration if all
existing Events of Default, other than the non-payment of the principal of,
premium, if any, and interest on the Notes which have become due solely by such
acceleration, have been cured or waived.
The Holders of a majority in aggregate principal amount of the Notes at the
time outstanding may waive on behalf of all the Holders any default, except a
default in the payment of principal of or interest on any Note not yet cured, or
a default with respect to any covenant or provision which cannot be modified or
amended without the consent of the Holder of each outstanding Note affected.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, the Trustee will be under no obligation to exercise any of its rights
or powers under the Indenture at the request, order or direction of any of the
Holders, unless such Holders have offered to the Trustee reasonable security or
indemnity. Subject to all provisions of the Indenture and applicable law, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may, at its option and at any time,
elect to have its obligations discharged with respect to the outstanding Notes
("Legal Defeasance"). Such Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented, and the
Indenture shall cease to be of further effect as to all outstanding Notes,
except as to (i) rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments are
due from the trust funds; (ii) the Company's obligations with respect to such
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes, and the maintenance of an office or agency for
payment and money for security payments held in trust; (iii) the rights, powers,
trust, duties, and immunities of the Trustee, and the Company's obligations in
connection therewith; and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
80
<PAGE>
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes, U.S. Legal Tender, non-callable government securities
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such Notes on the stated date for
payment thereof or on the redemption date of such principal or installment of
principal of, premium, if any, or interest on such Notes, and the holders of
Notes must have a valid, perfected, exclusive security interest in such trust;
(ii) in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (A) the Company has received from, or there has been
published by the Internal Revenue Service, a ruling or (B) since the date of the
Indenture, there has been a change in the applicable Federal income tax law, in
each case to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of such Notes will not recognize income, gain or loss
for Federal income tax purposes as a result of such Legal Defeasance, and will
be subject to Federal income tax in the same amount, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to such Trustee confirming that the holders of such Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under the Indenture or any other material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an Officers' Certificate stating
that the deposit was not made by the Company with the intent of preferring the
Holders of such Notes over any other creditors of the Company or with the intent
of defeating, hindering, delaying or defrauding any other creditors of the
Company or others; and (vii) the Company shall have delivered to the Trustee an
Officers' Certificate stating that all conditions precedent provided for or
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company and the Trustee to
enter into a supplemental indenture for certain limited purposes without the
consent of the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding, the
Company and the Trustee are permitted to amend or supplement the Indenture or
any supplemental indenture or modify the rights of the Holders; PROVIDED, that
no such modification may, without the consent of each Holder affected thereby:
(i) change the Stated Maturity of or the Change of Control Purchase Date,
Proceeds Purchase Offer Period, or the Asset Sale Offer Period on any Note, or
reduce the principal amount thereof or the rate (or extend the time for payment)
of interest thereon or any premium payable upon the redemption thereof, or
change the place of payment where, or the coin or currency in which, any Note or
any premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption Date), or
reduce the Change of Control Purchase Price, the Proceeds Purchase Offer Price,
the Proceeds Purchase Offer Amount, or the Asset Sale Offer Price or alter the
redemption provisions or the provisions of the "Repurchase of Notes at the
Option of the Holder Upon a Change of Control" covenant or the "Limitation on
Use of Proceeds" covenant in a manner adverse to the Holders, or (ii) reduce the
percentage in principal amount of the outstanding Notes, the consent of whose
Holders is required for any such amendment, supplemental indenture or waiver
provided for in the Indenture, or (iii) modify any of the waiver provisions,
except to increase any required percentage or to
81
<PAGE>
provide that certain other provisions of the Indenture cannot be modified or
waived without the consent of the Holder of each outstanding Note affected
thereby.
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company or any
successor entity shall have any personal liability in respect of the obligations
of the Company under the Indenture or the Notes by reason of his or its status
as such stockholder, employee, officer or director.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms contained in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"AFFILIATE" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person or (ii) any officer,
director, or controlling stockholder of such other Person. For purposes of this
definition, the term "control" means (a) the power to direct the management and
policies of a Person, directly or through one or more intermediaries, whether
through the ownership of voting securities, by contract, or otherwise, or (b)
without limiting the foregoing, the beneficial ownership of 10% or more of the
voting power of the voting common equity of such Person (on a fully diluted
basis) or of warrants or other rights to acquire such equity (whether or not
presently exercisable).
"ANNUALIZED OPERATING CASH FLOW" on any date, means with respect to any
Person the Operating Cash Flow for the Reference Period multiplied by four.
"ANNUALIZED OPERATING CASH FLOW RATIO" on any date (the "Transaction Date")
means, with respect to any Person and its Subsidiaries, the ratio of (i)
consolidated Indebtedness of such Person and its Subsidiaries on the Transaction
Date (after giving pro forma effect to the Incurrence of such Indebtedness)
divided by (ii) the aggregate amount of Annualized Operating Cash Flow of such
Person (determined on a pro forma basis after giving effect to all acquisitions
or dispositions of businesses made by such Person and its Subsidiaries from the
beginning of the Reference Period through the Transaction Date as if such
acquisition or disposition had occurred at the beginning of such Reference
Period); provided, that for purposes of such computation, in calculating
Annualized Operating Cash Flow and consolidated Indebtedness, (a) the
transaction giving rise to the need to calculate the Annualized Operating Cash
Flow Ratio will be assumed to have occurred (on a pro forma basis) on the first
day of the Reference Period; (b) the incurrence of any Indebtedness during the
Reference Period or subsequent thereto and on or prior to the Transaction Date
(and the application of the proceeds therefrom to the extent used to retire
Indebtedness or to acquire businesses) will be assumed to have occurred (on a
pro forma basis) on the first day of such Reference Period; (c) Consolidated
Interest Expense attributable to any Indebtedness (whether existing or being
incurred) bearing a floating interest rate shall be computed as if the rate in
effect on the Transaction Date had been the applicable rate for the entire
period; and (d) all members of the consolidated group of such Person on the
Transaction Date that were acquired during the Reference Period shall be deemed
to be members of the consolidated group of such Person for the entire Reference
Period. When the foregoing definition is used in connection with the Company and
its Restricted Subsidiaries, references to a Person and its Subsidiaries in the
foregoing definition shall be deemed to refer to the Company and its Restricted
Subsidiaries.
"CAPITALIZED LEASE OBLIGATIONS" means obligations under a lease that are
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations, as determined in accordance with
GAAP.
82
<PAGE>
"CAPITAL STOCK" means, with respect to any Person, any capital stock of such
Person and shares, interests, participations or other ownership interests
(however designated) of any Person and any rights (other than debt securities
convertible into capital stock), warrants and options to purchase any of the
foregoing, including (without limitation) each class of common stock and
preferred stock of such Person if such Person is a corporation and each general
and limited partnership interest of such Person if such Person is a partnership.
"CASH EQUIVALENTS" means (i) Securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) in each case maturing within
one year after the date of acquisition, (ii) time deposits and certificates of
deposit and commercial paper issued by the parent corporation of any domestic
commercial bank of recognized standing having capital and surplus in excess of
$500 million and commercial paper issued by others rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case maturing
within one year after the date of acquisition and (iii) investments in money
market funds substantially all of whose assets comprise securities of the types
described in clauses (i) and (ii) above.
"CHANGE OF CONTROL" means (i) any sale, transfer or other conveyance,
whether direct or indirect, of a majority of the fair market value of the assets
of the Company or Parent, on a consolidated basis, in one transaction or a
series of related transactions, if, immediately after giving effect to such
transaction, any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), other
than an Excluded Person or Excluded Group, is or becomes the "beneficial owner"
(as such term is used in Rule 13d-3 promulgated pursuant to the Exchange Act),
directly or indirectly, of more than 50% of the equity of the transferee, (ii)
any "person" or "group" (as such terms are used for purposes of Sections 13(d)
and 14(d) of the Exchange Act, whether or not applicable), other than an
Excluded Person or Excluded Group, is or becomes the "beneficial owner" (as such
term is used in Rule 13d-3 promulgated pursuant to the Exchange Act), directly
or indirectly, of more than 50% of the equity of the Company or Parent then
outstanding normally entitled to vote in elections of directors, or (iii) during
any period of 12 consecutive months after the Issue Date, individuals who at the
beginning of any such 12-month period constituted the Board of Directors of the
Company or Parent (together with any new directors whose election by such Board
or whose nomination for election by the shareholders of the Company or Parent
was approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company or Parent then in
office.
"CONSOLIDATED INTEREST EXPENSE" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to the Capitalized Lease Obligations) of such Person and
its consolidated Subsidiaries during such period, including (i) original issue
discount and non-cash interest payments or accruals on any Indebtedness, (ii)
the interest portion of all deferred payment obligations, and (iii) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptances and letters of credit financings and currency and Interest Swap and
Hedging Obligations, in each case to the extent attributable to such period, and
(b) the amount of dividends accrued or payable by such Person or any of its
consolidated Subsidiaries in respect of Preferred Stock (other than by
Restricted Subsidiaries of such Person to such Person or such Person's Wholly
Owned Subsidiaries). For purposes of this definition, (x) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP and (y) interest expense
attributable to any Indebtedness represented by the guaranty by such Person or a
Subsidiary of such Person of an obligation of another Person shall be deemed to
be the interest expense attributable to the Indebtedness guaranteed. When the
foregoing definition is
83
<PAGE>
used in connection with the Company and its Restricted Subsidiaries, references
to a Person and its Subsidiaries in the foregoing definition shall be deemed to
refer to the Company and its Restricted Subsidiaries.
"CONSOLIDATED NET INCOME" of any Person for any period means the net income
(or loss) of such Person and its consolidated Subsidiaries for such period,
determined (on a consolidated basis) in accordance with GAAP, adjusted to
exclude (only to the extent included in computing such net income (or loss) and
without duplication) (i) all extraordinary gains and losses and gains and losses
that are nonrecurring (including as a result of Asset Sales outside the ordinary
course of business), (ii) the net income, if positive, of any Person, that is
not a Subsidiary in which such Person or any of its Subsidiaries has an
interest, except to the extent of the amount of dividends or distributions
actually paid to such Person or a Subsidiary of such Person that both (x) are
actually paid in cash to such Person or a Subsidiary of such Person during such
period and (y) when taken together with all other dividends and distributions
paid during such period in cash to such Person or a Subsidiary of such Person,
are not in excess of such Person's PRO RATA share of such other Person's
aggregate net income earned during such period, (iii), except as provided in the
definition of "Annualized Operating Cash Flow Ratio," the net income (or loss)
of any Subsidiary acquired in a pooling of interests transaction for any period
prior to the date of such acquisition and (iv) the net income, if positive, of
any Subsidiary of such Person to the extent that the declaration or payment of
dividends or similar distributions is not at the time permitted by operation of
the terms of its charter or any agreement or instrument applicable to such
Subsidiary. When the foregoing definition is used in connection with the Company
and its Restricted Subsidiaries, references to a Person and its Subsidiaries in
the foregoing definition shall be deemed to refer to the Company and its
Restricted Subsidiaries.
"CREDIT AGREEMENT" means, at any time of determination, the credit facility
or loan agreement designated by the Company to be the "Credit Agreement." There
can only be one such credit facility or loan agreement designated to be the
"Credit Agreement" at any one time.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect against
fluctuation in currency values.
"DEFAULT" means any event or condition that is, or after notice or passage
of time or both would be, an Event of Default.
"DISQUALIFIED CAPITAL STOCK" means, with respect to any Person, Capital
Stock of such Person that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the happening
of any event or the passage of time would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by such Person or
any of its Subsidiaries, in whole or in part, on or prior to the Stated Maturity
of the Notes; PROVIDED that Capital Stock will not be deemed to be Disqualified
Capital Stock if it may only be so redeemed or repurchased solely in
consideration of Qualified Capital Stock of the Company or Parent.
"EXCLUDED GROUP" means a "group" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) that includes one or more Excluded Persons; PROVIDED
that the voting power of the Capital Stock of the Company or Parent
"beneficially owned" (as such term is used in Rule 13d-3 promulgated under the
Exchange Act) by such Excluded Persons (without attribution to such Excluded
Persons of the ownership by other members of the "group") represents a majority
of the voting power of the Capital Stock "beneficially owned" (as such term is
used in Rule 13d-3 promulgated under the Exchange Act) by such group.
"EXCLUDED PERSON" means Harvard Private Capital, AT&T Corp., The Thomas H.
Lee Company, members of the Price family who owned Capital Stock of the Parent
on the Issue Date and any wholly owned Affiliate of any of the foregoing that is
wholly owned by one of the foregoing.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Subsidiaries in existence and outstanding on the Issue Date.
84
<PAGE>
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board ("FASB") or, if FASB ceases to exist,
any successor thereto; PROVIDED, HOWEVER, that for purposes of determining
compliance with covenants in the Indenture, "GAAP" means such generally accepted
accounting principles as in effect as of the Issue Date.
"HOLDER" means a Person in whose name a Note is registered. The Holder of a
Note will be treated as the owner of such Note for all purposes.
"INDEBTEDNESS" of any Person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of such Person, (i) in respect of
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), (ii) evidenced by bonds,
notes, debentures or similar instruments, (iii) representing the balance
deferred and unpaid of the purchase price of any property or services, except
(other than accounts payable or other obligations to trade creditors which have
remained unpaid for greater than 90 days past their original due date or to
financial institutions, which obligations are not being contested in good faith
and for which appropriate reserves have been established) those incurred in the
ordinary course of its business that would constitute ordinarily a trade payable
to trade creditors, (iv) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks, (v) for the payment of money relating
to a Capitalized Lease Obligation, or (vi) evidenced by a letter of credit or a
reimbursement obligation of such Person with respect to any letter of credit;
(b) all obligations of such Person under Interest Swap and Hedging Obligations;
(c) all liabilities of others of the kind described in the preceding clauses (a)
or (b) that such Person has guaranteed or that is otherwise its legal liability
or which are secured by any assets or property of such Person and all
obligations to purchase, redeem or acquire any Capital Stock; (d) all
Disqualified Capital Stock of such Person and all Preferred Stock of such
Person's Subsidiaries; and (e) any and all deferrals, renewals, extensions,
refinancing and refundings (whether direct or indirect) of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (a), (b), (c), or (d) or this clause (e), whether or not
between or among the same parties; PROVIDED that the outstanding principal
amount at any date of any Indebtedness issued with original issue discount is
the face amount of such Indebtedness less the remaining unamortized portion of
the original issue discount of such Indebtedness at such date.
"INTEREST SWAP AND HEDGING OBLIGATIONS" means any obligations of any Person
pursuant to any interest rate swaps, caps, collars and similar arrangements
providing protection against fluctuations in interest rates. For purposes of the
Indenture, the amount of such obligations shall be the amount determined in
respect thereof as of the end of the then most recently ended fiscal quarter of
such Person, based on the assumption that such obligation had terminated at the
end of such fiscal quarter, and in making such determination, if any agreement
relating to such obligation provides for the netting of amounts payable by and
to such Person thereunder or if any such agreement provides for the simultaneous
payment of amounts by and to such Person, then in each such case, the amount of
such obligations shall be the net amount so determined, plus any premium due
upon default by such Person.
"INVESTMENT" by any Person in any other Person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such Person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities of such other Person or any agreement to make any
such acquisition; (b) the making by such Person of any deposit with, or advance,
loan or other extension of credit to, such other Person (including the purchase
of property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such other Person) or any
commitment to make any such advance, loan or extension; (c) the entering into by
such Person of any guarantee of, or other contingent obligation with respect to,
Indebtedness or other liability of such other Person; (d) the making of any
capital contribution by such Person to such other Person; and (e) the
designation by the Board of
85
<PAGE>
Directors of the Company of any Person to be an Unrestricted Subsidiary. For
purposes of the "Limitation on Restricted Payments" covenant, (i) "INVESTMENT"
shall include and be valued at the fair market value of the net assets of any
Restricted Subsidiary at the time that such Restricted Subsidiary is designated
an Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any
Investment shall be the fair market value of such Investment plus the fair
market value of all additional Investments by the Company or any of its
Restricted Subsidiaries at the time any such Investment is made; PROVIDED that,
for purposes of this sentence, the fair market value of net assets in excess of
$5,000,000 shall be as determined by an independent appraiser of national
reputation.
"ISSUE DATE" means the time and date of the first issuance of the Notes
under the Indenture.
"JUNIOR INDEBTEDNESS" means Indebtedness of the Company that (i) requires no
payment of principal prior to or on the date on which all principal of and
interest on the Notes is paid in full and (ii) is subordinate and junior in
right of payment to the Notes in all respects.
"LIEN" means any mortgage, lien, pledge, charge, security interest, or other
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement and any lease deemed to constitute a security interest and any option
or other agreement to give any security interest).
"MATURITY DATE" means, when used with respect to any Note, the date
specified on such Note as the fixed date on which the final installment of
principal of such Note is due and payable (in the absence of any acceleration
thereof pursuant to the provisions of the Indenture regarding acceleration of
Indebtedness or any Change of Control Offer, Proceeds Purchase Offer or Asset
Sale Offer).
"NET CASH PROCEEDS" means the aggregate amount of cash and Cash Equivalents
received by the Company and its Restricted Subsidiaries in respect of an Asset
Sale (including upon the conversion to cash and Cash Equivalents of (A) any note
or installment receivable at any time, or (B) any other property as and when any
cash and Cash Equivalents are received in respect of any property received in an
Asset Sale but only to the extent such cash and Cash Equivalents are received
within one year after such Asset Sale), less the sum of (i) all reasonable
out-of-pocket fees, commissions and other expenses incurred in connection with
such Asset Sale, including the amount (estimated in good faith by the Board of
Directors of the Company) of income, franchise, sales and other applicable taxes
required to be paid by the Company or any Restricted Subsidiary of the Company
in connection with such Asset Sale and (ii) the aggregate amount of cash so
received which is used to retire any existing Senior Indebtedness of the Company
or Indebtedness of its Restricted Subsidiaries, as the case may be, which is
required to be repaid in connection with such Asset Sale or is secured by a Lien
on the property or assets of the Company or any of its Restricted Subsidiaries,
as the case may be.
"NET POPS" of any Person with respect to any System means the Pops of the
MSA or RSA served by such System multiplied by the direct and/or indirect
percentage interest of such Person in the entity licensed or designated to
receive an authorization by the Federal Communications Commission to construct
or operate a System in that MSA or RSA.
"NET PROCEEDS" means the aggregate net proceeds (including the fair market
value of non-cash proceeds constituting equipment or other assets of a type
generally used in a Related Business an amount reasonably determined by the
Board of Directors of the Company for amounts under $5,000,000 and by a
financial advisor or appraiser of national reputation for equal or greater
amounts) received by a Person from the sale of Qualified Capital Stock (other
than to a Subsidiary of such Person) after payment of out-of-pocket expenses,
commissions and discounts incurred in connection therewith.
"OBLIGATION" means any principal, premium, interest (including interest
accruing subsequent to a bankruptcy or other similar proceeding whether or not
such interest is an allowed claim enforceable
86
<PAGE>
against the Company in a bankruptcy case under Federal bankruptcy law),
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable pursuant to the terms of the documentation governing any Indebtedness.
"OPERATING CASH FLOW" of any Person means (a), with respect to any period,
the Consolidated Net Income of such Person for such period, plus (b) the sum,
without duplication (and only to the extent such amounts are deducted from net
revenues in determining such Consolidated Net Income), of (i) the provisions for
income taxes for such period for such Person and its consolidated Subsidiaries,
(ii) depreciation, amortization and other non-cash charges of such Person and
its consolidated Subsidiaries and (iii) Consolidated Interest Expense of such
Person for such period, determined, in each case, on a consolidated basis for
such Person and its consolidated Subsidiaries in accordance with GAAP, LESS (c)
the amount of all cash payments made during such period by such Person and its
Subsidiaries to the extent such payments relate to non-cash charges that were
added back in determining Operating Cash Flow for such period or for any prior
period. When the foregoing definition is used in connection with the Company and
its Restricted Subsidiaries, references to a Person and its Subsidiaries in the
foregoing definition shall be deemed to refer to the Company and its Restricted
Subsidiaries.
"PERMITTED ACQUISITION INDEBTEDNESS" means, with respect to any Person,
Indebtedness Incurred in connection with the acquisition of property, businesses
or assets which, or Capital Stock of a Person all or substantially all of whose
assets, are of a type generally used in a Related Business; PROVIDED that, in
the case of the Company or its Restricted Subsidiaries, as applicable, (x)(i)
the Company's Annualized Operating Cash Flow Ratio, after giving effect to such
acquisition and such Incurrence on a pro forma basis, is no greater than such
ratio prior to giving pro forma effect to such acquisition and such Incurrence,
(ii) the Company's consolidated Senior Indebtedness, divided by the Net Pops of
the Company and its Restricted Subsidiaries, in each case giving pro forma
effect to the acquisition and such Incurrence, does not exceed $60, (iii) the
Company's consolidated Indebtedness divided by the Net Pops of the Company and
its Restricted Subsidiaries does not increase as a result of the acquisition and
such Incurrence and (iv) after giving effect to such acquisition and such
Incurrence the acquired property, businesses or assets or such Capital Stock is
owned directly by the Company or a Wholly Owned Restricted Subsidiary of the
Company or (y)(i) under the terms of such Indebtedness and pursuant to
applicable law, no recourse could be had for the payment of principal, interest
or premium with respect to such Indebtedness or for any claim based thereon
against the Company or any Person that constituted a Restricted Subsidiary
immediately prior to the consummation of such acquisition or any of their
property or assets, (ii) the obligor of such Indebtedness shall have,
immediately after giving effect to such acquisition and such Incurrence on a pro
forma basis, a ratio of Annualized Operating Cash Flow as of the date of the
acquisition to the product of Consolidated Interest Expense for the Reference
Period multiplied by four (but excluding from Consolidated Interest Expense all
amounts that are not required to be paid in cash on a current basis) of at least
1 to 1 and (iii) immediately subsequent to the Incurrence of such Indebtedness,
the obligor thereof shall be a Restricted Subsidiary and shall have been
designated by the Company (as evidenced by an Officers' Certificate delivered
promptly to the Trustee) to be a "Non-Recourse Restricted Subsidiary."
"PERMITTED INVESTMENT" means (i) Investments in Cash Equivalents; (ii)
Investments in the Company or a Restricted Subsidiary (other than a Non-Recourse
Restricted Subsidiary); (iii) Investments in a Person substantially all of whose
assets are of a type generally used in a Related Business (an "Acquired Person")
if, as a result of such Investments, (A) the Acquired Person immediately
thereupon becomes a Restricted Subsidiary (other than a Non-Recourse Restricted
Subsidiary) or (B) the Acquired Person immediately thereupon either (1) is
merged or consolidated with or into the Company or any of its Restricted
Subsidiaries (other than a Non-Recourse Restricted Subsidiary) and the surviving
Person is the Company or a Restricted Subsidiary (other than a Non-Recourse
Restricted Subsidiary) or (2) transfers or conveys all or substantially all of
its assets to, or is liquidated into, the Company or any of its Restricted
Subsidiaries (other than a Non-Recourse Restricted Subsidiary); (iv) Investments
in accounts and notes receivable acquired in the ordinary course of business;
(v) any securities received in connection with an Asset Sale
87
<PAGE>
(other than those of a Non-Recourse Restricted Subsidiary) and any investment
with the Net Cash Proceeds from any Asset Sale in Capital Stock of a Person, all
or substantially all of whose assets are of a type used in a Related Business,
that complies with the "Limitation on Asset Sales and Sales of Subsidiary Stock"
covenant; (vi) any Investment pursuant to the terms of the agreements described
in or referred to under the caption "Acquisitions and Dispositions" or "Certain
Relationships and Related Transactions," as such agreements were in effect on
the Issue Date; (vii) any guarantee issued by a Restricted Subsidiary in respect
of Senior Indebtedness, or in respect of Indebtedness described by clause (ix)
of the third paragraph of the "Limitation on Incurrence of Additional
Indebtedness" covenant, in each case Incurred in compliance with the Indenture;
(viii) advances and prepayments for asset purchases in the ordinary course of
business in a Related Business of the Company or a Restricted Subsidiary; (ix)
Investments in Non-Recourse Restricted Subsidiaries with the proceeds of
contributions irrevocably and unconditionally received without restriction by
the Company from Parent; and (x) customary loans or advances made in the
ordinary course of business to officers, directors or employees of the Company
or any of its Restricted Subsidiaries for travel, entertainment, and moving and
other relocation expenses.
"PERMITTED LIEN" means (a) Liens existing on the Issue Date; (b) Liens
imposed by governmental authorities for taxes, assessments or other charges not
yet subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (c) statutory
liens of carriers, warehousemen, mechanics, materialmen, landlords, repairmen or
other like Liens arising by operation of law in the ordinary course of business
provided that (i) the underlying obligations are not overdue for a period of
more than 30 days, and (ii) such Liens are being contested in good faith and by
appropriate proceedings and adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (d) Liens
securing the performance of bids, trade contracts (other than borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of business;
(e) easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not in any
case materially detract from the value of the property, subject thereto (as such
property is used by the Company or any of its Restricted Subsidiaries) or
interfere with the ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries; (f) Liens arising by operation of law in connection
with judgments, only to the extent, for an amount and for a period not resulting
in an Event of Default with respect thereto; (g) pledges or deposits made in the
ordinary course of business in connection with worker's compensation,
unemployment insurance and other types of social security legislation; (h) Liens
in favor of the Trustee arising under the Indenture; (i) Liens securing
Permitted Acquisition Indebtedness, which either (A) were not incurred or issued
in anticipation of such acquisition or (B) secure Permitted Acquisition
Indebtedness meeting the requirements set forth in clause (y) of the definition
thereof; (j) Liens securing Senior Indebtedness that was incurred in accordance
with the "Limitation on Incurrence of Additional Indebtedness" covenant; (k)
Liens securing Indebtedness of a Person existing at the time such Person becomes
a Restricted Subsidiary or is merged with or into the Company or a Restricted
Subsidiary, PROVIDED that such Liens were in existence prior to the date of such
acquisition, merger or consolidation, were not incurred in anticipation thereof,
and do not extend to any other assets; (l) Liens arising from Purchase Money
Indebtedness permitted under the Indenture; (m) Liens securing Refinancing
Indebtedness Incurred to refinance any Indebtedness that was previously so
secured in a manner no more adverse to the Holders of the Notes than the terms
of the Liens securing such refinanced Indebtedness; and (n) Liens in favor of
the Company or a Wholly Owned Restricted Subsidiary.
"PERMITTED PROCEEDS USES" means (i) the Company's or a Restricted
Subsidiary's acquisitions exclusively of property and assets constituting, or
equity interests in an entity whose assets and property constitute, the
businesses, properties and assets described in this Prospectus under the caption
"Acquisitions and Dispositions--Pending Transactions", (ii) the acquisition of
the System serving the WI-2 RSA, (iii) payment of fees and expenses incurred in
connection with the offering of the Notes, (iv) repayment of the Poughkeepsie
Note, (v) capital expenditures and (vi) any required repurchase of Notes
pursuant to the
88
<PAGE>
terms of the covenant described in this Prospectus under the caption
"--Limitation on Use of Proceeds; Offer to Purchase".
"PERSON" means any corporation, individual, joint stock company, joint
venture, partnership, unincorporated association, governmental regulatory
entity, country, state or political subdivision thereof, trust, municipality or
other entity.
"POPS" means the estimate of the population of a Metropolitan Statistical
Area ("MSA") or Rural Service Area ("RSA") as derived from the most recent
Donnelly Market Service or if such statistics are no longer printed in the
Donnelly Market Service or the Donnelly Market Service is no longer published,
the most recent Rand McNally Commercial Atlas or if such statistics are no
longer printed in the Rand McNally Commercial Atlas or the Rand McNally
Commercial Atlas is no longer published, such other nationally recognized source
of such information.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company or its
Restricted Subsidiaries Incurred in connection with the purchase of property or
assets for the business of the Company or its Restricted Subsidiaries, PROVIDED,
that the recourse of the lenders with respect to such Indebtedness is limited
solely to the property or assets so purchased without further recourse to either
the Company or any of its Restricted Subsidiaries.
"QUALIFIED CAPITAL STOCK" means any Capital Stock of a Person that is not
Disqualified Capital Stock.
"REFERENCE PERIOD" with regard to any Person means the last full fiscal
quarter of such Person for which financial information (which the Company shall
use its best efforts to compile in a timely manner) in respect thereof is
available ended on or immediately preceding any date upon which any
determination is to be made pursuant to the terms of the Notes or the Indenture.
"REFINANCING INDEBTEDNESS" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference (or if such Indebtedness
or Disqualified Capital Stock does not require cash payments prior to maturity
or is otherwise issued at a discount, the original issue price of such
Indebtedness or Disqualified Capital Stock), not to exceed the sum of (x) the
lesser of (i) the principal amount or, in the case of Disqualified Capital
Stock, liquidation preference, of the Indebtedness or Disqualified Capital Stock
so Refinanced and (ii) if such Indebtedness being Refinanced was issued with an
original issue discount, the accreted value thereof (as determined in accordance
with GAAP) at the time of such Refinancing, (y) the amount of any premium
required to be paid in connection with such refinancing pursuant to the terms of
such Indebtedness and (z) all other customary fees and expenses of the Company
or such Restricted Subsidiary reasonably incurred in connection with such
refinancing; PROVIDED, that (A) Refinancing Indebtedness issued by any
Restricted Subsidiary of the Company shall only be used to Refinance outstanding
Indebtedness or Disqualified Capital Stock of such Restricted Subsidiary, (B)
Refinancing Indebtedness shall (x) not have a Weighted Average Life shorter than
the Indebtedness or Disqualified Capital Stock to be so refinanced at the time
of such Refinancing and (y) in all respects, be no less subordinated or junior,
if applicable, to the rights of Holders of the Notes than was the Indebtedness
or Disqualified Capital Stock to be refinanced and (C) such Refinancing
Indebtedness shall have no installments of principal (or redemption payment)
scheduled to come due earlier than the scheduled maturity of any installment of
principal (or redemption payment) of the Indebtedness or Disqualified Capital
Stock to be so refinanced which was scheduled to come due prior to the Stated
Maturity of the Notes.
"RELATED BUSINESS" means any business directly related to the ownership,
development, operation, and acquisition of wireless cellular communications
systems.
89
<PAGE>
"RELATED PERSON" means, with respect to any Person, (i) any Affiliate of
such Person or any spouse, immediate family member, or other relative who has
the same principal residence of any Affiliate of such Person and (ii) any trust
in which any Person described in clause (i) above, has a beneficial interest.
"RESTRICTED PAYMENT" means, with respect to any Person, (i) any dividend or
other distribution on shares of Capital Stock of such Person or any Subsidiary
of such Person, (ii) any payment on account of the purchase, redemption or other
acquisition or retirement for value, or any payment in respect of any amendment
(in anticipation of or in connection with any such retirement, acquisition or
defeasance) in whole or in part, of any shares of Capital Stock of such Person
or any Subsidiary of such Person held by Persons other than such Person or any
of its Restricted Subsidiaries, (iii) any defeasance, redemption, repurchase or
other acquisition or retirement for value, or any payment in respect of any
amendment (in anticipation of or in connection with any such retirement,
acquisition or defeasance) in whole or in part, of any Indebtedness of the
Company (other than the scheduled repayment thereof at maturity and any
mandatory redemption or mandatory repurchase thereof pursuant to the terms
thereof) by such Person or a Subsidiary of such Person that is subordinate in
right of payment to the Notes (other than in exchange for Refinancing
Indebtedness permitted to be Incurred under the Indenture and except for any
such defeasance, redemption, repurchase, other acquisition or payment in respect
of Indebtedness held by any Restricted Subsidiary) and (iv) any Investment
(other than a Permitted Investment); PROVIDED, HOWEVER, that the term
"Restricted Payment" does not include (i) any dividend, distribution or other
payment on shares of Capital Stock of the Company or any Restricted Subsidiary
solely in shares of Qualified Capital Stock, (ii) any dividend, distribution or
other payment to the Company, or any dividend to any of its Restricted
Subsidiaries, by any of its Subsidiaries, (iii) any dividend, distribution or
other payment by any Restricted Subsidiary on shares of its Capital Stock that
is paid PRO RATA to all holders of such Capital Stock, or (iv) the purchase,
redemption or other acquisition or retirement for value of shares of Capital
Stock of any Restricted Subsidiary (other than Non-Recourse Restricted
Subsidiaries) held by Persons other than the Company or any of its Restricted
Subsidiaries.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company which at the
time of determination is not an Unrestricted Subsidiary. The Board of Directors
of the Company may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if, immediately before and after giving effect to such
designation, there would exist no Default or Event of Default and the Company
could incur at least $1.00 of Indebtedness pursuant to the Annualized Operating
Cash Flow Ratio test of the "Limitation on Incurrence of Additional
Indebtedness" covenant, on a pro forma basis taking into account such
designation.
"SENIOR INDEBTEDNESS" means all Indebtedness of the Company (including, with
respect to the Credit Agreement, all Obligations), including interest thereon,
whether outstanding on the Issue Date or thereafter issued, other than (a)
Indebtedness that is expressly subordinated or junior in right of payment to any
Indebtedness of the Company, (b) Indebtedness represented by Disqualified
Capital Stock, (c) any liability for federal, state, local or other taxes owed
or owing by the Company, (d) Indebtedness of the Company to any Subsidiary of
the Company or any Affiliate of the Company (other than Purchase Money
Indebtedness constituting at least 75% but not more than 100% of the cost of
wireless cellular communication system equipment and other related fixed assets,
Incurred in compliance with the "Limitation on Incurrence of Additional
Indebtedness" covenant), (e) trade payables and (f) Indebtedness incurred in
violation of the Indenture.
"SIGNIFICANT RESTRICTED SUBSIDIARY" means one or more Restricted
Subsidiaries having an aggregate net book value of assets in excess of 5% of the
net book value of the assets of the Company and its Restricted Subsidiaries on a
consolidated basis.
"STATED MATURITY" means the date fixed for the payment of any principal or
premium pursuant to the Indenture and the Notes, including the Maturity Date,
upon redemption, acceleration, Asset Sale Offer, Proceeds Purchase Offer, Change
of Control Offer or otherwise.
90
<PAGE>
"SUBSIDIARY" with respect to any Person, means (i) a corporation at least
fifty percent of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by such Person and one or more Subsidiaries of such Person or by
one or more Subsidiaries of such Person, or (ii) a partnership in which such
Person or a Subsidiary of such Person is, at the time, a general partner of such
partnership, or (iii) any Person in which such Person, one or more Subsidiaries
of such Person, or such Person and one or more Subsidiaries of such Person,
directly or indirectly, at the date of determination thereof has (x) at least a
fifty percent ownership interest or (y) the power to elect or direct the
election of the directors or other governing body of such Person.
"UNRESTRICTED SUBSIDIARY" shall mean any Subsidiary of the Company that, at
the time of determination, shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of the Company, as provided below). The Board of
Directors of the Company may designate any Subsidiary of the Company (including
any newly acquired or newly formed Subsidiary at or prior to the time it is so
formed or acquired) to be an Unrestricted Subsidiary if (a) no Default or Event
of Default is existing or will occur as a consequence thereof, (b) such
Subsidiary does not own any Capital Stock of, or own or hold any Lien on any
property or asset of, the Company or any Restricted Subsidiary that is not a
Subsidiary of the Subsidiary to be so designated and (c) such Subsidiary and
each of its Subsidiaries has not at the time of designation, and does not
thereafter, create, incur, issue, assume, guarantee, or otherwise become
directly or indirectly liable with respect to any Indebtedness pursuant to which
the lender has recourse to any property or assets of the Company or any of its
Restricted Subsidiaries (except that such Subsidiary and its Subsidiaries may
guarantee the Notes); PROVIDED that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, that such designation would be permitted under the
"Limitation on Restricted Payments" covenant. Each such designation shall be
evidenced by filing with the Trustee a certified copy of the resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions.
"VOTING STOCK" means Capital Stock of the Company having generally the right
to vote in the election of a majority of the directors of the Company or having
generally the right to vote with respect to the organizational matters of the
Company.
"WEIGHTED AVERAGE LIFE" means, as of the date of determination, with respect
to any debt instrument, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the dates of
each successive scheduled principal payment of such debt instrument multiplied
by the amount of each such respective principal payment by (ii) the sum of all
such principal payments.
"WHOLLY OWNED" means, with respect to a Subsidiary of the Company, (i) a
Subsidiary that is a corporation, of which not less than 99% of the Capital
Stock (except for directors' qualifying shares or certain minority interests
owned by other Persons solely due to local law requirements that there be more
than one stockholder, but which interest is not in excess of what is required
for such purpose) is owned directly by such Person or through one or more other
Wholly Owned Subsidiaries of such Person, or (ii) any entity other than a
corporation in which such Person, directly or indirectly, owns not less than 99%
of the Capital Stock of such entity.
91
<PAGE>
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Holders of New Notes are not entitled to any registration rights with
respect to the New Notes. Holders of Old Notes are entitled to certain
registration rights pursuant to the Registration Rights Agreement. Pursuant to
the Registration Rights Agreement, the Company has agreed to file with the SEC
and have declared effective on or prior to April 7, 1997 a registration
statement (the "Exchange Offer Registration Statement") under the Securities Act
with respect to the Exchange Offer. The Company also agreed that, after the
effectiveness of the Exchange Offer Registration Statement, it would, subject to
certain conditions, offer to the Holders of Old Notes who are able to make
certain representations the opportunity to exchange their Old Notes for New
Notes. In the event that applicable interpretations of the staff of the SEC do
not permit the Company to effect the Exchange Offer ("Commission Blockage") or
do not permit any Holder of Old Notes, subject to certain limitations, to
participate in such Exchange Offer, the Company has agreed to file with the SEC
a shelf registration statement (the "Shelf Registration Statement") to cover
resales of the applicable Old Notes. The Registration Statement of which this
Prospectus is a part constitutes the Exchange Offer Registration Statement.
The Registration Rights Agreement provides that (i) the Company will use its
reasonable best efforts to have the Exchange Offer Registration Statement (and,
if applicable, a Shelf Registration Statement) declared effective by the SEC on
or prior to April 7, 1997. If the Exchange Offer has not been consummated by
, 1997 (unless there exists a Commission Blockage) (such event, a
"Registration Default"), the Company will pay liquidated damages to each holder
of Old Notes, during the first 90-day period immediately following the
occurrence of such Registration Default in an amount equal to $0.05 per week per
$1,000 principal amount of Notes constituting Old Notes held by such Holder. The
amount of the liquidated damages will increase by an additional $0.05 per week
per $1,000 principal amount constituting Old Notes for each subsequent 90-day
period until the Exchange Offer is consummated, up to a maximum amount of
liquidated damages of $0.25 per week per $1,000 principal amount of Notes
constituting Old Notes. All accrued liquidated damages shall be paid to Holders
in the same manner as interest payments on the Notes on semi-annual Damages
Payment Dates which correspond to interest payment dates for the Notes.
The Registration Rights Agreement provides that the Company (i) shall make
available for a period of 90 days after the consummation of the Exchange Offer a
prospectus meeting the requirements of the Securities Act to any broker-dealer
for use in connection with any resale of any such Exchange Notes and (ii) shall
pay all expenses incident to the Exchange Offer (including the expenses of one
counsel to the holders of the Notes) and will indemnify certain holders of the
Notes (including any broker-dealer) against certain liabilities, including
liabilities under the Securities Act.
Holders of Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
liquidated damages set forth in the preceding sentence. In addition, for so long
as the Notes are outstanding, the Company will continue to provide to holders of
Notes and to prospective purchasers of the Notes the information required by
Rule 144A(d)(4). The Company will provide a copy of the Registration Rights
Agreement to prospective investors upon request.
92
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Davis Polk & Wardwell, tax counsel to the Company, the
following summary describes the material federal income tax considerations
applicable to the exchange of Old Notes for New Notes and the ownership and
disposition of the New Notes by Holders who acquire the New Notes. The summary
applies only to a Holder of Old Notes that acquired such Old Notes from the
Company pursuant to their original issuance and will be an initial holder of the
New Notes pursuant to the exchange hereunder. This discussion is based on laws,
regulations, rulings and decisions now in effect, all of which are subject to
change, possibly retroactively. The discussion does not cover all aspects of
federal income taxation that may be relevant to Holders, in light of their
specific circumstances, particularly Holders who own 10% or more of the stock of
the Company or Holders subject to special treatment under the federal income tax
laws (such as insurance companies, financial institutions, tax exempt
organizations, foreign persons and taxpayers subject to the alternative minimum
tax). It also does not address state, local, foreign or other tax laws. The
description assumes that Holders of the New Notes will hold the New Notes as
"capital assets" within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code").
TAX CONSEQUENCES TO U.S. HOLDERS
EXCHANGE OF NOTES
There will be no federal income tax consequences to Holders exchanging Old
Notes for New Notes pursuant to the Exchange Offer and a Holder will have the
same adjusted basis and holding period in the New Notes as it had in the Old
Notes immediately before the exchange.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Upon the sale, exchange or retirement of a New Note, a Holder will recognize
taxable capital gain or loss equal to the difference between the amount realized
on the sale, exchange or retirement and such Holder's adjusted tax basis in the
New Note. A Holder's adjusted tax basis in a New Note will equal the cost of the
Old Note to such Holder reduced by any payments on the Note received by the
Holder.
EACH HOLDER SHOULD CONSULT HIS TAX ADVISOR IN DETERMINING THE FEDERAL,
STATE, LOCAL AND ANY OTHER TAX CONSEQUENCES TO THE PARTICULAR HOLDER OF THE
EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE NEW
NOTES.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 90 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any such broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be
93
<PAGE>
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 90 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal.
The Company has agreed in the Registration Rights Agreement to indemnify
each broker-dealer reselling New Notes pursuant to this Prospectus, and their
officers, directors and controlling persons, against certain liabilities in
connection with the offer and sale of the New Notes, including liabilities under
the Securities Act, or to contribute to payments that such broker-dealers may be
required to make in respect thereof.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Davis Polk & Wardwell.
EXPERTS
The consolidated balance sheets of PriCellular Wireless Corporation and
subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of operations, stockholder's equity and cash flows for each of the
years in the three years ended December 31, 1995 appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
in the Registration Statement and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The combined financial statements of Illinois RSA 4 and 6 for the year ended
December 31, 1994 have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon incorporated by reference therein and
incorporated herein by reference. Such financial statements have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated balance sheets of Cellular Information Systems, Inc. and
subsidiaries as of December 31, 1993 and 1992 and September 30, 1994 and the
related consolidated statements of operations, stockholders' deficit and cash
flows for the years ended December 31, 1993, 1992 and 1991 and for the nine
months ended September 30, 1994 incorporated by reference in this Prospectus
have been audited by Coopers & Lybrand L.L.P., independent accountants, as
stated in their reports incorporated by reference herein. The report on Cellular
Information Systems, Inc. includes explanatory paragraphs discussing
reorganization of CIS and certain of its subsidiaries under Chapter 11 of the
United States Bankruptcy Code and the acquisition of CIS by PriCellular
Corporation. The financial statements referred to above are incorporated by
reference in this Prospectus and the Registration Statement in reliance upon the
report of Coopers & Lybrand L.L.P. given upon the authority of that firm as
experts in accounting and auditing.
The balance sheet of Great Seal Cellular Limited Partnership as of December
31, 1993 and 1994 and the related statements of operations, partners' deficit
and cash flows for the two years ended December 31, 1994 incorporated by
reference in this Prospectus and Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto and is incorporated by reference in reliance upon
the authority of such firm as experts in accounting and auditing in giving said
reports.
The balance sheet of USCOC of Ohio RSA #7, Inc., as of December 31, 1994 and
the related statements of operations, retained earnings and cash flows for the
year ended December 31, 1994, incorporated by reference in this Prospectus and
Registration Statement have been audited by Arthur
94
<PAGE>
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto and is incorporated by reference in reliance upon the authority
of such firm as experts in accounting and auditing in given said reports.
The balance sheets of Cellular of Upstate New York, Inc. as of December 31,
1995 and 1994 and the statements of income and retained earnings, and cash flows
for the years then ended, incorporated by reference in this Registration
Statement have been incorporated by reference herein in reliance on the report
of Coopers & Lybrand LLP., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
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
Prospectus, unless otherwise indicated, the term "Pops" means the estimate of
the 1995 population of a Metropolitan Statistical Area ("MSA") or Rural Service
Area ("RSA"), as derived from the 1995 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, all of the estimated
population of which is included. 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. The term "CTIA" means the Cellular
Telecommunications Industry Association.
95
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet (unaudited)--September 30, 1996................. F-2
Condensed Consolidated Statements of Operations (unaudited)--nine months ended
September 30, 1996 and 1995........................................................ F-3
Condensed Consolidated Statements of Cash Flows (unaudited)--nine months ended
September 30, 1996 and 1995........................................................ F-4
Notes to Condensed Consolidated Financial Statements (unaudited)..................... F-5
Report of Independent Auditors....................................................... F-8
Consolidated Balance Sheets--December 31, 1995 and 1994.............................. F-9
Consolidated Statements of Operations--Years Ended December 31, 1995, 1994 and
1993............................................................................... F-10
Consolidated Statements of Stockholder's Equity--Years Ended December 31, 1995, 1994
and 1993........................................................................... F-11
Consolidated Statements of Cash Flows--Years Ended December 31, 1995, 1994 and
1993............................................................................... F-12
Notes to Consolidated Financial Statements........................................... F-14
</TABLE>
F-1
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 25,234 $ 26,669
Accounts receivable (less allowance of $2,837 in 1996 and $2,076 in 1995)......... 14,802 8,725
Due from affiliates............................................................... 35 701
Inventory......................................................................... 1,731 1,651
Other current assets.............................................................. 723 568
------------- ------------
Total current assets................................................................ 42,525 38,314
Fixed assets--at cost:
Cellular facilities and equipment................................................. 73,710 58,050
Less accumulated depreciation..................................................... (12,663) (6,009)
------------- ------------
Net fixed assets.................................................................... 61,047 52,041
Investment in cellular operations................................................... 36,581 37,386
Cellular licenses (less accumulated amortization of $10,165 in 1996 and $3,833 in
1995)............................................................................. 390,373 305,375
Cellular license held for sale...................................................... 8,179 --
Deferred financing costs (less accumulated amortization of $2,070 in 1996 and $971
in 1995).......................................................................... 8,938 9,989
Other assets........................................................................ 95 14
------------- ------------
Total assets........................................................................ $ 547,738 $ 443,119
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses............................................. $ 17,859 $ 15,385
Long-term debt--current portion................................................... 389 1,971
Income taxes payable.............................................................. 432 872
Other current liabilities......................................................... 4,779 3,529
Due to affiliate.................................................................. -- 126
------------- ------------
Total current liabilities........................................................... 23,459 21,883
Long-term debt...................................................................... 324,793 278,225
Junior Subordinated Discount Note to Parent......................................... -- 20,425
Other long-term liabilities (includes $7,911 of due to Parent in 1996).............. 10,379 1,673
Stockholder's equity:
Common stock, $0.01 par value per share; 100 shares authorized, issued and
outstanding..................................................................... -- --
Additional paid-in capital........................................................ 211,642 130,291
Accumulated deficit............................................................... (22,535) (9,378)
------------- ------------
Total stockholder's equity.......................................................... 189,107 120,913
------------- ------------
Total liabilities and stockholder's equity.......................................... $ 547,738 $ 443,119
------------- ------------
------------- ------------
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
REVENUES
Cellular service.......................................................................... $ 75,560 $ 23,696
Equipment sales........................................................................... 2,440 999
Other..................................................................................... 2,978 492
---------- ----------
80,978 25,187
COSTS AND EXPENSES
Cost of cellular service.................................................................. 20,999 6,353
Cost of equipment sold.................................................................... 6,822 2,825
General and administrative................................................................ 12,067 5,126
Sales and marketing....................................................................... 11,568 4,002
Depreciation and amortization............................................................. 15,295 6,443
---------- ----------
66,751 24,749
---------- ----------
Operating income.......................................................................... 14,227 438
OTHER INCOME (EXPENSE)
Net gain on sale of investment in cellular operations..................................... 177 11,598
Interest expense, net..................................................................... (28,623) (10,750)
Other income, net......................................................................... 1,062 270
---------- ----------
(27,384) 1,118
---------- ----------
Net income (loss)......................................................................... $ (13,157) $ 1,556
---------- ----------
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------
<S> <C> <C>
1996 1995
---------- -----------
Net cash provided by (used in) operating activities...................................... $ 25,445 $ (743)
INVESTING ACTIVITIES
Redemption of short-term investments..................................................... -- 991
Purchase of cellular equipment........................................................... (12,966) (5,120)
Purchase of cellular licenses............................................................ (1,925) --
Sale of investment in cellular operations................................................ 26,614 19,478
Acquisition of cellular operations, net of cash.......................................... (78,555) (126,690)
Proceeds from parent..................................................................... 8,577 --
Amounts deposited in escrow to acquire cellular properties............................... -- (8,000)
Investment in cellular operations........................................................ (315) (258)
---------- -----------
Net cash used in investment activities................................................... (58,570) (119,599)
---------- -----------
FINANCING ACTIVITIES
Proceeds from capital contributions...................................................... 33,613 21,278
Proceeds from issuance of 12 1/4% Senior Subordinated Discount Notes..................... -- 143,307
Proceeds from notes payable.............................................................. -- 20,000
Repayments of notes payable and due to stockholder....................................... (1,875) (3,343)
Payments for deferred financing costs.................................................... (48) (5,475)
---------- -----------
Net cash provided by financing activities................................................ 31,690 175,767
---------- -----------
(Decrease) increase in cash and cash equivalents......................................... (1,435) 55,425
Cash and cash equivalents at beginning of period......................................... 26,669 38,682
---------- -----------
Cash and cash equivalents at end of period............................................... $ 25,234 $ 94,107
---------- -----------
---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest............................................................................... $ 881 $ 527
Income taxes........................................................................... 440 3,250
Supplemental schedule of noncash investing activities
Purchase of cellular equipment........................................................... -- 85
Capital contribution of assets from Parent............................................... 26,079 8,763
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
Contribution to capital of junior subordinated debt...................................... 21,659
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION
On October 21, 1994, PriCellular Corporation (100% stockholder of Wireless)
("Parent") contributed all of the assets, net of certain liabilities to
Wireless. The consolidated financial statements include the accounts of
PriCellular Wireless Corporation and its subsidiaries (the "Company"). All
significant intercompany items and transactions have been eliminated.
The 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 financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's 1995 Annual Report on Form 10-K.
2. ACQUISITION OF CELLULAR OPERATIONS
NEW YORK CLUSTER
During April 1996, the Company consummated the acquisitions of the
non-wireline NY-6 RSA and 83% of the non-wireline Dutchess County, NY MSA
("Poughkeepsie, NY MSA") from United States Cellular Corporation, boosting its
New York contiguous cluster to over 750,000 Pops.
The NY-6 RSA consists of approximately 111,000 Pops in Greene and Columbia
Counties between Albany and New York City. The NY-6 RSA abuts PriCellular's
previously acquired NY-5 RSA and includes 30 miles of the New York State
Thruway, 10 miles of the Interstate connecting the New England Thruway with the
New York State Thruway in Albany and 30 miles of the Taconic State Parkway. The
acquisition price of the NY-6 RSA was approximately $19,800,000.
The Poughkeepsie, NY MSA abuts the Company's NY-6 RSA and NY-5 RSA and
extends the Company's New York cluster across the Hudson Valley from the
Connecticut and Massachusetts border 100 miles west to the Binghamton, NY area.
The MSA has approximately 263,000 Pops of which the Company acquired 83% for
$178 per Pop or $38,900,000, with one-half paid in cash and the balance in a
three-year note bearing interest at the prime rate.
During October 1996, the Company consummated an agreement with Vanguard
Cellular Systems, Inc. in which it exchanged certain of its Systems for, among
other things, the Orange County, NY MSA and an additional 11.1% of the Company's
majority-owned Poughkeepsie, NY MSA. Pursuant to the agreement the Company
exchanged an aggregate of 548,016 Net 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 (324,323 Pops), 11.1% of the
Poughkeepsie, NY MSA (262,663 Pops), 12.2% of the Janesville, WI MSA (18,013 Net
Pops) and approximately 23,571 additional net 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 Orange County, NY MSA abuts the Company's NY-5 RSA
to the north, the Company's Poughkeepsie, NY MSA to the east and the New York
City MSA of McCaw/AT&T Wireless to the south and east (bordering Westchester,
Putnam and Rockland counties).
F-5
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
2. ACQUISITION OF CELLULAR OPERATIONS (CONTINUED)
MID-ATLANTIC CLUSTER
During February 1996 the Company consummated the acquisition of the
non-wireline cellular system serving the PA-9 RSA from United States Cellular
Corporation for approximately $26,100,000 or $139 per Pop. The payment was made
by the Company's parent which simultaneously contributed the system to the
Company. The RA-9 RSA has approximately 188,000 Pops and abuts the Company's
Ohio Cluster on the South and McCaw/AT&T's Pittsburgh MSA on the North.
During July 1996, the Company consummated the acquisition of the
non-wireline cellular system serving the WV-3 RSA from Horizon Cellular
Telephone Company for approximately $34,700,000. The WV-3 RSA has approximately
269,000 Pops and abuts the Company's PA-9 RSA and WV-2 RSA.
3. DISPOSITION OF CELLULAR OPERATIONS
On July 1, 1996, the Company consummated the sale of its AL-4 RSA for
approximately $27,500,000 in cash or $200 per Pop of which $2,500,000 is
attributable to a two year covenant not to compete. The Company acquired this
stand-alone RSA in November 1995, for $10,000,000 in cash and $10,000,000 in a
five-year, 4% note that was subsequently converted into 1,468,860 shares of the
Parent's Class A Common Stock on the closing date. In addition during the
quarter, the Company sold an investment in minority Pops. As a result of both
transactions, the Company recognized a net gain of $177,000.
The pro forma unaudited condensed results of operations for the nine months
ended September 30, 1996, assuming the acquisitions listed in Note 2 and the
disposition of the AL-4 RSA were consummated as of the beginning of the period,
are as follows:
<TABLE>
<S> <C>
Revenues.......................................................... $ 81,962
Net loss.......................................................... $ (16,329)
</TABLE>
4. CAPITAL CONTRIBUTION
The Company's Parent issued 96,000 shares of Series A cumulative convertible
preferred stock. The issuance resulted in net proceeds to the Parent of
approximately $80,000,000, of which $33,600,000 was contributed to the Company.
On September 30, 1996, the Company's parent contributed $21,659,000 of
capital in the form of forgiving the junior subordinated note.
5. PENDING TRANSACTIONS
In a disputed acquisition on November 14, 1994, RFB Cellular, Inc. signed a
contract to acquire the MI-2 RSA. The Company believed it should have had the
right to purchase the property and initiated legal proceedings. In May 1995, as
a result of this litigation, the Court of Chancery of the State of Delaware
awarded the Company the right to acquire the MI-2 RSA. The defendant in the
lawsuit appealed the decision. On March 22, 1996, the Delaware Supreme Court
reversed the lower court's decision and ordered the Company to unwind the
acquisition and sell the license and operating assets to the defendant. The
Company believes that the completion of this transaction will not result in any
material economic gain or loss and the loss of MI-2's operating results will not
be material to the Company's results of operations.
F-6
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
5. PENDING TRANSACTIONS (CONTINUED)
On September 4, 1996, the Company entered into an agreement with a
subsidiary of BellSouth Corporation pursuant to which it will effectively
exchange, subject to certain conditions including FCC approval, its stand-alone
wireline Systems in Alabama for both the non-wireline WI-4 RSA and $18,000,000
in cash ($2,000,000 of which is attributable to a two year covenant not to
compete). The Systems to be exchanged are the Company's 136,816 Pop Florence AL
MSA and its 62,035 Pop AL-1B RSA. 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.
On September 27, 1996, the Company entered into an agreement to purchase,
subject to certain conditions including FCC approval, the non-wireline WI-2 RSA
for approximately $4,300,000 in cash (approximately $51 per Pop). The system is
contiguous to the Company's Eau Claire MSA, WI-1 and WI-3 RSA's and its MI-1
RSA.
6. SUBSEQUENT EVENTS
During October 1996, the Company and Parent have entered into an agreement,
subject to among other things FCC approval and negotiation of definitive
documentation, with a subsidiary of Horizon Cellular Telephone Company, L.P. to
purchase four non-wireline RSAs in Kentucky consisting of approximately 775,000
Net Pops for $116,500,000 consisting of $94,000,000 in cash and $22,500,000 in
the Parent's Class A Common Stock. Parent has agreed to contribute to the
Company as an equity contribution the assets it will acquire pursuant to the
Kentucky Cluster Acquisition. This will make the fourth operating cluster
established by the Company within two years of the Parent's initial public
offering.
The acquisition will be financed by the issuance of a Senior Note offering
totalling $140,000,000 face amount due in 2004 with interest payable
semi-annually, which the Company is currently in the process of obtaining.
F-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
PriCellular Wireless Corporation
We have audited the consolidated balance sheets of PriCellular Wireless
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholder's equity and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
PriCellular Wireless Corporation and subsidiaries at December 31, 1995 and 1994,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
January 24, 1996
F-8
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
<S> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
Current assets:
Cash and cash equivalents........................................................ $ 26,669 $ 38,682
Short-term investments........................................................... -- 991
Accounts receivable (less allowance of $2,076 in 1995 and $735 in 1994).......... 8,725 2,653
Due from affiliates.............................................................. 701 784
Inventory........................................................................ 1,651 428
Other current assets............................................................. 568 276
---------- ----------
Total current assets............................................................. 38,314 43,814
Fixed assets--at cost:
Cellular facilities and equipment................................................ 56,375 27,148
Furniture and equipment.......................................................... 1,675 535
---------- ----------
58,050 27,683
Less accumulated depreciation.................................................... (6,009) (1,539)
---------- ----------
Net fixed assets............................................................. 52,041 26,144
Investment in cellular operations.................................................... 37,386 4,581
Cellular licenses (less accumulated amortization of $3,883 in 1995 and $1,374 in
1994).............................................................................. 305,375 122,104
Cellular licenses held for sale...................................................... -- 7,463
Deferred financing costs (less accumulated amortization of $971 in 1995 and $57 in
1994).............................................................................. 9,989 4,757
Other assets......................................................................... 14 936
---------- ----------
Total assets................................................................. $ 443,119 $ 209,799
---------- ----------
---------- ----------
</TABLE>
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses................................... $ 15,385 $ 9,506
Long-term debt--current portion......................................... 1,971 3,249
Income taxes payable.................................................... 872 3,425
Other current liabilities............................................... 3,529 7,019
Due to affiliate........................................................ 126 --
--------- ---------
Total current liabilities........................................... 21,883 23,199
Long-term debt.............................................................. 278,225 113,683
Junior Subordinated Discount Note to Parent................................. 20,425 --
Other long-term liabilities................................................. 1,673 554
Commitments and contingent liabilities
Stockholder's equity:
Common stock, $0.01 par value per share: 100 shares authorized, issued
and outstanding
Additional paid-in capital.............................................. 130,291 74,647
Accumulated deficit..................................................... (9,378) (2,284)
--------- ---------
Total stockholder's equity.......................................... 120,913 72,363
--------- ---------
Total liabilities and stockholder's equity.......................... $ 443,119 $ 209,799
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
<S> <C> <C> <C>
1995 1994 1993
---------- ---------- ----------
Revenues:
Cellular service............................................................ $ 38,757 $ 4,825 $ 3,702
Equipment sales............................................................. 1,717 384 107
Other....................................................................... 1,030 -- --
---------- ---------- ----------
41,504 5,209 3,809
Costs and expenses:
Cost of cellular service.................................................... 10,694 1,892 835
Cost of equipment sold...................................................... 4,951 814 255
General and administrative.................................................. 8,754 4,640 1,280
Sales and marketing......................................................... 7,465 1,151 379
Depreciation and amortization............................................... 10,279 2,720 1,695
---------- ---------- ----------
42,143 11,217 4,444
---------- ---------- ----------
Operating loss.............................................................. (639) (6,008) (635)
Other income (expense):
Gain on sale of investments in cellular operations.......................... 11,598 6,819 11,986
Interest expense, including $425 of interest on Parent note................. (21,569) (2,245) (458)
Interest income............................................................. 2,996 296 187
Other income (expense), net................................................. 520 (97) (439)
---------- ---------- ----------
(6,455) 4,773 11,276
---------- ---------- ----------
Income (loss) before provision for income taxes............................. (7,094) (1,235) 10,641
Provision for income taxes.................................................. -- -- (172)
---------- ---------- ----------
Income (loss) before extraordinary item..................................... (7,094) (1,235) 10,469
Gain on early extinguishment of debt of $150, net of tax.................... -- -- 147
---------- ---------- ----------
Net income (loss)......................................................... $ (7,094) $ (1,235) $ 10,616
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------------ PAID-IN EARNINGS STOCKHOLDER'S
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
----------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
Balance--December 31, 1992...................................... 100 $ -- $ 21,240 $ (11,665) $ 9,575
Distribution to Stockholder................................... -- -- (18,116) -- (18,116)
Net income for the year ended December 31, 1993............... -- -- -- 10,616 10,616
--- ----- ---------- ---------- ------------
Balance--December 31, 1993...................................... 100 -- 3,124 (1,049) 2,075
Contributions by Stockholder.................................. -- -- 72,423 -- 72,423
Distribution to Stockholder................................... -- -- (900) -- (900)
Net loss for the year ended December 31, 1994................. -- -- -- (1,235) (1,235)
--- ----- ---------- ---------- ------------
Balance--December 31, 1994...................................... 100 -- 74,647 (2,284) 72,363
Contributions by Stockholder.................................. -- -- 55,644 -- 55,644
Net loss for the year ended December 31, 1995................. -- -- -- (7,094) (7,094)
--- ----- ---------- ---------- ------------
Balance--December 31, 1995...................................... 100 $ -- $ 130,291 $ (9,378) $ 120,913
--- ----- ---------- ---------- ------------
--- ----- ---------- ---------- ------------
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
<S> <C> <C> <C>
1995 1994 1993
---------- ---------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income (loss).............................................................. $ (7,094) $ (1,235) $ 10,616
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization.............................................. 10,278 2,720 1,695
Interest on Senior Subordinated and Convertible Discount Notes............. 21,254 1,672 --
(Gain) loss on sale of investment in cellular operations................... (11,598) (6,819) (11,986)
Gain on early extinguishment of debt....................................... -- -- (150)
Equity loss from investment in Wichita Falls............................... -- 97 84
Income from Joint Venture.................................................. (275) -- --
Amortization of covenant not to compete.................................... (500) -- --
Provision for losses on accounts receivable................................ 936 99 --
Proceeds from covenant not to compete...................................... 3,000 -- --
Changes in operating assets and liabilities net of effects from partial
sale of Wichita Falls Celltelco Partnership interest in 1993:
Accounts receivable...................................................... (4,493) (848) 319
Inventory................................................................ (891) (250) --
Due from affiliate....................................................... -- (784) --
Other current assets..................................................... (193) (52) --
Accounts payable and accrued expenses.................................... 375 3,711 (2,408)
Income taxes payable..................................................... (2,553) -- --
Other current liabilities................................................ (4,490) -- --
Other long-term liabilities.............................................. (388) 127 --
Other, net............................................................... 21 80 (18)
---------- ---------- ---------
Net cash provided by (used in) operating activities............................ 3,389 (1,482) (1,848)
---------- ---------- ---------
Investing activities:
Purchase of cellular equipment............................................. (6,794) (3,013) (205)
Purchase of cellular licenses.............................................. (45,210) (11,223) (4,465)
Amounts deposited in escrow to acquire cellular properties................. -- (800) (500)
Proceeds from affiliate.................................................... 209 160 --
Proceeds from sale of investment in cellular operations.................... 15,928 3,669 20,214
Proceeds from sale of cellular licenses.................................... 3,550 -- --
Acquisition of cellular operations, net of cash............................ (168,476) (119,143) --
Investment in cellular operations.......................................... (166) -- --
Redemption of short-term investments....................................... 991 -- --
---------- ---------- ---------
Net cash (used in) provided by investing activities............................ (199,968) (130,350) 15,044
---------- ---------- ---------
Financing activities:
Distribution to Parent..................................................... -- (900) (18,116)
Proceeds from capital contributions........................................ 30,903 61,479 --
Proceeds from notes payable and due to related parties..................... -- 7,380 4,000
Repayments of notes payable and due to related parties..................... (3,499) (3,140) (4,802)
Payments for deferred financing costs...................................... (6,145) (4,818) --
Proceeds from Junior Subordinated Discount Note............................ 20,000 -- --
Proceeds from issuance of Senior Subordinated Discount Notes............... 143,307 110,276 --
---------- ---------- ---------
Net cash provided by (used in) financing activities............................ 184,566 170,277 (18,918)
---------- ---------- ---------
(Decrease) increase in cash and cash equivalents........................... (12,013) 38,445 (5,722)
Cash and cash equivalents at beginning of year............................. 38,682 237 5,959
---------- ---------- ---------
Cash and cash equivalents at end of year....................................... $ 26,669 $ 38,682 $ 237
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................................... $ 874 $ 194 $ 510
Income taxes............................................................... 2,803 -- 175
Supplemental schedule of noncash investing activities:
Capital contribution of equipment and minority interest in cellular
operations............................................................... -- 8,155 --
Contribution of net assets into joint venture.............................. 35,516 -- --
Supplemental schedule of noncash financing activities:
Debt canceled in exchange for capital contributions........................ -- 2,791 --
Debt canceled in connection with the sale of minority interest in cellular
operations............................................................... -- 4,024 --
Capital contribution of cellular systems from Parent....................... 24,741 -- --
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION
PriCellular Wireless Corporation including its subsidiaries ("Wireless") was
incorporated on August 23, 1994. On October 21, 1994 PriCellular Corporation
(100% stockholder of Wireless) ("Parent") contributed all of the assets, net of
certain liabilities to Wireless. The transactions were accounted for in a manner
similar to a pooling of interests. Wireless and the businesses contributed to
Wireless are collectively referred to as the "Company."
The Company is principally engaged in the ownership and operation of
cellular telephone systems. During 1993 the Company sold substantially all of
its operating assets (see Note 7) in anticipation of acquiring new cellular
telephone systems (see Note 3).
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.
Prior to October 1, 1993, the Company's financial statements consolidated
the Wichita Falls Celltelco Partnership's financial position, results of
operations and cash flows. On September 30, 1993, the Company sold 49.5% of its
interest in the partnership reducing the Company's interest to 49.5%. Effective
October 1, 1993, the Company commenced accounting for its interest in the
partnership under the equity method. On June 15, 1994, the Company sold its
remaining 49.5% interest in the Partnership (see Note 7).
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.
SHORT-TERM INVESTMENTS
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("FASB 115"). The Company adopted the provisions of
the new standard for investments acquired after January 1, 1994. In accordance
with FASB 115, the Company classified all of its short-term investments as
held-to-maturity based upon the Company's positive intent and its ability to
hold the securities to maturity. Held-to-maturity securities are stated at cost,
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest income. Short-term investments at
December 31, 1994 consisted of U.S. Government obligations. Such short-term
investments are stated at cost plus accrued interest which approximates market.
These securities matured during the first quarter of 1995.
F-14
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out method) or
market. Inventory consists primarily of cellular telephones and accessories.
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 169,000 Pops)
and SBC contributed cellular properties in the Illinois 4 and 6 RSAs. The
Company owns 44.5% of the combined 584,000 Pops or approximately 260,000 Net
Pops. Under the terms of the Joint Venture agreement, the Company will receive
distributions in the first four years of the Joint Venture rising from
$3,300,000 in the first year to $5,800,000 in the last year. The Company also
has an option to put its Joint Venture interest to SBC at prices beginning at
$28,500,000 and escalating to $39,000,000 at the end of the four-year period.
SBC will have operating control of the properties and has certain rights to
purchase the Company's interests in the first year and on the day prior to the
fourth anniversary. The Company's share of net income from the Joint Venture for
the month of December 1995, totalled $275,000 which is included in other
revenue.
At December 31, 1993, the Company maintained an MSA investment, the Wichita
Falls Celltelco Partnership. Subsequent to the sale of 49.5% of the Company's
interest in the Wichita Falls MSA (see Note 7), the Company accounted for the
investment under the equity method. In 1994 and 1993, the Company's share of its
net loss approximated $97,000 and $84,000, respectively.
Consolidated financial information of the Wichita Falls Celltelco
Partnership for the periods July 1, 1994 to June 15, 1994 (date of disposition)
and for the three months ended December 31, 1993, is as follows:
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
RESULTS FOR THE
WICHITA FALLS CELLTELCO PARTNERSHIP
--------------------------------------
PERIOD
JANUARY 1, 1994
TO JUNE 15, 1994 THREE MONTHS
(DATE OF ENDED
DISPOSITION) DECEMBER 31, 1993
------------------- -----------------
<S> <C> <C>
Cellular revenue..................................... $ 1,775,000 $ 766,000
Operating expenses................................... (1,885,000) (852,000)
------------------- -----------------
Operating loss....................................... (110,000) (86,000)
Other expenses....................................... (86,000) (84,000)
------------------- -----------------
Net loss............................................. $ (196,000) $ (170,000)
------------------- -----------------
------------------- -----------------
</TABLE>
F-15
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CELLULAR LICENSE
The Company primarily uses a 40 year life to amortize cellular licenses
acquired. Amortization expense for the years ended December 31, 1995, 1994 and
1993 was $4,287,000, $1,262,000 and $1,507,000, 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. There have been no such
reductions through December 31, 1995.
INCOME RECOGNITION
Revenues are recognized during the period service is provided or when
equipment is delivered.
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 (see Note 4). These costs are being amortized over the terms of the related
notes.
3. ACQUISITION OF CELLULAR OPERATIONS
During the year ended December 31, 1995, the Company successfully
consummated the acquisition of approximately 2,174,000 Pops as shown below. The
Company expanded its Upper Midwest Cluster by adding approximately 708,000
additional Pops enlarging its contiguous service area to over 65,000 square
miles. The Company also strategically acquired a new cluster in Ohio and West
Virginia ("Ohio Cluster") encompassing five contiguous markets covering over
942,000 Pops. The Company increased its Alabama Cluster by over 140,000 Pops and
acquired approximately 384,000 Pops in New York.
F-16
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
3. ACQUISITION OF CELLULAR OPERATIONS (CONTINUED)
The following acquisitions were completed during 1995 and 1994:
<TABLE>
<CAPTION>
ACQUISITION PURCHASE NET POPS
SYSTEM MARKET DATE PRICE ACQUIRED
- -------------------------- -------------------------------- ---------------------- ------------- ----------
<S> <C> <C> <C> <C>
1995
Upper Midwest Cluster MI-1 RSA March 7, 1995 $ 17,700,000 208,779
Wausau, WI MSA March 28, 1995 5,400,000 59,640
MN-2A RSA July 7, 1995 (A) 38,236
MN-3B RSA July 7, 1995 (A) 35,572
MN-5 RSA July 7, 1995 (A) 205,456
Alton/Granite City, IL MSA July 7, 1995 (A) 18,112
Eau Claire, WI MSA July 7, 1995 (A) 14,269
Wausau, WI MSA July 7, 1995 (A) 17,289
MI-2 RSA August 28, 1995 7,200,000(B) 110,514
----------
707,867
----------
Ohio Cluster Parkersburg, WV/
Marietta, OH MSA September 27, 1995 (C) 154,510
OH-7 RSA September 27, 1995 39,800,000 254,949
OH-9 RSA September 27, 1995 28,800,000 279,577
OH-10 RSA September 29, 1995 17,600,000 173,714
WV-2 RSA December 20, 1995 7,800,000 79,307
----------
942,057
----------
Alabama Cluster AL-4 RSA November 7, 1995 (D) 140,200
----------
140,200
----------
New York Cluster NY-5 RSA December 29, 1995 65,900,000 383,960
----------
383,960
----------
Total for 1995 2,174,084
----------
----------
1994
Upper Midwest Cluster Duluth, MN/Superior, WI MSA April 28, 1994 $ 18,000,000 241,467
WI-1 RSA April 28, 1994 7,000,000 109,248
Eau Claire, WI MSA April 28, 1994 11,900,000 100,713
MN-6 RSA November 23, 1994 (E) 219,149
WI-3 November 23, 1994 (G) 139,189
WI-6A November 23, 1994 (G) 32,734
Wausau, WI MSA November 23, 1994 (G) 34,125
----------
876,625
----------
Alabama Cluster Florence November 23, 1994 (G) 136,816
AL-1B RSA November 23, 1994 (G) 62,035
----------
198,851
----------
Texas Cluster Laredo, TX, MSA November 23, 1994 (G) 168,924
Lubbock, TX MSA November 23, 1994 (G) 229,046
----------
397,970
----------
Total for 1994 1,473,446
----------
----------
</TABLE>
F-17
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
3. ACQUISITION OF CELLULAR OPERATIONS (CONTINUED)
(A) The Company exchanged, with Western Wireless Corporation ("Western
Wireless"), its 100% interest in the Lubbock, TX MSA non-wireline license
consisting of approximately 229,000 Pops for approximately 327,000 Net Pops. In
addition, Western Wireless paid $3,000,000 to secure the Company's agreement not
to compete with Western Wireless within the Lubbock, TX MSA for a period of
three years following the exchange.
(B) On May 22, 1995, the Court of Chancery of the State of Delaware awarded
the right to acquire the MI-2 RSA to the Company, subject to FCC approval, for
approximately $7,200,000, which is payable over several years. The closing has
occurred but the defendant in the lawsuit has appealed the decision. The 111,000
Pop MI-2 RSA includes the eastern portion of Michigan's Upper Peninsula and
abuts the Company's MI-1 RSA.
(C) In connection with the acquisition, the Company paid $8,873,000 in cash
and Parent issued an $8.8 million unsecured five year 6% note which was
converted into 796,639 shares of its Class A Common Stock at $11 per share,
which was valued at $12.25 per share on the date of conversion, and paid an
additional $1,051,000. The portion of the assets acquired by Parent were
contributed to the Company.
(D) The purchase price consisted of $10,000,000 in cash paid by the Company
and 1,175,000 shares of Parent's Class A Common Stock. Parent contributed the
portion of the assets acquired through the issuance of the Class A Common Stock
to the Company.
(E) During October 1994, a subsidiary of CIS and a subsidiary of Century
Telephone Enterprises, Inc. ("CTE") entered into an asset exchange agreement
("MN-6/Pine Bluff Exchange") pursuant to which, on November 23, 1994, CIS
acquired CTE's non-wireline cellular system serving the MN-6 RSA in exchange for
(i) CIS' wireline cellular system serving the Pine Bluff, Arkansas MSA and (ii)
the payment to CTE of approximately $10,475,000. The Company sold a portion of
the MN-6 RSA, representing approximately 31,000 of the 250,149 Pops in the RSA
to AT&T Wireless Services Inc. ("AT&T Wireless") for $3,550,000 in cash.
(F) On November 30, 1995, the Company contributed its Laredo, TX MSA
cellular system into a Joint Venture with SBC (see Note 2).
(G) These properties were acquired in connection with the Company's
acquisition of CIS. In June 1994, Parent entered into agreements with certain
stockholders of CIS ("CIS Purchase Agreements") pursuant to which it agreed to
purchase, and such stockholders agreed to sell, 335,110 shares of Common Stock
of CIS and 5,698,495 shares of Class B Common Stock of CIS for $2.00 per share
and warrants to purchase 587,975 additional shares of Class B Common Stock of
CIS for $0.50 per warrant. Each warrant entitles the holder thereof to purchase
one share of Class B Common Stock of CIS at an exercise price of $1.50 per
share. Each share of Class B Common Stock of CIS entitles the holder thereof to
10 votes, and each share of Common Stock of CIS entitles the holder thereof to
one vote. The shares of Common Stock, Class B Common Stock and warrants to
purchase Common Stock of CIS are referred to herein as "CIS Stock." The CIS
Stock acquired pursuant to the CIS Purchase Agreements constituted approximately
46.5% (on a fully diluted basis) of the equity of CIS and approximately 61.5%
(on a fully diluted basis) of the voting power entitled to vote generally in the
election of directors of CIS. These shares were purchased for approximately
$12,467,000.
F-18
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
3. ACQUISITION OF CELLULAR OPERATIONS (CONTINUED)
During August and September 1994, Parent entered into agreements with each
of the CIS banks to which it paid $835,000 for the option to purchase, on or
prior to December 15, 1994, all of the outstanding CIS bank debt, which was
approximately $68,500,000 as of November 23, 1994. Concurrent with the closing
of the 14% Senior Subordinated Discount Notes due 2001 (the "14% Notes") and the
CIS acquisition, Parent paid $60,900,000 which included the option payment to
purchase the CIS bank debt. The option payment was applied towards the purchase
price of CIS.
On August 2, 1994, Parent commenced a cash tender offer ("Tender Offer") for
any and all outstanding shares of Common Stock and Class B Common Stock of CIS
for $2.00 per share and any and all warrants to purchase additional shares of
Class B Common Stock of CIS for $0.50 per warrant. On November 23, 1994, Parent
acquired pursuant to the Tender Offer shares of CIS Stock for $11,809,000 that,
together with the shares acquired pursuant to the CIS Purchase Agreements,
represent approximately 90.8% (on a fully dilutes basis) of the equity of CIS
and approximately 92.1% (on a fully diluted basis) of the voting power entitled
to vote generally in the election of directors of CIS. Parent subsequently
transferred to Wireless, all CIS Stock acquired by it pursuant to the CIS
Purchase Agreements and the Tender Offer for an aggregate amount equal to the
cost to Parent, including expenses, of acquiring the CIS Stock. The source of
funds used by Parent for the CIS Acquisition were the proceeds from the of the
14% Notes.
In connection with the CIS acquisition, Parent entered into employment
agreements with two executives of CIS (the "Employment Agreements"). The
Employment Agreements provided that the executives received warrants to purchase
up to 14,776 share of Series C Preferred Stock of the Parent which are
convertible into 1,200,550 shares of the Parent's Class B Common Stock, subject
to adjustment. In February 1995, the Parent reached an agreement with the
executives to terminate the Employment Agreements, to terminate a lease
agreement between an affiliate of the executives and CIS, and to increase the
exercise price of the warrants for a payment to the executives of approximately
$4,250,000. At December 31, 1994 this payment was included in other current
liabilities and has been applied toward the purchase price of CIS. In January
1996, Price Communications, an affiliate, acquired the warrants from the former
executives.
The above transactions were accounted for as purchases and, accordingly, the
results of operations of the companies acquired have been included in the
consolidated financial statements from the date of acquisition. The allocation
of purchase price for certain of the above acquisitions in tentative.
The Pro Forma unaudited condensed consolidated results of operations for the
years ended December 31, 1995 and 1994, assuming the transactions were
consummated as of January 1, 1994, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
<S> <C> <C>
1995 1994
-------------- --------------
Revenue....................................................... $ 63,751,000 $ 39,459,000
-------------- --------------
-------------- --------------
Net loss...................................................... $ (32,542,000) $ (45,226,000)
-------------- --------------
-------------- --------------
</TABLE>
F-19
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
<S> <C> <C>
1995 1994
-------------- --------------
14% Senior Subordinated Discount Notes due 2001.................................. $ 128,160,000 $ 111,948,000
12 1/4% Senior Subordinated Discount Notes due 2003.............................. 147,925,000 --
Other long-term debt............................................................. 4,111,000 4,984,000
-------------- --------------
280,196,000 116,932,000
Less current portion............................................................. 1,971,000 3,249,000
-------------- --------------
$ 278,225,000 $ 113,683,000
-------------- --------------
-------------- --------------
8% Junior Subordinated Discount Note due 2004 to Parent.......................... $ 20,425,000 $ --
-------------- --------------
-------------- --------------
</TABLE>
On November 23, 1994, the Company issued approximately $165,000,000
aggregate principal amount of 14% Notes primarily to finance the acquisition of
CIS. The 14% Notes were issued at a price of 66.834% or $110,276,000. The
original issue discount on the 14% Notes accretes at a rate of 14%, compounded
semiannually, to an aggregate principal amount of approximately $165,000,000 by
November 15, 1997. Interest will thereafter accrue at 14% per annum, payable
semiannually beginning May 15, 1998.
On September 27, 1995, the Company issued approximately $205,000,000
aggregate principal amount of 12 1/4% Senior Subordinated Discount Notes due
2003 (the "12 1/4% Note") to finance 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
acquisitions. The 12 1/4% Notes were issued at a price of 69.906% or
$143,307,000. 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 $205,000,000 by October 1, 1998. Interest will thereafter accrue
at 12 1/4% per annum payable semiannually beginning April 1, 1999.
On September 26, 1995, the Company issued a $40,516,000 principal amount of
8% Junior Subordinated Discount Note due 2004 to Parent (the "8% Notes"). The 8%
Note was issued at a price of 49.363% or $20,000,000. The original issue
discount on the 8% Note accretes at a rate of 8% compounded semiannually.
Principal and interest become payable on September 26, 2004.
The Company's long-term debt includes restrictions on the Company and
Parent's debt, on dividends, on liens, on payments and the transfer of net
assets from the Company to Parent.
The maturities of the Company's long-term debt for each of the five years
subsequent to December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.......................................................... $ 1,971,000
1997.......................................................... 389,000
1998.......................................................... 389,000
1999.......................................................... 389,000
2000.......................................................... 389,000
Thereafter.................................................... 297,094,000
-----------
Total......................................................... $300,621,000
-----------
-----------
</TABLE>
F-20
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
5. INCOME TAXES
The Company is included in the consolidated Federal income tax return of
Parent. The Company and its subsidiaries pay to or collect from Parent the
applicable Federal income taxes or tax benefit as if they filed on a separate
return basis. Participants in consolidated returns are jointly and severally
liable with respect to such returns.
The significant components of the Company's deferred tax liability and
assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
------------- -----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation..................................................................... $ (4,591,000) $ (560,000)
Amortization..................................................................... (2,738,000) (2,205,000)
Deferred tax assets:
Net operating loss carryforwards..................................................... 3,104,000 2,535,000
Alternative minimum tax carryforwards............................................ 175,000 175,000
Amortization of Original Issue Discount.......................................... 7,795,000 569,000
State and local deferred taxes................................................... 856,000 134,000
Accruals......................................................................... 2,221,000 791,000
Other............................................................................ 1,556,000 22,000
------------- -----------
Net deferred tax asset............................................................... 8,378,000 1,461,000
Valuation allowance.................................................................. (8,378,000) (1,461,000)
------------- -----------
$ -- $ --
------------- -----------
------------- -----------
</TABLE>
For the year ended December 31, 1993, the Company provided $175,000 for
Federal Alternative Minimum Tax ("AMT").
At December 31, 1995, the Company had tax net operating loss carryforwards
of approximately $9,129,000, which are available to offset future taxable
income. $1,700,000 of the carryforwards expire in the year 2009 and the
remaining amount expires in the year 2010. Pursuant to Section 338 of the
Internal Revenue Code, the Company elected to treat the stock purchase of CIS as
a purchase of assets and, accordingly, accrued approximately $2,000,000 in
Federal income taxes payable representing alternative minimum tax arising as a
result of the election. The Company paid these taxes during 1995.
The reconciliation of income tax at the U.S. federal statutory tax rates to
income tax expense is:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------
<S> <C>
Tax at U.S. statutory rates of 34%......................................... $ 3,618,000
Alternative minimum tax.................................................... 172,000
Utilization of net operating loss carryforwards............................ (3,618,000)
-----------------
$ 172,000
-----------------
-----------------
</TABLE>
F-21
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
6. CAPITAL CONTRIBUTIONS
During the second quarter of 1994, Parent entered into the following
transactions:
- AT&T Wireless Services, Inc. ("McCaw/AT&T" or "AT&T Wireless") purchased
2,031,250 shares of Class B Common Stock of Parent (Class B shares are
entitled to ten votes per share).
- Harvard Private Capital Group, Inc. ("Harvard") purchased 42,130 shares of
Series A Convertible Preferred Stock of Parent.
- Spectrum Equity Investors L.P. ("Spectrum") purchased 6,018 shares of
Series A Convertible Preferred Stock of Parent and a $6 million
convertible promissory note which was converted into 12,739 shares of
Series B Convertible Preferred Stock of Parent on July 9, 1994. Spectrum
assigned and transferred a portion of the note totaling $1.5 million to
two funds managed by Investment Advisors, Inc. ("IAI").
In connection with the above mentioned transactions, Parent received
$36,200,000 consisting of cash, capital equipment and minority interests in an
FCC non-wireline cellular license. The capital equipment and minority interest
were valued at $3,385,000 which approximates their historical net book value.
During July 1994, McCaw/AT&T exercised its preemptive rights by purchasing
16,049 shares of the parent's Series A Convertible Preferred Stock for
$7,559,000 in the form of a reduction of notes payable, minority interests in
certain FCC MSA non-wireline cellular licenses, and capital equipment. The
minority interests and capital equipment were recorded at their approximate
historical net book value.
In connection with the formation of the Company, Parent contributed these
assets to Wireless.
On December 22, 1994, Parent closed on its IPO of 5,000,000 shares of Class
A Common Stock resulting in net proceeds of $34,697,000 after deducting expenses
related to the offering and contributed $28,619,000 to the Company.
In connection with the over-allotment agreement with the underwriters of the
Parent's IPO, during January 1995, Parent sold an additional 375,000 shares of
Class A Common Stock which resulted in net proceeds of approximately $2,567,000
of which $927,000 was contributed to the Company.
On July 14, 1995, Harvard Private Capital Group, Inc. and Spectrum Equity
Investors L.P. exercised an option to purchase a total of 827,815 shares of
Parent's Class A Common Stock. The proceeds to Parent totaled $5,000,000, of
which $1,750,000 was contributed to the Company.
On August 21, 1995, Parent issued approximately $60,000,000 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 $35,607,000 of which
$18,600,000 was concurrently contributed to the Company.
On November 22, 1995, Parent sold 2,000,000 shares of Class A Common Stock
to an institutional investor. Proceeds to Parent totaled $24,066,000, of which
$8,575,000 was contributed to the Company.
F-22
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
7. 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>
1995
January............... Abilene, Texas, sale of assets $ 15,928,000 $ 11,598,000
March................. Minnesota 6, sale of a portion of the license
representing 31,000 Pops 3,550,000 --
-------------
$ 11,598,000
-------------
-------------
1994
June.................. Wichita Falls Celltelco Partnership, sale of
approximate 49.5% interest $ 7,693,000 $ 6,819,000
-------------
-------------
1993
April................. Amarillo Celltelco, sale of minority interest $ 166,000 $ (104,000)
July.................. South Dakota 7 Corporation, sale of assets 2,100,000 1,942,000
August................ Biloxi-Gulfport, sale of minority interest 1,100,000 649,000
September............. Texas 6 Corporation, sale of assets 10,000,000 3,780,000
September............. Wichita Falls Celltelco Partnership, sale of
49.5% of its approximate 99% interest 6,848,000 5,719,000
-------------
$ 11,986,000
-------------
-------------
</TABLE>
In connection with the Wichita Falls transaction, the Company entered into a
management agreement whereby it ran the operations and received a management fee
of 6% of revenue until the remaining 49.5% interest in Wichita Falls was sold on
June 15, 1994. For the period January 1, 1994 to June 15, 1994, and the three
month period ended December 31, 1993, the Company earned approximately $93,000
and $49,000, respectively, for management fee income.
In 1994, in connection with the sale of Wichita Falls to McCaw/AT&T for
$7,693,000, the Company received net proceeds of $3,829,000. The net proceeds
reflect the sales price of $7,693,000 plus the repayment of $160,000 due from
affiliate less $4,024,000 from cancellation of a portion of the notes payable to
McCaw/AT&T.
8. SUBSEQUENT EVENT
PENNSYLVANIA-9 RSA ACQUISITION
On February 2, 1996, the Company acquired the PA-9 RSA consisting of
approximately 188,000 Pops from United States Cellular Corporation. The PA-9 RSA
abuts the Company's Ohio Cluster on the south and McCaw/AT&T's Pittsburgh MSA on
the north. The RSA was acquired at a cost of approximately $139 per Pop.
F-23
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
9. PENDING TRANSACTIONS
REMAINING SHARES OF CIS STOCK
The Company may acquire the remaining shares of CIS Stock as soon as
practicable. Such acquisitions may be effected through privately negotiated or
open market purchases, subsequent tender offers, a merger or similar business
combination between the Company and CIS or otherwise. The Company has included
in other current liabilities $2,525,000 for the acquisition of remaining shares
of CIS Stock.
NEW YORK CLUSTER
The following two acquisitions will increase the Company's New York Cluster
to over 750,000 Pops.
On December 26, 1995, the Company exercised an option, subject to among
other things, FCC approval, to acquire the New York-6 RSA consisting of
approximately 111,000 Pops in Greene and Columbia Counties between Albany and
New York City from United States Cellular Corporation. New York-6 abuts
PriCellular's NY-5 RSA and includes 30 miles of the New York State Thruway, 10
miles of the Interstate connecting the New England Thruway with the New York
State Thruway in Albany and 30 miles of the Taconic State Parkway. The
acquisition price of the New York-6 RSA will be approximately $19,800,000.
POUGHKEEPSIE MSA ACQUISITION
On December 26, 1995, the Company exercised an option, subject to among
other things, FCC and New York State approval, to acquire 83% of the Dutchess
County MSA, which includes the City of Poughkeepsie, from United States Cellular
Corporation. The MSA has approximately 263,000 Pops.
The Dutchess County MSA abuts New York RSA-6 and PriCellular's NY-5 RSA and
extends PriCellular's New York Cluster across the Hudson Valley from the
Connecticut and Massachusetts border 100 miles west to the Binghamton area. The
MSA will be acquired for cash and a note totaling approximately $178 per Pop or
$39,200,000, with one-half paid in cash and the balance in a three-year prime
note with a bullet maturity.
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
Total rent expense amounted to approximately $877,000, $166,000 and $84,000
for the years ended December 31, 1995, 1994 and 1993, respectively, of which
$60,000 and $20,000 was paid to an affiliate
F-24
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
during 1995 and 1994, respectively. At December 31, 1995, the Company is
committed under the following noncancelable operating leases:
<TABLE>
<CAPTION>
PERIOD
- --------------------------------------------------------------------------------
<S> <C>
1996............................................................................ $ 1,415,000
1997............................................................................ 1,244,000
1998............................................................................ 962,000
1999............................................................................ 748,000
2000............................................................................ 585,000
Thereafter...................................................................... 575,000
------------
$ 5,529,000
------------
------------
</TABLE>
11. RELATED PARTY TRANSACTIONS
In March 1994, Parent repurchased and retired 117,000 shares of Parent's
common stock owned by an employee of the Company for $900,000. Simultaneously
the funds were loaned back to the Company. The Company repaid the loan during
June 1994 along with approximately $11,000 of interest.
In February 1994, the Company borrowed $280,000 from the President of the
Company and a member of his family. During May 1994, these loans were repaid
along with approximately $2,000 of interest.
During September and October 1994, the Company borrowed $1,600,000 from
members of the family of the President of the Company at a rate of 1% below the
prime rate per annum. In December 1994, the loan was repaid along with interest
approximating $23,000.
The Company, Parent and McCaw/AT&T are parties to an operating agreement
dated April 28, 1994, which provides for, among other services, switch sharing
agreements with McCaw/AT&T's adjacent systems, assistance in obtaining cellular
system service and equipment discounts, assistance in evaluating potential
acquisitions and in securing financing.
As of December 31, 1995 and 1994, the Company had a receivable from its
parent of approximately $701,000 and $784,000, respectively, which represents
amounts paid on behalf of the Parent by the Company for general and
administrative expenses.
12. 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 sheet approximate fair value.
LONG-TERM DEBT: The fair value of the Senior Subordinated Discount Notes is
based on the quoted market price. The fair value of the Junior Subordinated
Discount Note is estimated using discounted cash flow analysis, based on the
Company's incremental borrowing rate for similar types of borrowing agreements.
The carrying amount of the other long-term debt approximates its fair value.
F-25
<PAGE>
PRICELLULAR WIRELESS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
---------------- --------------
<S> <C> <C>
Cash and cash equivalents.................................. $ 26,669,000 $ 26,669,000
Long-term debt:
14% Senior Subordinated Discount Notes................... 128,160,000 145,200,000
12 1/4% Senior Subordinated Discount Notes............... 147,925,000 158,363,000
8% Junior Subordinated Discount Note....................... 20,425,000 14,334,000
Other long-term debt....................................... 4,111,000 4,111,000
</TABLE>
13. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
<S> <C> <C>
1995 1994
------------- ------------
Accounts payable................................................. $ 3,915,000 $ 3,838,000
Professional fees................................................ 1,327,000 556,000
Interest payable................................................. 119,000 502,000
Accrued operating expenses....................................... 2,929,000 1,337,000
Taxes payable.................................................... 988,000 351,000
Other............................................................ 6,107,000 2,922,000
------------- ------------
$ 15,385,000 $ 9,506,000
------------- ------------
------------- ------------
</TABLE>
14. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
<S> <C> <C>
1995 1994
------------ ------------
Employment agreement settlement................................... $ -- $ 4,250,000
Amount due for untendered CIS shares.............................. 2,525,000 2,534,000
Unearned covenant not to compete.................................. 1,000,000 --
Other............................................................. 4,000 235,000
------------ ------------
$ 3,529,000 $ 7,019,000
------------ ------------
------------ ------------
</TABLE>
F-26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information........................... 2
Incorporation of Certain Documents by
Reference..................................... 2
Prospectus Summary.............................. 3
Risk Factors.................................... 17
Capitalization.................................. 23
Unaudited Pro Forma Condensed Consolidated
Financial Statements.......................... 24
Selected Financial Data......................... 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 39
The Exchange Offer.............................. 43
Business........................................ 49
Management...................................... 63
Principal Stockholders.......................... 67
Description of Notes............................ 71
Certain Federal Income Tax Consequences......... 95
Plan of Distribution............................ 95
Legal Matters................................... 96
Experts......................................... 96
Certain Terms................................... 97
Index to Consolidated Financial Statements...... F-1
</TABLE>
$170,000,000
PRICELLULAR
PRICELLULAR WIRELESS CORPORATION
10 3/4% SENIOR NOTES DUE 2004
--------------
PROSPECTUS
--------------
NOVEMBER , 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to
Section 174 of the DGCL (providing for liability of directors for the
unlawful payment of dividends or unlawful stock purchases or redemptions) or
(iv) for any transaction from which a director derived an improper personal
benefit. Section 145 of the DGCL empowers the Company to indemnify, subject to
the standards set forth therein, any person in connection with any action, suit
or proceeding brought before or threatened by reason of the fact that the person
was a director, officer, employee or agent of such company, or is or was serving
as such with respect to another entity at the request of such company. The DGCL
also provides that the Company may purchase insurance on behalf of any such
director, officer, employee or agent.
The Company's Amended and Restated Certificate of Incorporation provides in
effect for the indemnification by the Company of each director and officer of
the Company to the fullest extent permitted by applicable law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits (see index to exhibits at E-1)
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-1
<PAGE>
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securites Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to b e a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, New York, on
the 27th day of November, 1996.
PRICELLULAR WIRELESS CORPORATION
By: /s/ STUART B. ROSENSTEIN
-----------------------------------------
Stuart B. Rosenstein
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER
AND TREASURER
The registrant and each person whose signature appears below constitutes and
appoints Robert Price and Stuart B. Rosenstein, and any agent for service named
in this Registration Statement and each of them, his, her or its true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him, her or it and in his, her, or its name, place and
stead, in any and all capacities, to sign and file (i) any and all amendments
(including post-effective amendments) to this Registration Statement, with all
exhibits thereto, and other documents in connection therewith, and (ii) a
registration statement, and any and all amendments thereto, relating to the
offering covered hereby filed pursuant to Rule 462(b) under the Securities Act
of 1933, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he, she or it
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ ROBERT PRICE Director and President
---------------------------- (Principal Executive November 27, 1996
Robert Price Officer)
Senior Vice President,
/s/ STUART B. ROSENSTEIN Chief Financial Officer
---------------------------- and Treasurer (Principal November 27, 1996
Stuart B. Rosenstein Financial and Accounting
Officer)
/s/ KIM I. PRESSMAN
---------------------------- Director, Vice President November 27, 1996
Kim I. Pressman and Secretary
/s/ STEVEN PRICE
---------------------------- Director and Senior Vice November 27, 1996
Steven Price President
/s/ BRION B. APPLEGATE
---------------------------- Director November 27, 1996
Brion B. Applegate
/s/ SCOTT M. SPERLING
---------------------------- Director November 27, 1996
Scott M. Sperling
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------------------- -------------
<S> <C> <C>
2.1 Form of Purchase and Sale Agreement relating to the CIS Acquisition (1)
2.2 Agreement of Purchase and Sale by and between David L. Block and PriCellular Corporation
dated as of October 28, 1994 (1)
2.3 Asset Exchange Agreement, dated October 19, 1994, between C.I.S of Pine Bluff, Inc., Century
Cellunet of Minnesota and Pricellular Corporation (the MN-6/Pine Bluff Asset Exchange
Agreement) (certain exhibits and schedules have been omitted but will be furnished
supplementally to the Commission upon request) (1)
2.4 Asset Purchase Agreement, dated as of February 16, 1994, by and between PriCellular
Corporation and Chico MSA Cellular, Inc., McCaw Cellular Communications, Inc. and Louisiana
8 Corporation (1)
2.5 Purchase Agreement, dated as of December 17, 1994, among The Buckhead Telephone Company,
Gilro Cellular Corporation and PriCellular Corporation (2)
2.6 Agreement, dated as of January 26, 1995, by and among CIS and KETS partnership (2)
2.7 Asset Purchase Agreement by and among PriCellular Corporation, Northland Cellular
Corporation, Dominion Cellular, Inc. and Dominion Resources, Inc., dated as of May 8, 1995
(certain exhibits and schedules have been omitted but will be furnished supplementally to
the Commission upon request) (4)
2.8 Contribution Agreement by and among Texas/Illinois Cellular Limited Partnership, a Delaware
Limited Partnership, Southwestern Bell Mobile Systems, Inc., a Delaware and Virginia
corporation, PriCellular Corporation, 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) (4)
2.9 Acquisition Agreement, dated as of July 31, 1995, by and among Cellular of Upstate New York,
Inc., Alexandra Cellular Corporation, PriCellular Corporation, and the Company (certain
exhibits and schedules have been omitted but will be furnished supplementally to the
Commission upon request) (4)
2.10 Asset Purchase Agreement dated as of September 27, 1995 by and among Seven Cellular
Corporation, the Company, USCOC of Ohio. RSA #7, Inc., and United States Cellular
Corporation (certain exhibits and schedules have been omitted but will be furnished
supplementally to the Commission upon request) (3)
2.11 Acquisition Agreement dated as of June 28, 1995 by and among Great Seal Cellular Limited
Partnership, PriCellular Corporation and Chill Cellular Corporation (certain exhibits and
schedules have been omitted but will be furnished supplementally to the Commision upon
request) (4)
2.12 Acquisition Agreement dated as of September 29, 1995 by and among Cellular-10, Inc., the
shareholders listed therein. Wireless and Ohio River Cellular Corporation (certain exhibits
and schedules have been omitted but will be furnished supplementally to the Commission upon
request (3)
2.13 Agreement for Purchase of Stock by and among PriCellular Corporation, Eastern Wireless
Cellular Corporation and AT&T Wireless Servies, Inc., dated September 20, 1995 (certain
exhibits and schedules have been omitted but will be furnished supplementally to the
Commission upon request (3)
2.14 Letter Agreement dated June 27, 1995 between PriCellular Corporation and USCOC of West
Virginia RSA #2, Inc. (4)
2.15 Asset Sale Agreement dated April 9, 1996 between PriCellular Corporation and Mississippi One
Cellular Telephone (6)
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------------------- -------------
2.16 Asset Purchase Agreement dated as of May 8, 1996 between PriCellular Corporation and Horizon
Cellular Telephone Company of Monongalia, L.P. (6)
<S> <C> <C>
2.17 Asset Exchange Agreement dated June 17, 1996 between PriCellular Corporation and Vanguard
Cellular Systems, Inc. (6)
4.1 Indenture to 14% Senior Subordinated Discount Notes due 2001 among the Company, PriCellular
Corporation and Bank of Montreal Trust Company, as Trustee (including form of Note). (1)
4.2 Indenture to 12 1/4% Senior Subordinated Notes due 2003 among the Company, PriCellular
Corporation and Bank of Montreal Trust Company, Trustee (including form of Note). (3)
4.3 Indenture to 10 3/4% Senior Notes due 2004 between Wireless and Bank of Montreal Trust
Company, as Trustee (including form of Note).
5.1 Opinion of Davis Polk & Wardwell regarding the validity of the securities being registered.
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of the Registrant (1).
23.1 Consent of Ernst & Young LLP relating to the financial statements of the Company.
23.2 Consent of Davis, Polk & Wardwell (see exhibit 5.1).
23.3 Consent of Ernst & Young LLP relating to the financial statements of Illinois RSA 4 and 6
(San Antonio, Texas).
23.4 Consent of Coopers & Lybrand, L.L.P. relating to the financial statements of Cellular
Information Systems, Inc. (New York, New York)
23.5 Consent of Arthur Andersen LLP relating to the financial statements of Great Seal Cellular
Limited Partnership. (Atlanta, Georgia)
23.6 Consent of Arthur Andersen LLP relating to the financial statements of USCOC of Ohio RSA #7
(Chicago, Illinois)
23.7 Consent of Coopers & Lybrand, L.L.P. relating to the financial statements of Cellular of
Upstate New York, Inc. (Albany, New York)
25.1 Statement of eligibility of Bank of Montreal Trust Company (separately bound).
99.1 Form of Letter of Transmittal to 10 3/4% Senior Notes due 2004 of the Company.
99.2 Form of Notice of Guaranteed Delivery to 10 3/4% Senior Notes due 2004 of the Company.
99.3 Instruction to Registered Holder and/or Book-entry transfer of Participant from owner of
PriCellular Corporation.
99.4 Form of Letter to Clients.
99.5 Form of Letter to Registered Holders and Depository Trust Company Participants.
</TABLE>
- ------------------------
(1) Incorporated herein by reference to PriCellular Corporation Registration
Statement on Form S-1, No. 33-85678.
(2) Incorporated herein by reference to the Registration Statement on Form S-4,
No. 33-88350 filed by PriCellular Corporation.
(3) Incorporated herein by reference to PriCellular Corporation's Registration
Statement on Form S-1 No. 33-98156.
(4) Incorporated herein by reference to PriCellular Wireless's Registration
Statement on Form S-1, No. 33-95834.
(5) Previously filed.
(6) Incorporated herein by reference to PriCellular Corporation's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1996.
E-2
<PAGE>
Exhibit 4.3
================================================================================
PRICELLULAR WIRELESS CORPORATION,
Issuer,
and
BANK OF MONTREAL TRUST COMPANY,
Trustee
-------------------
INDENTURE
Dated as of November 1, 1996
-------------------
$170,000,000
10-3/4% Senior Notes due 2004
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE.................................. 1
SECTION 1.1. Definitions................................................. 1
SECTION 1.2. Incorporation by Reference of TIA........................... 27
SECTION 1.3. Rules of Construction....................................... 27
ARTICLE II
THE SECURITIES.............................................................. 28
SECTION 2.1. Form and Dating............................................. 28
SECTION 2.2. Execution and Authentication................................ 28
SECTION 2.3. Registrar and Paying Agent.................................. 30
SECTION 2.4. Paying Agent to Hold Assets in Trust........................ 30
SECTION 2.5. Securityholder Lists........................................ 31
SECTION 2.6. Transfer and Exchange....................................... 31
SECTION 2.7. Replacement Securities...................................... 38
SECTION 2.8. Outstanding Securities...................................... 39
SECTION 2.9. Treasury Securities......................................... 40
SECTION 2.10. Temporary Securities........................................ 40
SECTION 2.11. Cancellation................................................ 40
SECTION 2.12. Defaulted Interest.......................................... 41
ARTICLE III
REDEMPTION.................................................................. 42
SECTION 3.1. Right of Redemption......................................... 42
SECTION 3.2. Notices to Trustee.......................................... 43
SECTION 3.3. Selection of Securities to Be Redeemed...................... 43
SECTION 3.4. Notice of Redemption........................................ 44
SECTION 3.5. Effect of Notice of Redemption.............................. 45
SECTION 3.6. Deposit of Redemption Price................................. 45
SECTION 3.7. Securities Redeemed in Part................................. 46
i
<PAGE>
Page
----
ARTICLE IV
COVENANTS................................................................... 46
SECTION 4.1. Payment of Securities....................................... 46
SECTION 4.2. Maintenance of Office or Agency............................. 47
SECTION 4.3. Limitation on Restricted Payments........................... 47
SECTION 4.4. Corporate Existence......................................... 49
SECTION 4.5. Payment of Taxes and Other Claims........................... 49
SECTION 4.6. Maintenance of Properties and Insurance..................... 50
SECTION 4.7. Compliance Certificate; Notice of
Default.................................................. 51
SECTION 4.8. Reports..................................................... 51
SECTION 4.9. Limitation on Status as Investment
Company.................................................. 52
SECTION 4.10. Limitation on Transactions with Related
Persons.................................................. 52
SECTION 4.11. Limitation on Incurrence of Additional
Indebtedness............................................. 53
SECTION 4.12. Limitations on Restricting Subsidiary
Dividends................................................ 55
SECTION 4.13. Limitations on Liens........................................ 56
SECTION 4.14. Limitation on Asset Sales and Sales of
Subsidiary Stock......................................... 56
SECTION 4.15. Waiver of Stay, Extension or Usury Laws..................... 63
SECTION 4.16. Limitation on Use of Proceeds............................... 64
SECTION 4.17. Rule 144A Information Requirement........................... 67
SECTION 4.18. Limitation on Lines of Business............................. 67
SECTION 4.19. Restriction on Sale and Issuance of
Subsidiary Stock......................................... 67
ARTICLE V
SUCCESSOR CORPORATION....................................................... 68
SECTION 5.1. Limitation on Merger, Sale or
Consolidation............................................ 68
SECTION 5.2. Successor Corporation Substituted........................... 69
ii
<PAGE>
Page
----
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES.............................................. 69
SECTION 6.1. Events of Default........................................... 69
SECTION 6.2. Acceleration of Maturity Date;
Rescission and Annulment................................. 71
SECTION 6.3. Collection of Indebtedness and Suits
for Enforcement by Trustee............................... 73
SECTION 6.4. Trustee May File Proofs of Claim............................ 74
SECTION 6.5. Trustee May Enforce Claims Without
Possession of Securities.................................... 75
SECTION 6.6. Priorities.................................................. 75
SECTION 6.7. Limitation on Suits......................................... 75
SECTION 6.8. Unconditional Right of Holders to
Receive Principal, Premium and
Interest................................................. 76
SECTION 6.9. Rights and Remedies Cumulative.............................. 77
SECTION 6.10. Delay or Omission Not Waiver................................ 77
SECTION 6.11. Control by Holders.......................................... 77
SECTION 6.12. Waiver of Past Default...................................... 78
SECTION 6.13. Undertaking for Costs........................................78
SECTION 6.14. Restoration of Rights and Remedies...........................79
ARTICLE VII
TRUSTEE..................................................................... 79
SECTION 7.1. Duties of Trustee........................................... 79
SECTION 7.2. Rights of Trustee........................................... 80
SECTION 7.3. Individual Rights of Trustee................................ 81
SECTION 7.4. Trustee's Disclaimer........................................ 82
SECTION 7.5. Notice of Default........................................... 82
SECTION 7.6. Reports by Trustee to Holders............................... 82
SECTION 7.7. Compensation and Indemnity.................................. 83
SECTION 7.8. Replacement of Trustee ......................................84
SECTION 7.9. Successor Trustee by Merger, Etc............................ 85
SECTION 7.10. Eligibility; Disqualification............................... 85
SECTION 7.11. Preferential Collection of Claims
against Company.......................................... 85
iii
<PAGE>
Page
----
ARTICLE VIII
LEGAL DEFEASANCE AND COVENANT DEFEASANCE.................................... 86
SECTION 8.1. Option to Effect Legal Defeasance or
Covenant Defeasance...................................... 86
SECTION 8.2. Legal Defeasance and Discharge.............................. 86
SECTION 8.3. Covenant Defeasance......................................... 86
SECTION 8.4. Conditions to Legal or Covenant
Defeasance............................................... 87
SECTION 8.5. Deposited U.S. Legal Tender Equivalents
and U.S. Government Obligations to be
Held in Trust; Other Miscellaneous
Provisions............................................... 89
SECTION 8.6. Repayment to the Company.................................... 89
SECTION 8.7. Reinstatement............................................... 90
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS......................................... 90
SECTION 9.1. Supplemental Indentures Without Consent
of Holders............................................... 90
SECTION 9.2. Amendments, Supplemental Indentures
and Waivers with Consent of Holders...................... 91
SECTION 9.3. Compliance with TIA......................................... 93
SECTION 9.4. Revocation and Effect of Consents........................... 93
SECTION 9.5. Notation on or Exchange of Securities....................... 94
SECTION 9.6. Trustee to Sign Amendments, Etc............................. 94
ARTICLE X
[RESERVED]
iv
<PAGE>
Page
----
ARTICLE XI
RIGHT TO REQUIRE REPURCHASE................................................. 95
SECTION 11.1. Repurchase of Securities at Option of
the Holder Upon a Change of Control...................... 95
ARTICLE XII
[RESERVED]
ARTICLE XIII
MISCELLANEOUS............................................................... 98
SECTION 13.1. TIA Controls................................................ 98
SECTION 13.2. Notices..................................................... 98
SECTION 13.3. Communications by Holders with Other
Holders.................................................. 99
SECTION 13.4. Certificate and Opinion as to Conditions
Precedent................................................ 99
SECTION 13.5. Statements Required in Certificate or
Opinion.................................................. 99
SECTION 13.6. Rules by Trustee, Paying Agent,
Registrar............................................... 100
SECTION 13.7. Legal Holidays............................................. 100
SECTION 13.8. Governing Law.............................................. 100
SECTION 13.9. No Adverse Interpretation of Other
Agreements.............................................. 101
SECTION 13.10. No Recourse against Others................................. 101
SECTION 13.11. Successors................................................. 101
SECTION 13.12. Duplicate Originals........................................ 101
SECTION 13.13. Severability............................................... 102
SECTION 13.14. Table of Contents, Headings, Etc........................... 102
SECTION 13.15. Qualification of Indenture................................. 102
SECTION 13.16. Registration Rights........................................ 102
SIGNATURES................................................................. 103
EXHIBIT A - FORM OF SECURITY............................................... A-1
EXHIBIT B - REPRESENTATION LETTER.......................................... B-1
v
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- ---------
310(a)(1)...................................................... 7.10
(a)(2)...................................................... 7.10
(a)(3)...................................................... N.A.
(a)(4)...................................................... N.A.
(a)(5)...................................................... 7.10
(b)......................................................... 7.8;
7.10
(c)......................................................... N.A.
311(a)......................................................... 7.11
(b)......................................................... 7.11
(c)......................................................... N.A.
312(a)......................................................... 2.5
(b)......................................................... 13.3
(c)......................................................... 13.3
313(a)......................................................... 7.6
(b)(1)...................................................... 7.6
(b)(2)...................................................... 7.6
(c)......................................................... 7.6;
13.2
(d)......................................................... 7.6
314(a)......................................................... 4.8;
13.2
(b)......................................................... N.A.
(c)(1)...................................................... 2.2;
7.2;
13.4
(c)(2)...................................................... 7.2;
13.4
(c)(3)...................................................... N.A.
(d) N.A.
(e) 13.5
(f) N.A.
315(a)......................................................... 7.1(b)
(b)......................................................... 7.5;
7.6;
13.2
(c)......................................................... 7.1(a)
(d)......................................................... 2.8;
6.11;
7.1(b)(c)
vi
<PAGE>
TIA Indenture
Section Section
- ------- -------
(e)......................................................... 6.13
316(a)(last sentence).......................................... 2.9
(a)(1)(A)................................................... 6.11
(a)(1)(B)................................................... 6.12
(a)(2)...................................................... N.A.
(b)......................................................... 6.12;
6.8;
6.7
317(a)(1)...................................................... 6.3
(a)(2)...................................................... 6.4
(b)......................................................... 2.4
318(a)......................................................... 13.1
- ----------
N.A. means not applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
vii
<PAGE>
INDENTURE, dated as of November 1, 1996, by and between PriCellular
Wireless Corporation, a Delaware corporation (the "Company"), and Bank of
Montreal Trust Company, a New York banking corporation, as Trustee.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's
10-3/4% Series A Senior Notes due 2004 and the 10-3/4% Series B Senior Notes due
2004 which may be exchanged for the 10-3/4% Series A Senior Notes due 2004:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
"Acceleration Notice" shall have the meaning specified in Section
6.2.
"Acceptance Amount" shall have the meaning specified in Section
4.14.
"Accumulated Amount" shall have the meaning specified in Section
4.14.
"Acquired Person" shall have the meaning as set forth in the
definition of "Permitted Investment."
"Affiliate" means, with respect to any specified Person, (i) any
other Person directly or indirectly controlling or controlled by, or under
direct or indirect common control with, such specified Person or (ii) any
officer, director, or controlling stockholder of such other Person. For purposes
of this definition, the term "control" means (a) the power to direct the
management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, or (b) without limiting the foregoing, the beneficial ownership of
10% or more of the voting power of the voting common equity of such Person (on a
fully diluted basis) or of warrants or other rights to acquire such equity
(whether or not presently exercisable).
"Agent" means any Registrar, Paying Agent or co-Registrar.
<PAGE>
"Annualized Operating Cash Flow" on any date means, with respect to
any Person, the Operating Cash Flow of such Person for the Reference Period
multiplied by four.
"Annualized Operating Cash Flow Ratio" on any date (the "Transaction
Date") means, with respect to any Person and its Subsidiaries, the ratio of (i)
consolidated Indebtedness of such Person and its Subsidiaries on the Transaction
Date (after giving pro forma effect to the Incurrence of such Indebtedness)
divided by (ii) the aggregate amount of Annualized Operating Cash Flow of such
Person (determined on a pro forma basis after giving effect to all acquisitions
or dispositions of businesses made by such Person and its Subsidiaries from the
beginning of the Reference Period through the Transaction Date as if such
acquisition or disposition had occurred at the beginning of such Reference
Period); provided that for purposes of such computation, in calculating
Annualized Operating Cash Flow and consolidated Indebtedness, (a) the
transaction giving rise to the need to calculate the Annualized Operating Cash
Flow Ratio will be assumed to have occurred (on a pro forma basis) on the first
day of the Reference Period; (b) the incurrence of any Indebtedness during the
Reference Period or subsequent thereto and on or prior to the Transaction Date
(and the application of the proceeds therefrom to the extent used to retire
Indebtedness or to acquire businesses) will be assumed to have occurred (on a
pro forma basis) on the first day of such Reference Period; (c) Consolidated
Interest Expense attributable to any Indebtedness (whether existing or being
incurred) bearing a floating interest rate shall be computed as if the rate in
effect on the Transaction Date had been the applicable rate for the entire
period; and (d) all members of the consolidated group of such Person on the
Transaction Date that were acquired during the Reference Period shall be deemed
to be members of the consolidated group of such Person for the entire Reference
Period. When the foregoing definition is used in connection with the Company and
its Restricted Subsidiaries, references to a Person and its Subsidiaries in the
foregoing definition shall be deemed to refer to the Company and its Restricted
Subsidiaries.
"Asset Sale" shall have the meaning specified in Section 4.14.
"Asset Sale Offer" shall have the meaning specified in Section 4.14.
2
<PAGE>
"Asset Sale Offer Amount" shall have the meaning specified in
Section 4.14.
"Asset Sale Offer Price" shall have the meaning specified in Section
4.14.
"Asset Sale Purchase Date" shall have the meaning specified in
Section 4.14.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means a day that is not a Legal Holiday.
"Capitalized Lease Obligations" means obligations under a lease that
are required to be capitalized for financial reporting purposes in accordance
with GAAP, and the amount of Indebtedness represented by such obligations shall
be the capitalized amount of such obligations, as determined in accordance with
GAAP.
"Capital Stock" means, with respect to any Person, any capital stock
of such Person and shares, interests, participations or other ownership
interests (however designated) of any Person and any rights (other than debt
securities convertible into capital stock), warrants and options to purchase any
of the foregoing, including (without limitation) each class of common stock and
preferred stock of such Person if such Person is a corporation and each general
and limited partnership interest of such Person if such Person is a partnership.
"Cash Equivalents" means (i) Securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof
3
<PAGE>
(provided that the full faith and credit of the United States of America is
pledged in support thereof) in each case maturing within one year after the date
of acquisition, (ii) time deposits and certificates of deposit and commercial
paper issued by the parent corporation of any domestic commercial bank of
recognized standing having capital and surplus in excess of $500 million and
commercial paper issued by others rated at least A-2 or the equivalent thereof
by Standard & Poor's Corporation or at least P-2 or the equivalent thereof by
Moody's Investors Service, Inc. and in each case maturing within one year after
the date of acquisition and (iii) investments in money market funds
substantially all of whose assets comprise securities of the types described in
clauses (i) and (ii) above.
"Change of Control" means (i) any sale, transfer or other
conveyance, whether direct or indirect, of a majority of the fair market value
of the assets of the Company or Parent, on a consolidated basis, in one
transaction or a series of related transactions, if, immediately after giving
effect to such transaction, any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable), other than an Excluded Person or Excluded Group, is or becomes the
"beneficial owner" (as such term is used in Rule 13d-3 promulgated pursuant to
the Exchange Act), directly or indirectly, of more than 50% of the total equity
of the transferee, (ii) any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable), other than an Excluded Person or Excluded Group, is or becomes the
"beneficial owner" (as such term is used in Rule 13d-3 promulgated pursuant to
the Exchange Act), directly or indirectly, of more than 50% of the total equity
in the aggregate of all classes of Capital Stock of the Company or Parent then
outstanding normally entitled to vote in elections of directors, or (iii) during
any period of 12 consecutive months after the Issue Date, individuals who at the
beginning of any such 12-month period constituted the Board of Directors of the
Company or Parent (together with any new directors whose election by such Board
or whose nomination for election by the shareholders of the Company or Parent
was approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company or Parent then in
office.
4
<PAGE>
"Change of Control Offer" shall have the meaning specified in
Section 11.1.
"Change of Control Offer Period" shall have the meaning specified in
Section 11.1.
"Change of Control Purchase Date" shall have the meaning specified
in Section 11.1.
"Change of Control Purchase Price" shall have the meaning specified
in Section 11.1.
"Change of Control Put Date" shall have the meaning specified in
Section 11.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to the Indenture, and thereafter means such
successor.
"Company Systems" shall have the meaning specified in Section 4.14.
"Consolidated Interest Expense" of any Person means, for any period,
the aggregate amount (without duplication and determined in each case in
accordance with GAAP) of (a) interest expensed or capitalized, paid, accrued, or
scheduled to be paid or accrued (including, in accordance with the following
sentence, interest attributable to the Capitalized Lease Obligations) of such
Person and its consolidated Subsidiaries during such period, including (i)
original issue discount and non-cash interest payments or accruals on any
Indebtedness, (ii) the interest portion of all deferred payment obligations, and
(iii) all commissions, discounts and other fees and charges owed with respect to
bankers' acceptances and letters of credit financings and currency and Interest
Swap and Hedging Obligations, in each case to the extent attributable to such
period, and (b) the amount of dividends accrued or payable by such Person or any
of its consolidated Subsidiaries in respect of Preferred Stock (other than by
Restricted Subsidiaries of such Person to such Person or such Person's Wholly
Owned Subsidiaries). For purposes of this definition, (x) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by the Company to be the rate
5
<PAGE>
of interest implicit in such Capitalized Lease Obligation in accordance with
GAAP and (y) interest expense attributable to any Indebtedness represented by
the guaranty by such Person or a Subsidiary of such Person of an obligation of
another Person shall be deemed to be the interest expense attributable to the
Indebtedness guaranteed. When the foregoing definition is used in connection
with the Company and its Restricted Subsidiaries, references to a Person and its
Subsidiaries in the foregoing definition shall be deemed to refer to the Company
and its Restricted Subsidiaries.
"Consolidated Net Income" of any Person for any period means the net
income (or loss) of such Person and its consolidated Subsidiaries for such
period, determined (on a consolidated basis) in accordance with GAAP, adjusted
to exclude (only to the extent included in computing such net income (or loss)
and without duplication) (i) all extraordinary gains and losses and gains and
losses that are nonrecurring (including as a result of Asset Sales outside the
ordinary course of business), (ii) the net income, if positive, of any Person,
that is not a Subsidiary in which such Person or any of its Subsidiaries has an
interest, except to the extent of the amount of dividends or distributions
actually paid to such Person or a Subsidiary of such Person that both (x) are
actually paid in cash to such Person or a Subsidiary of such Person during such
period and (y) when taken together with all other dividends and distributions
paid during such period in cash to such Person or a Subsidiary of such Person,
are not in excess of such Person's pro rata share of such other Person's
aggregate net income earned during such period, (iii), except as provided in the
definition of "Annualized Operating Cash Flow Ratio," the net income (or loss)
of any Subsidiary acquired in a pooling of interests transaction for any period
prior to the date of such acquisition and (iv) the net income, if positive, of
any Subsidiary of such Person to the extent that the declaration or payment of
dividends or similar distributions is not at the time permitted by operation of
the terms of its charter or any agreement or instrument applicable to such
Subsidiary. When the foregoing definition is used in connection with the Company
and its Restricted Subsidiaries, references to a Person and its Subsidiaries in
the foregoing definition shall be deemed to refer to the Company and its
Restricted Subsidiaries.
"Contiguous" means, when used in connection with any existing RSA or
MSA of the Company or its Subsidiaries,
6
<PAGE>
a wireless cellular communications system, any part of which exists within 50
miles of such RSA or MSA.
"Corporate Trust Office" means the principal office of the Trustee
at which at any particular time its corporate trust business shall be
administered, which address as of the date hereof is located at 77 Water Street,
New York, New York 10005.
"Covenant Defeasance" shall have the meaning specified in Section
8.3.
"Credit Agreement" means, at any time of determination, the credit
facility or loan agreement designated by the Company to be the "Credit
Agreement." There can only be one such credit facility or loan agreement
designated to be the "Credit Agreement" at any one time.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
against fluctuation in currency values.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event or condition that is, or after notice or
passage of time or both would be, an Event of Default.
"Defaulted Interest" shall have the meaning specified in Section
2.12.
"Definitive Securities" means Securities that are in the form of
Security attached hereto as Exhibit A that do not include the information called
for by footnotes 1 and 3 thereof.
"Depository" means, with respect to the Securities issuable or
issued in whole or in part in global form, the person specified in Section 2.3
as the Depository with respect to the Securities, until a successor shall have
been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
7
<PAGE>
"Disqualified Capital Stock" means, with respect to any Person,
Capital Stock of such Person that, by its terms or by the terms of any security
into which it is convertible, exercisable or exchangeable, is, or upon the
happening of any event or the passage of time would be, required to be redeemed
or repurchased (including at the option of the holder thereof) by such Person or
any of its Subsidiaries, in whole or in part, on or prior to the Stated Maturity
of the Securities; provided that Capital Stock will not be deemed to be
Disqualified Capital Stock if it may only be so redeemed or repurchased solely
in consideration of Qualified Capital Stock of the Company or Parent.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute.
"Event of Default" shall have the meaning specified in Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"Exchanged Capital Stock" shall have the meaning specified in
Section 4.14.
"Exchange Securities" means the 10-3/4% Series B Senior Notes due
2004 to be issued pursuant to this Indenture in connection with the offer to
exchange Exchange Securities for the Initial Securities that may be made by the
Company pursuant to the Registration Rights Agreement.
"Excluded Group" means a "group" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) that includes one or more Excluded Persons;
provided that the voting power of the Capital Stock of the Company or Parent
"beneficially owned" (as such term is used in Rule 13d-3 promulgated under the
Exchange Act) by such Excluded Persons (without attribution to such Excluded
Persons of the ownership by other members of the "group") represents a majority
of the voting power of the Capital Stock "beneficially owned" (as such term is
used in Rule 13d-3 promulgated under the Exchange Act) by such "group."
"Excluded Person" means Harvard Private Capital, AT&T Corp., The
Thomas H. Lee Company, members of the Price
8
<PAGE>
Family who owned Capital Stock of Parent on the Issue Date and any wholly owned
Affiliate of any of the foregoing that is wholly owned by one of the foregoing.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence and outstanding on the Issue Date.
"Final Put Date" shall have the meaning specified in Section 4.14.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board ("FASB") or, if FASB
ceases to exist, any successor thereto; provided, however, that for purposes of
determining compliance with covenants in the Indenture, "GAAP" means such
generally accepted accounting principles as in effect as of the Issue Date.
"Global Security" means a Security that contains the paragraph
referred to in footnote 1 and the additional schedule referred to in footnote 3
to the form of Security attached hereto as Exhibit A.
"Harvard Private Capital" means Aeneas Venture Corporation, an
affiliate of Harvard Private Capital Group, Inc. and a wholly owned subsidiary
of the President and Fellows of Harvard College.
"Holder" or "Securityholder" means a Person in whose name a Security
is registered. The Holder of a Security will be treated as the owner of such
Security for all purposes.
"Incur" shall have the meaning specified in Section 4.11.
"Indebtedness" of any Person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of such Person, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and
9
<PAGE>
unpaid of the purchase price of any property or services, except (other than
accounts payable or other obligations to trade creditors which have remained
unpaid for greater than 90 days past their original due date or to financial
institutions, which obligations are not being contested in good faith and for
which appropriate reserves have not been established) those incurred in the
ordinary course of its business that would constitute ordinarily a trade payable
to trade creditors, (iv) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks, (v) for the payment of money relating
to a Capitalized Lease Obligation, or (vi) evidenced by a letter of credit or a
reimbursement obligation of such Person with respect to any letter of credit;
(b) all obligations of such Person under Interest Swap and Hedging Obligations;
(c) all liabilities of others of the kind described in the preceding clauses (a)
or (b) that such Person has guaranteed or that is otherwise its legal liability
or which are secured by any assets or property of such Person and all
obligations to purchase, redeem or acquire any Capital Stock; (d) all
Disqualified Capital Stock of such Person and all Preferred Stock of such
Person's Subsidiaries; and (e) any and all deferrals, renewals, extensions,
refinancing and refundings (whether direct or indirect) of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (a), (b), (c), or (d) or this clause (e), whether or not
between or among the same parties; provided that the outstanding principal
amount at any date of any Indebtedness issued with original issue discount is
the face amount of such Indebtedness less the remaining unamortized portion of
the original issue discount of such Indebtedness at such date.
"Indenture" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, NatWest Capital
Markets Limited, PaineWebber Incorporated and Wasserstein Perella Securities,
Inc.
"Initial Securities" means the 10-3/4% Series A Senior Notes due
2004, as supplemented from time to time in accordance with the terms hereof,
issued pursuant to this Indenture.
10
<PAGE>
"Interest Payment Date" means the stated due date of an installment
of interest on the Securities.
"Interest Swap and Hedging Obligations" means any obligations of any
Person pursuant to any interest rate swaps, caps, collars and similar
arrangements providing protection against fluctuations in interest rates. For
purposes of this Agreement, the amount of such obligations shall be the amount
determined in respect thereof as of the end of the then most recently ended
fiscal quarter of such Person, based on the assumption that such obligation had
terminated at the end of such fiscal quarter, and in making such determination,
if any agreement relating to such obligation provides for the netting of amounts
payable by and to such Person thereunder or if any such agreement provides for
the simultaneous payment of amounts by and to such Person, then in each such
case, the amount of such obligations shall be the net amount so determined, plus
any premium due upon default by such Person.
"Investment" by any Person in any other Person means (without
duplication) (a) the acquisition (whether by purchase, merger, consolidation or
otherwise) by such Person (whether for cash, property, services, securities or
otherwise) of capital stock, bonds, notes, debentures, partnership or other
ownership interests or other securities of such other Person or any agreement to
make any such acquisition; (b) the making by such Person of any deposit with, or
advance, loan or other extension of credit to, such other Person (including the
purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such other
Person) or any commitment to make any such advance, loan or extension; (c) the
entering into by such Person of any guarantee of, or other contingent obligation
with respect to, Indebtedness or other liability of such other Person; (d) the
making of any capital contribution by such Person to such other Person; and (e)
the designation by the Board of Directors of the Company of any Person to be an
Unrestricted Subsidiary. For purposes of Section 4.3, (i) "Investment" shall
include and be valued at the fair market value of the net assets of any
Restricted Subsidiary at the time that such Restricted Subsidiary is designated
an Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any
Investment shall be
11
<PAGE>
the fair market value of such Investment plus the fair market value of all
additional Investments by the Company or any of its Restricted Subsidiaries at
the time any such Investment is made; provided that, for purposes of this
sentence, the fair market value of net assets in excess of $5,000,000 shall be
as determined by an independent appraiser of national reputation.
"Issue Date" means the time and date of the first issuance of the
Securities under the Indenture.
"Junior Indebtedness" means Indebtedness of the Company that (i)
requires no payment of principal prior to or on the date on which all principal
of and interest on the Securities is paid in full and (ii) is subordinate and
junior in right of payment to the Securities in all respects.
"Legal Defeasance" shall have the meaning specified in Section 8.2.
"Legal Holiday" shall have the meaning specified in Section 13.7.
"Lien" means any mortgage, lien, pledge, charge, security interest,
or other encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement and any lease deemed to constitute a security interest and
any option or other agreement to give any security interest).
"Maturity Date" means, when used with respect to any Security, the
date specified on such Security as the fixed date on which the final installment
of principal of such Security is due and payable (in the absence of any
acceleration thereof pursuant to the provisions of the Indenture regarding
acceleration of Indebtedness or any Change of Control Offer, Proceeds Purchase
Offer or Asset Sale Offer).
"MSA" shall have the meaning specified in the definition of "Pops."
"Minimum Accumulation Date" shall have the meaning specified in
Section 4.14.
12
<PAGE>
"Net Cash Proceeds" means the aggregate amount of cash and Cash
Equivalents received by the Company and its Restricted Subsidiaries in respect
of an Asset Sale (including upon the conversion to cash and Cash Equivalents of
(A) any note or installment receivable at any time, or (B) any other property as
and when any cash and Cash Equivalents are received in respect of any property
received in an Asset Sale but only to the extent such cash and Cash Equivalents
are received within one year after such Asset Sale), less the sum of (i) all
reasonable out-of-pocket fees, commissions and other expenses incurred in
connection with such Asset Sale, including the amount (estimated in good faith
by the Board of Directors of the Company) of income, franchise, sales and other
applicable taxes required to be paid by the Company or any Restricted Subsidiary
of the Company in connection with such Asset Sale and (ii) the aggregate amount
of cash so received which is used to retire any existing Senior Indebtedness of
the Company or Indebtedness of its Restricted Subsidiaries, as the case may be,
which is required to be repaid in connection with such Asset Sale or is secured
by a Lien on the property or assets of the Company or any of its Restricted
Subsidiaries, as the case may be.
"Net Pops" of any Person with respect to any cellular telephone
system means the Pops of the MSA or RSA served by such system multiplied by the
direct and/or indirect percentage interest of such Person in the entity licensed
or designated to receive an authorization by the Federal Communications
Commission to construct or operate a system in that MSA or RSA.
"Net Proceeds" means the aggregate net proceeds (including the fair
market value of non-cash proceeds constituting equipment or other assets of a
type generally used in a Related Business an amount reasonably determined by the
Board of Directors of the Company for amounts under $5,000,000 and by a
financial advisor or appraiser of national reputation for equal or greater
amounts) received by a Person from the sale of Qualified Capital Stock (other
than to a Subsidiary of such Person) after payment of out-of-pocket expenses,
commissions and discounts incurred in connection therewith.
"Non-Recourse Restricted Subsidiary" shall have the meaning
specified in the definition of "Permitted Acquisition Indebtedness."
13
<PAGE>
"Notice of Default" shall have the meaning specified in Section
6.1(3).
"Obligation" means any principal, premium, interest (including
interest accruing subsequent to a bankruptcy or other similar proceeding whether
or not such interest is an allowed claim enforceable against the Company in a
bankruptcy case under Federal bankruptcy law), penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable pursuant
to the terms of the documentation governing any Indebtedness.
"Offering Memorandum" means that certain Offering Memorandum of the
Company, dated October 30, 1996, relating to the original issuance and sale of
the Initial Securities to the Initial Purchasers.
"Officer" means, with respect to the Company, the Chief Executive
Officer, the President, any Vice President, the Chief Financial Officer, the
Treasurer, the Controller, or the Secretary of the Company.
"Officers' Certificate" means, with respect to the Company, a
certificate signed by two Officers or by an Officer and an Assistant Secretary
of the Company, respectively, and otherwise complying with the requirements of
Sections 13.4 and 13.5.
"Operating Cash Flow" of any Person means (a) with respect to any
period, the Consolidated Net Income of such Person for such period, plus (b) the
sum, without duplication (and only to the extent such amounts are deducted from
net revenues in determining such Consolidated Net Income), of (i) the provisions
for income taxes for such period for such Person and its consolidated
Subsidiaries, (ii) depreciation, amortization and other non-cash charges of such
Person and its consolidated Subsidiaries and (iii) Consolidated Interest Expense
of such Person for such period, determined, in each case, on a consolidated
basis for such Person and its consolidated Subsidiaries in accordance with GAAP,
less (c) the amount of all cash payments made during such period by such Person
and its Subsidiaries to the extent such payments relate to non-cash charges that
were added back in determining Operating Cash Flow for such period or for any
prior period. When the foregoing definition is used in connection with the
Company and its Restricted Subsidiaries, references to a Person and its Sub-
14
<PAGE>
sidiaries in the foregoing definition shall be deemed to refer to the Company
and its Restricted Subsidiaries.
"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee complying with the requirements of
Sections 13.4 and 13.5.
"Parent" means PriCellular Corporation, a Delaware corporation,
until a successor replaces it in accordance with the provisions of this
Indenture and thereafter means such successor.
"Paying Agent" shall have the meaning specified in Section 2.3.
"Payment Blockage Period" shall have the meaning specified in
Section 12.2.
"Payment Default" shall have the meaning specified in Section 12.2.
"Payment Notice" shall have the meaning specified in Section 12.2.
"Permitted Acquisition Indebtedness" means, with respect to any
Person, Indebtedness Incurred in connection with the acquisition of property,
businesses or assets which, or Capital Stock of a Person all or substantially
all of whose assets, are of a type generally used in a Related Business;
provided that, in the case of the Company or its Restricted Subsidiaries, as
applicable, (x)(i) the Company's Annualized Operating Cash Flow Ratio, after
giving effect to such acquisition and such Incurrence on a pro forma basis, is
no greater than such ratio prior to giving pro forma effect to such acquisition
and such Incurrence, (ii) the Company's consolidated Senior Indebtedness,
divided by the Net Pops of the Company and its Restricted Subsidiaries, in each
case giving pro forma effect to the acquisition and such Incurrence, does not
exceed $60, (iii) the Company's consolidated Indebtedness divided by the Net
Pops of the Company and its Restricted Subsidiaries does not increase as a
result of the acquisition and such Incurrence and (iv) after giving effect to
such acquisition and such Incurrence the acquired property, businesses or assets
or such Capital Stock is owned directly by the Company or a Wholly Owned
Restricted Subsidiary of the Company, or (y)(i) under the terms of such
Indebtedness and pursuant to applicable law,
15
<PAGE>
no recourse could be had for the payment of principal, interest or premium with
respect to such Indebtedness or for any claim based thereon against the Company
or any Person that constituted a Restricted Subsidiary immediately prior to the
consummation of such acquisition or any of their property or assets, (ii) the
obligor of such Indebtedness shall have, immediately after giving effect to such
acquisition and such Incurrence on a pro forma basis, a ratio of Annualized
Operating Cash Flow as of the date of the acquisition to the product of
Consolidated Interest Expense for the Reference Period multiplied by four (but
excluding from Consolidated Interest Expense all amounts that are not required
to be paid in cash on a current basis) of at least 1 to 1 and (iii) immediately
subsequent to the Incurrence of such Indebtedness, the obligor thereof shall be
a Restricted Subsidiary and shall have been designated by the Company (as
evidenced by an Officers' Certificate delivered promptly to the Trustee) to be a
"Non-Recourse Restricted Subsidiary."
"Permitted Investment" means (i) Investments in Cash Equivalents;
(ii) Investments in the Company or a Restricted Subsidiary (other than a
Non-Recourse Restricted Subsidiary); (iii) Investments in a Person substantially
all of whose assets are of a type generally used in a Related Business (an
"Acquired Person") if, as a result of such Investments, (A) the Acquired Person
immediately thereupon becomes a Restricted Subsidiary (other than a Non-Recourse
Restricted Subsidiary) or (B) the Acquired Person immediately thereupon either
(1) is merged or consolidated with or into the Company or any of its Restricted
Subsidiaries (other than a Non-Recourse Restricted Subsidiary) and the surviving
Person is the Company or a Restricted Subsidiary (other than a Non-Recourse
Restricted Subsidiary) or (2) transfers or conveys all or substantially all of
its assets to, or is liquidated into, the Company or any of its Restricted
Subsidiaries (other than a Non-Recourse Restricted Subsidiary); (iv) Investments
in accounts and notes receivable acquired in the ordinary course of business;
(v) any securities received in connection with an Asset Sale (other than those
of a Non-Recourse Restricted Subsidiary) and any Investment with the Net Cash
Proceeds from any Asset Sale in Capital Stock of a Person, all or substantially
all of whose assets are of a type used in a Related Business, that complies with
Section 4.14; (vi) any Investment pursuant to the terms of the agreements
described in or referred to under the caption "Acquisitions and Dispositions --
Pending Transactions" as set forth in the Offering Memorandum, as such
16
<PAGE>
agreements were in effect on the Issue Date; (vii) any guarantee issued by a
Restricted Subsidiary in respect of Senior Indebtedness, or in respect by
Indebtedness described by clause (ix) of the third paragraph of Section 4.11, in
each case Incurred in compliance with the Indenture; (viii) advances and
prepayments for asset purchases in the ordinary course of business in a Related
Business of the Company or a Restricted Subsidiary; (ix) Investments in
Non-Recourse Restricted Subsidiaries with the proceeds of contributions
irrevocably and unconditionally received without restriction by the Company from
Parent; and (x) customary loans or advances made in the ordinary course of
business to officers, directors or employees of the Company or any of its
Restricted Subsidiaries for travel, entertainment, and moving and other
relocation expenses.
"Permitted Lien" means (a) Liens existing on the Issue Date; (b)
Liens imposed by governmental authorities for taxes, assessments or other
charges not yet subject to penalty or which are being contested in good faith
and by appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (c) statutory
liens of carriers, warehousemen, mechanics, materialmen, landlords, repairmen or
other like Liens arising by operation of law in the ordinary course of business,
provided that (i) the underlying obligations are not overdue for a period of
more than 30 days, and (ii) such Liens are being contested in good faith and by
appropriate proceedings and adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (d) Liens
securing the performance of bids, trade contracts (other than borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of business;
(e) easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not in any
case materially detract from the value of the property, subject thereto (as such
property is used by the Company or any of its Restricted Subsidiaries) or
interfere with the ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries; (f) Liens arising by operation of law in connection
with judgments, only to the extent, for an amount and for a period not resulting
in an Event of Default with respect thereto; (g) pledges or deposits made in the
ordinary course of business in connection with worker's compensation,
unemployment insurance and other
17
<PAGE>
types of social security legislation; (h) Liens in favor of the Trustee arising
under the Indenture; (i) Liens securing Permitted Acquisition Indebtedness,
which either (A) were not incurred or issued in anticipation of such acquisition
or (B) secure Permitted Acquisition Indebtedness meeting the requirements set
forth in clause (y) of the definition thereof; (j) Liens securing Senior
Indebtedness that was incurred in accordance with Section 4.11; (k) Liens
securing Indebtedness of a Person existing at the time such Person becomes a
Restricted Subsidiary or is merged with or into the Company or a Restricted
Subsidiary, provided that such Liens were in existence prior to the date of such
acquisition, merger or consolidation, were not incurred in anticipation thereof,
and do not extend to any other assets; (l) Liens arising from Purchase Money
Indebtedness permitted under the Indenture; (m) Liens securing Refinancing
Indebtedness Incurred to refinance any Indebtedness that was previously so
secured in a manner no more adverse to the Holders of the Securities than the
terms of the Liens securing such refinanced Indebtedness; and (n) Liens in favor
of the Company or a Wholly Owned Restricted Subsidiary.
"Permitted Proceeds Uses" means (i) the Company's or a Restricted
Subsidiary's acquisitions exclusively of property and assets constituting, or
equity interests in an entity whose assets and property constitute, the
businesses, properties and assets described in the Offering Memorandum under the
caption "Acquisitions and Dispositions -- Pending Transactions," (ii) payment of
fees and expenses incurred in connection with the offering of the Securities,
(iii) repayment of the Poughkeepsie Note (as defined in the Offering
Memorandum), (iv) capital expenditures and (v) any required repurchase of the
Initial Securities pursuant to the terms of Section 4.16 hereof.
"Person" means any corporation, individual, joint stock company,
joint venture, partnership, unincorporated association, governmental regulatory
entity, country, state or political subdivision thereof, trust, municipality or
other entity.
"Pops" means the estimate of the population of a Metropolitan
Statistical Area ("MSA") or Rural Service Area ("RSA") as derived from the most
recent Donnelly Market Service or if such statistics are no longer printed in
the Donnelly Market Service or the Donnelly Market Service is no longer
published, the most recent Rand McNally Commercial
18
<PAGE>
Atlas or if such statistics are no longer printed in the Rand McNally Commercial
Atlas or the Rand McNally Commercial Atlas is no longer published, such other
nationally recognized source of such information.
"Preferred Stock" means Capital Stock, other than common stock of an
issuer having no preferences or privileges as to the payment of dividends or the
distribution of the issuer's assets over any other class of such issuer's
Capital Stock.
"Price Family" means Robert Price, an individual, and members of his
family who, as of the Issue Date, beneficially owned Capital Stock of Parent.
"principal" of any Indebtedness means the principal of such
Indebtedness plus, without duplication, applicable premium, if any, on such
Indebtedness.
"Proceeds Purchase Offer" shall have the meaning specified in
Section 4.16.
"Proceeds Purchase Offer Amount" shall have the meaning specified in
Section 4.16.
"Proceeds Purchase Offer Period" shall have the meaning specified in
Section 4.16.
"Proceeds Purchase Offer Price" shall have the meaning specified in
Section 4.16.
"property" means any right or interest in or to property or assets
of any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Purchase Agreement" means that certain Purchase Agreement dated
October 30, 1996 by and among the Company, Parent and the Initial Purchasers, as
such agreement may be amended, modified or supplemented from time to time in
accordance with the terms thereof.
"Purchase Money Indebtedness" means Indebtedness of the Company or
its Restricted Subsidiaries Incurred in connection with the purchase of property
or assets for the business of the Company or its Restricted Subsidiaries,
provided that the recourse of the lenders with respect to such Indebtedness is
limited solely to the property or assets so
19
<PAGE>
purchased without further recourse to either the Company or any of its
Restricted Subsidiaries.
"Qualified Capital Stock" means any Capital Stock of a Person that
is not Disqualified Capital Stock.
"Qualifying Property" shall have the meaning specified in Section
4.19.
"Record Date" means a Record Date specified in the Securities
whether or not such Record Date is a Business Day.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to Article III of
this Indenture and Paragraph 5 in the form of Security.
"Redemption Price," when used with respect to any Security to be
redeemed, means the redemption price for such redemption pursuant to Paragraph 5
in the form of Security, or pursuant to Section 4.16, which shall include,
without duplication, in each case, any accrued and unpaid interest to the
Redemption Date.
"Reference Period" with regard to any Person means the last full
fiscal quarter of such Person for which financial information (which the Company
shall use its best efforts to compile in a timely manner) in respect thereof is
available ended on or immediately preceding any date upon which any
determination is to be made pursuant to the terms of the Securities or the
Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified
Capital Stock (a) issued in exchange for, or the proceeds from the issuance and
sale of which are used substantially concurrently to repay, redeem, defease,
refund, refinance, discharge or otherwise retire for value, in whole or in part,
or (b) constituting an amendment, modification or supplement to, or a deferral
or renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference (or, if such Indebtedness
or Disqualified Capital Stock does not require cash payments prior to maturity
or is otherwise issued at a discount, the original issue price of such
Indebtedness or Disqualified Capital
20
<PAGE>
Stock), not to exceed the sum of (x) the lesser of (i) the principal amount or,
in the case of Disqualified Capital Stock, liquidation preference, of the
Indebtedness or Disqualified Capital Stock so Refinanced and (ii) if such
Indebtedness being Refinanced was issued with an original issue discount, the
accreted value thereof (as determined in accordance with GAAP) at the time of
such Refinancing, (y) the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of such Indebtedness and
(z) all other customary fees and expenses of the Company or such Restricted
Subsidiary reasonably incurred in connection with such refinancing; provided
that (A) Refinancing Indebtedness issued by any Restricted Subsidiary of the
Company shall only be used to Refinance outstanding Indebtedness or Disqualified
Capital Stock of such Restricted Subsidiary, (B) Refinancing Indebtedness shall
(x) not have a Weighted Average Life shorter than the Indebtedness or
Disqualified Capital Stock to be so refinanced at the time of such Refinancing
and (y) in all respects, be no less subordinated or junior, if applicable, to
the rights of Holders of the Securities than was the Indebtedness or
Disqualified Capital Stock to be refinanced and (C) such Refinancing
Indebtedness shall have no installments of principal (or redemption payment)
scheduled to come due earlier than the scheduled maturity of any installment of
principal (or redemption payment) of the Indebtedness or Disqualified Capital
Stock to be so refinanced which was scheduled to come due prior to the Stated
Maturity of the Securities.
"Registrar" shall have the meaning specified in Section 2.3.
"Registration Rights Agreement" means the Registration Rights
Agreement dated November 6, 1996 by and among the Initial Purchasers and the
Company, as such agreement may be amended, modified or supplemented from time to
time in accordance with the terms thereof.
"Related Business" means any business directly related to the
ownership, development, operation, and acquisition of wireless cellular
communications systems.
"Related Person" means, with respect to any Person, (i) any
Affiliate of such Person or any spouse, immediate family member, or other
relative who has the same principal residence of any Affiliate of such Person
and (ii) any
21
<PAGE>
trust in which any Person described in clause (i) above has a beneficial
interest.
"Restricted Partnership" shall have the meaning specified in Section
4.18.
"Restricted Payment" means, with respect to any Person, (i) any
dividend or other distribution on shares of Capital Stock of such Person or any
Subsidiary of such Person, (ii) any payment on account of the purchase,
redemption or other acquisition or retirement for value, or any payment in
respect of any amendment (in anticipation of or in connection with any such
retirement, acquisition or defeasance) in whole or in part, of any shares of
Capital Stock of such Person or any Subsidiary of such Person held by Persons
other than such Person or any of its Restricted Subsidiaries, (iii) any
defeasance, redemption, repurchase or other acquisition or retirement for value,
or any payment in respect of any amendment (in anticipation of or in connection
with any such retirement, acquisition or defeasance) in whole or in part, of any
Indebtedness of the Company (other than the scheduled repayment thereof at
maturity and any mandatory redemption or mandatory repurchase thereof pursuant
to the terms thereof) by such Person or a Subsidiary of such Person that is
subordinate in right of payment to the Securities (other than in exchange for
Refinancing Indebtedness permitted to be Incurred under the Indenture and except
for any such defeasance, redemption, repurchase, other acquisition or payment in
respect of Indebtedness held by any Restricted Subsidiary) and (iv) any
Investment (other than a Permitted Investment); provided, however, that the term
"Restricted Payment" does not include (i) any dividend, distribution or other
payment on shares of Capital Stock of the Company or any Restricted Subsidiary
solely in shares of Qualified Capital Stock, (ii) any dividend, distribution or
other payment to the Company, or any dividend to any of its Restricted
Subsidiaries, by any of its Subsidiaries, (iii) any dividend, distribution or
other payment by any Restricted Subsidiary on shares of its Capital Stock that
is paid pro rata to all holders of such Capital Stock, or (iv) the purchase,
redemption or other acquisition or retirement for value of shares of Capital
Stock of any Restricted Subsidiary (other than Non-Recourse Restricted
Subsidiaries) held by Persons other than the Company or any of its Restricted
Subsidiaries.
22
<PAGE>
"Restricted Security" means a Security, unless or until it has been
(i) disposed of in a transaction effectively registered under the Securities Act
or (ii) distributed to the public pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act; provided that in no case shall an
Exchange Security issued in accordance with this Indenture and the terms and
provisions of the Registration Rights Agreement be a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company which at
the time of determination is not an Unrestricted Subsidiary. The Board of
Directors of the Company may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if, immediately before and after giving effect to
such designation, there would exist no Default or Event of Default and the
Company could incur at least $1.00 of Indebtedness pursuant to the Annualized
Operating Cash Flow Ratio test of Section 4.11, on a pro forma basis, taking
into account such designation.
"RSA" shall have the meaning specified in the definition of "Pops."
"SEC" means the Securities and Exchange Commission.
"Securities" means, collectively, the Initial Securities and, when
and if issued as provided in the Registration Rights Agreement, the Exchange
Securities.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Securities Custodian" means the Trustee, as custodian with respect
to the Securities in global form, or any successor entity thereto.
"Senior Indebtedness" means all Indebtedness of the Company
(including, with respect to the Credit Agreement, all Obligations) including
interest thereon, whether outstanding on the Issue Date or thereafter issued,
other than (a) Indebtedness that is expressly subordinated or junior in right of
payment to any Indebtedness of the Company, (b) Indebtedness represented by
Disqualified Capital Stock, (c) any liability for federal, state, local or other
taxes owed or owing by the Company, (d) Indebtedness of the
23
<PAGE>
Company to any Subsidiary of the Company or any Affiliate of the Company (other
than Purchase Money Indebtedness constituting at least 75% but not more than
100% of the cost of wireless cellular communication system equipment and other
related fixed assets, Incurred in compliance with Section 4.11(v)), (e) trade
payables and (f) Indebtedness incurred in violation of the Indenture.
"Significant Restricted Subsidiary" means one or more Restricted
Subsidiaries having an aggregate net book value of assets in excess of 5% of the
net book value of the assets of the Company and its Restricted Subsidiaries on a
consolidated basis.
"Special Record Date" for payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 2.12.
"Special Rights" shall have the meaning specified in Section 4.18.
"Stated Maturity" means the date fixed for the payment of any
principal or premium pursuant to the Indenture and the Securities, including the
Maturity Date, upon redemption, acceleration, Asset Sale Offer, Proceeds
Purchase Offer, Change of Control Offer or otherwise.
"Subsidiary" with respect to any Person, means (i) a corporation at
least fifty percent of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by such Person and one or more Subsidiaries of such Person or by
one or more Subsidiaries of such Person, or (ii) a partnership in which such
Person or a Subsidiary of such Person is, at the time, a general partner of such
partnership, or (iii) any Person in which such Person, one or more Subsidiaries
of such Person, or such Person and one or more Subsidiaries of such Person,
directly or indirectly, at the date of determination thereof has (x) at least a
fifty percent ownership interest or (y) the power to elect or direct the
election of the directors or other governing body of such Person.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
77aaa-77bbbb) as in effect on the date of the execution of this Indenture.
24
<PAGE>
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 2.6 hereof.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer within the corporate trust
division (or any successor group) of the Trustee or any other officer of the
Trustee customarily performing functions similar to those performed by the
Persons who at that time shall be such officers, and also means, with respect to
a particular corporate trust matter, any other officer of the Trustee to whom
such trust matter is referred because of his knowledge of and familiarity with
the particular subject.
"Unrestricted Subsidiary" shall mean any Subsidiary of the Company
that, at the time of determination, shall be an Unrestricted Subsidiary (as
designated by the Board of Directors of the Company, as provided below). The
Board of Directors of the Company may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary at or prior to the time
it is so formed or acquired) to be an Unrestricted Subsidiary if (a) no Default
or Event of Default is existing or will occur as a consequence thereof, (b) such
Subsidiary does not own any Capital Stock of, or own or hold any Lien on any
property or asset of, the Company or any Restricted Subsidiary that is not a
Subsidiary of the Subsidiary to be so designated and (c) such Subsidiary and
each of its Subsidiaries has not at the time of designation, and does not
thereafter, create, incur, issue, assume, guarantee, or otherwise become
directly or indirectly liable with respect to any Indebtedness pursuant to which
the lender has recourse to any property or assets of the Company or any of its
Restricted Subsidiaries (except that such Subsidiary and its Subsidiaries may
guarantee the Securities); provided that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, that such designation would be permitted pursuant to
Section 4.3. Each such designation shall be evidenced by filing with the Trustee
a certified copy of the resolution giving effect to such designation and an
Officers' Certificate certifying
25
<PAGE>
that such designation complied with the foregoing conditions.
"U.S. Government Obligations" means direct noncallable obligations
of, or noncallable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"U.S. Legal Tender Equivalents" means securities issued or directly
and fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof with a maturity of 90 days or less (provided that the
full faith and credit of the United States of America is pledged in support
thereof).
"Voting Stock" means Capital Stock of the Company having generally
the right to vote in the election of a majority of the directors of the Company
or having generally the right to vote with respect to the organizational matters
of the Company.
"Weighted Average Life" means, as of the date of determination, with
respect to any debt instrument, the quotient obtained by dividing (i) the sum of
the products of the numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such debt instrument
multiplied by the amount of each such respective principal payment by (ii) the
sum of all such principal payments.
"Wholly Owned" means, with respect to a Subsidiary of the Company,
(i) a Subsidiary that is a corporation, of which not less than 99% of the
Capital Stock (except for directors' qualifying shares or certain minority
interests owned by other Persons solely due to local law requirements that there
be more than one stockholder, but which interest is not in excess of what is
required for such purpose) is owned directly by such Person or through one or
more other Wholly Owned Subsidiaries of such Person, or (ii) any entity other
than a corporation in which such Person, directly or indirectly, owns not less
than 99% of the Capital Stock of such entity.
26
<PAGE>
SECTION 1.2. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture securityholder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any
other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them thereby.
SECTION 1.3. Rules of Construction.
Unless the context otherwise requires:
(l) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions;
(6) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or other
subdivision;
27
<PAGE>
(7) references to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise; and
(8) whenever in this Indenture or the Securities it is
provided that the principal amount with respect to a Security shall be paid,
such provision shall be deemed to require (whether or not so expressly stated)
the simultaneous payment of any accrued and unpaid interest to the date of
payment on such Security payable pursuant to paragraph 1 of the Securities.
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating.
The Securities and the Trustee's certificate of authentication in
respect thereof shall be substantially in the form of Exhibit A hereto, which
Exhibit is part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage. The Company shall
approve the form of the Securities and any notation, legend or endorsement on
them. Any such notations, legends or endorsements not contained in the form of
Security attached as Exhibit A hereto shall be delivered in writing to the
Trustee. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the forms of Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
SECTION 2.2. Execution and Authentication.
Two Officers shall sign, or one Officer shall sign and one Officer
shall attest to, the Security for the Company by manual or facsimile signature.
The Company's seal shall be impressed, affixed, imprinted or reproduced on the
Securities and may be in facsimile form.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds
28
<PAGE>
that office at the time the Trustee authenticates the Security, the Security
shall be valid nevertheless and the Company shall nevertheless be bound by the
terms of the Securities and this Indenture.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security but
such signature shall be conclusive evidence that the Security has been
authenticated pursuant to the terms of this Indenture.
The Trustee shall authenticate Initial Securities for original issue
in the aggregate principal amount of up to $170,000,000 and shall authenticate
Exchange Securities for original issue in the aggregate principal amount of up
to $170,000,000, in each case upon a written order of the Company in the form of
an Officers' Certificate; provided that such Exchange Securities shall be
issuable only upon the valid surrender for cancellation of Initial Securities of
a like aggregate principal amount in accordance with the Registration Rights
Agreement. The Officers' Certificate shall specify the amount of Securities to
be authenticated and the date on which the Securities are to be authenticated.
The aggregate principal amount of Securities outstanding at any time may not
exceed $170,000,000, except as provided in Section 2.7. Upon the written order
of the Company in the form of an Officers' Certificate, the Trustee shall
authenticate Securities in substitution of Securities originally issued to
reflect any name change of the Company.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company, any Affiliate of the Company,
or any of their respective Subsidiaries.
Securities shall be issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof.
29
<PAGE>
SECTION 2.3. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where Securities may be presented for
registration of transfer or for exchange ("Registrar") and an office or agency
where Securities may be presented for payment ("Paying Agent") and where notices
and demands to or upon the Company in respect of the Securities may be served.
The Company may act as Registrar or Paying Agent, except that, for the purposes
of Articles III, VIII, XI, Section 4.14 and Section 4.16 and as otherwise
specified in the Indenture, neither the Company nor any Affiliate of the Company
shall act as Paying Agent. The Registrar shall keep a register of the Securities
and of their transfer and exchange. The Company may have one or more
co-Registrars and one or more additional Paying Agents. The term "Paying Agent"
includes any additional Paying Agent. The Company hereby initially appoints the
Trustee as Registrar and Paying Agent, and the Trustee hereby agrees so to act.
The Company shall enter into an appropriate written agency agreement
with any Agent not a party to this Indenture, which agreement shall implement
the provisions of this Indenture that relate to such Agent. The Company shall
promptly notify the Trustee in writing of the name and address of any such
Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee
shall act as such.
The Company initially appoints The Depository Trust Company ("DTC")
to act as Depository with respect to the Global Securities.
The Company initially appoints the Trustee to act as Securities
Custodian with respect to the Global Securities.
SECTION 2.4. Paying Agent to Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that each Paying Agent shall hold in trust for the benefit
of the Holders or the Trustee all assets held by the Paying Agent for the
payment of principal of, premium, if any, or interest on, the Securities
(whether such assets have been distributed to it by the Company or any other
obligor on the Securities), and
30
<PAGE>
shall notify the Trustee in writing of any Default in making any such payment.
If either of the Company or a Subsidiary of the Company acts as Paying Agent, it
shall segregate such assets and hold them as a separate trust fund for the
benefit of the Holders or the Trustee. The Company at any time may require a
Paying Agent to distribute all assets held by it to the Trustee and account for
any assets disbursed and the Trustee may at any time during the continuance of
any payment Default, upon written request to a Paying Agent, require such Paying
Agent to distribute all assets held by it to the Trustee and to account for any
assets distributed. Upon distribution to the Trustee of all assets that shall
have been delivered by the Company to the Paying Agent, the Paying Agent (if
other than the Company) shall have no further liability for such assets.
SECTION 2.5. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee on or before the third Business Day preceding each Interest Payment Date
and at such other times as the Trustee may request in writing a list in such
form and as of such date as the Trustee reasonably may require of the names and
addresses of Holders.
SECTION 2.6. Transfer and Exchange.
(a) Transfer and Exchange of Definitive Securities. When
Definitive Securities are presented to the Registrar or a co-Registrar with a
request:
(x) to register the transfer of such Definitive
Securities; or
(y) to exchange such Definitive Securities for an equal
principal amount of Definitive Securities of other authorized denominations,
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Securities surrendered for transfer or
exchange:
31
<PAGE>
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Company and
the Registrar or co-Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing; and
(ii) in the case of Transfer Restricted Securities that
are Definitive Securities, shall be accompanied by the following
additional information and documents, as applicable:
(A) if such Transfer Restricted Securities are being
delivered to the Registrar by a Holder for registration in the name
of such Holder, without transfer, a certification from such Holder
to that effect (in substantially the form set forth on the reverse
of the Security); or
(B) if such Transfer Restricted Security is being
transferred to a "qualified institutional buyer" (as defined in Rule
144A under the Securities Act) in accordance with Rule 144A under
the Securities Act, a certification to that effect (in substantially
the form set forth on the reverse of the Security); or
(C) if such Transfer Restricted Security is being
transferred pursuant to any exemption from registration in
accordance with Regulation S under the Securities Act, a
certification to that effect (in substantially the form set forth on
the reverse of the Security); or
(D) if such Transfer Restricted Security is being
transferred to an institutional investor that is an "accredited
investor" within the meaning of Rule 501(a)(1),(2),(3) or (7) under
the Securities Act which delivers a certificate in the form of
Exhibit B to the Indenture to the Trustee; or
(E) if such Transfer Restricted Security is being
transferred in reliance on another exemption from the registration
requirements of the Securities Act, a certification to that effect
(in substantially the form set forth on the reverse of the Security)
accompanied by a customary
32
<PAGE>
opinion of counsel substantially to the effect that such transfer
may be effected in reliance upon such exemption.
(b) Restrictions on Transfer of a Definitive Security for a
Beneficial Interest in a Global Security. A Definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee of
a Definitive Security, duly endorsed or accompanied by appropriate instruments
of transfer, in form satisfactory to the Trustee, together with:
(i) if such Definitive Security is a Transfer Restricted
Security, certification, substantially in the form set forth on the
reverse of the Security, that such Definitive Security is being
transferred to a "qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in accordance with Rule 144A under the
Securities Act; and
(ii) whether or not such Definitive Security is a
Transfer Restricted Security, written instructions directing the Trustee
to make, or to direct the Securities Custodian to make, an endorsement on
the Global Security to reflect an increase in the aggregate principal
amount of the Securities represented by the Global Security,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased accordingly. If no Global Securities are then outstanding, the
Company shall issue and the Trustee shall authenticate a new Global Security in
the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer
and exchange of Global Securities or beneficial interests therein shall be
effected through the Depository, in accordance with this Indenture (including
the restrictions on transfer set forth herein) and the procedures of the
Depository therefor.
33
<PAGE>
(d) Transfer of a Beneficial Interest in a Global Security for
a Definitive Security.
(i) Upon receipt by the Trustee of written instructions
or such other form of instructions as is customary for the Depository from
the Depository or its nominee on behalf of any Person having a beneficial
interest in a Global Security and upon receipt by the Trustee of a written
order or such other form of instructions as is customary for the
Depository or the Person designated by the Depository as having such a
beneficial interest in a Transfer Restricted Security only, the following
additional information and documents (all of which may be submitted by
facsimile):
(A) if such beneficial interest is being transferred to
the Person designated by the Depository as being the beneficial
owner, a certification from such person to that effect (in
substantially the form set forth on the reverse of the Security); or
(B) if such beneficial interest is being transferred to
a "qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities
Act, a certification to that effect from the transferor (in
substantially the form set forth on the reverse of the Security); or
(C) if such beneficial interest is being transferred
pursuant to any exemption from registration in accordance with
Regulation S under the Securities Act, a certification to that
effect (in substantially the form set forth on the reverse of the
Security); or
(D) if such Transfer Restricted Security is being
transferred to an institutional investor that is an "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act which delivers a certificate in the form of
Exhibit B to the Indenture to the Trustee; or
(E) if such beneficial interest is being transferred in
reliance on another exemption
34
<PAGE>
from the registration requirements of the Securities Act, a
certification to that effect from the transferee or transferor (in
substantially the form set forth on the reverse of the Security)
accompanied by a customary opinion of counsel substantially to the
effect that such transfer may be effected in reliance upon such
exemption,
then the Trustee or the Securities Custodian, at the direction of the Trustee,
will cause, in accordance with the standing instructions and procedures existing
between the Depository and the Securities Custodian, the aggregate principal
amount of the Global Security to be reduced and, following such reduction, the
Company will execute and, upon receipt of an authentication order in the form of
an Officers' Certificate, the Trustee will authenticate and deliver to the
transferee a Definitive Security.
(ii) Definitive Securities issued in exchange for a
beneficial interest in a Global Security pursuant to this Section 2.6(d)
shall be registered in such names and in such authorized denominations as
the Depository, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
deliver such Definitive Securities to the persons in whose names such
Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global
Securities. Notwithstanding any other provisions of this Indenture (other than
the provisions set forth in subsection (f) of this Section 2.6), a Global
Security may not be transferred as a whole except by the Depository to a nominee
of the Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Authentication of Definitive Securities in Absence of
Depository. If at any time:
(i) the Depository for the Securities notifies the
Company that the Depository is unwilling or unable to continue as
Depository for the Global Securities and a successor Depository for the
Global Securities is not appointed by the Company within 90 days after
delivery of such notice; or
35
<PAGE>
(ii) the Company, in its sole discretion, notifies the
Trustee in writing that they elect to cause the issuance of Definitive
Securities under this Indenture,
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Definitive Securities,
will authenticate and deliver Definitive Securities, in an aggregate principal
amount equal to the principal amount of the Global Securities, in exchange for
such Global Securities.
(g) Legends.
(i) Except as permitted by the following paragraph (ii),
each Security certificate evidencing the Global Securities and the
Definitive Securities (and all Securities issued in exchange therefor or
substitution thereof) shall bear a legend in substantially the following
form:
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING THIS NOTE, AGREES FOR THE BENEFIT OF
THE ISSUER THAT THIS NOTE MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED (X) PRIOR TO THE THIRD ANNIVERSARY OF THE LATER OF THE
ISSUANCE HEREOF (OR ANY PREDECESSOR NOTE HERETO) OR THE SALE HEREOF
(OR ANY PREDECESSOR NOTE HERETO) BY THE ISSUER OR ANY AFFILIATE OF
THE ISSUER (COMPUTED IN ACCORDANCE WITH PARAGRAPH (D) OF RULE 144
UNDER THE SECURITIES ACT) OR (Y) BY AN AFFILIATE OF THE ISSUER OR BY
ANY HOLDER THAT WAS AN AFFILIATE OF THE ISSUER AT ANY TIME DURING
THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER
CASE, OTHER THAN (1) TO THE ISSUER OR ITS PARENT, (2) TO A PERSON
WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER OVER WHICH IT EXERCISES SOLE INVESTMENT
DISCRETION THAT IS AWARE THAT THE RESALE, PLEDGE OR OTHER TRANSFER
IS BEING MADE IN RELIANCE ON RULE 144A, (3) PURSUANT TO ANY
EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH REGULATION S UNDER
THE SECURITIES ACT, (4) TO AN
36
<PAGE>
INSTITUTIONAL INVESTOR THAT IS AN "ACCREDITED INVESTOR" WITHIN THE
MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT
WHICH DELIVERS A CERTIFICATE IN THE FORM OF EXHIBIT B TO THE
INDENTURE TO THE INDENTURE TRUSTEE UNDER THE INDENTURE DATED AS OF
NOVEMBER 1, 1996, BETWEEN THE ISSUER AND BANK OF MONTREAL TRUST
COMPANY, AS INDENTURE TRUSTEE, OR (5) ANY OTHER APPLICABLE EXEMPTION
UNDER THE SECURITIES LAWS.
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Act or an effective
registration statement under the Act:
(A) in the case of any Transfer Restricted Security that
is a Definitive Security, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a
Definitive Security that does not bear the legend set forth above
and rescind any restriction on the transfer of such Transfer
Restricted Security in the case of a Rule 144 Transfer, after
delivery of a customary opinion of counsel; and
(B) any such Transfer Restricted Security represented by
a Global Security shall not be subject to the provisions set forth
in (i) above (such sales or transfers being subject only to the
provisions of Section 2.6(c) hereof); provided, however, that with
respect to any request for an exchange of a Transfer Restricted
Security that is represented by a Global Security for a Definitive
Security that does not bear a legend, which request is made in
reliance upon Rule 144, the Holder thereof shall certify in writing
(to be accompanied by a customary opinion of counsel) to the
Registrar that such request is being made pursuant to Rule 144 (such
certification to be substantially in the form set forth on the
reverse of the Security).
(h) Cancellation and/or Adjustment of Global Security. At such
time as all beneficial interests in a Global Security have either been exchanged
for Definitive Securities, redeemed, repurchased or cancelled, such Global
37
<PAGE>
Security shall be returned to or retained and cancelled by the Trustee. At any
time prior to such cancellation, if any beneficial interest in a Global Security
is exchanged for Definitive Securities, redeemed, repurchased or cancelled, the
principal amount of Securities represented by such Global Security shall be
reduced and an endorsement shall be made on such Global Security, by the Trustee
or the Securities Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) Obligations with respect to Transfers and Exchanges of
Definitive Securities.
(i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Definitive
Securities and Global Securities at the Registrar's or co-Registrar's
request.
(ii) No service charge shall be made for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax, assessments, or similar
governmental charge payable in connection therewith (other than any such
transfer taxes, assessments, or similar governmental charge payable upon
exchanges or transfers pursuant to Section 2.2 (fourth paragraph), 2.10,
3.7, 4.14(8), 4.16(8), 9.5, or 11.1 (final paragraph)).
(iii) The Registrar or co-Registrar shall not be
required to register the transfer of or exchange of (a) any Definitive
Security selected for redemption in whole or in part pursuant to Article
III, except the unredeemed portion of any Definitive Security being
redeemed in part, or (b) any Security for a period beginning 15 Business
Days before the mailing of a notice of an offer to repurchase pursuant to
Article XI, Section 4.14 or Section 4.16 hereof or the mailing of a notice
of redemption of Securities pursuant to Article III or Section 4.16 hereof
and ending at the close of business on the day of such mailing.
SECTION 2.7. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims and submits an affidavit or other evidence,
satisfactory to the Trustee, to
38
<PAGE>
the Trustee to the effect that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Trustee's requirements are met. If required by the
Trustee or the Company, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Security is replaced. The Company may charge such Holder for its
reasonable, out-of-pocket expenses in replacing a Security.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.8. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee (including any Security represented by a
Global Security) except those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Security effected by
the Trustee hereunder and those described in this Section 2.8 as not
outstanding. A Security does not cease to be outstanding because the Company or
an Affiliate of the Company holds the Security, except as provided in Section
2.9.
If a Security is replaced pursuant to Section 2.7 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section 2.7.
If on a Redemption Date or the Maturity Date the Paying Agent (other
than the Company or an Affiliate of a Company) holds cash sufficient to pay all
of the principal and interest due on the Securities payable on that date and
payment of the Securities called for redemption or payable on such Maturity Date
is not otherwise prohibited pursuant to this Indenture, then on and after that
date such Securities cease to be outstanding and interest on them ceases to
accrue.
39
<PAGE>
SECTION 2.9. Treasury Securities.
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, amendment, supplement, waiver or
consent, Securities owned by the Company or Affiliates of the Company shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, amendment, supplement,
waiver or consent, only Securities that the Trustee knows are so owned shall be
disregarded.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company reasonably and in good faith considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities in
exchange for temporary Securities. Until so exchanged, the temporary Securities
shall in all respects be entitled to the same benefits under this Indenture as
permanent Securities authenticated and delivered hereunder.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than the Company or an Affiliate of the Company), and no one else, shall
cancel and, at the written direction of the Company, shall dispose of all
Securities surrendered for transfer, exchange, payment or cancellation. Subject
to Section 2.7, the Company may not issue new Securities to replace Securities
that have been paid or delivered to the Trustee for cancellation. No Securities
shall be authenticated in lieu of or in exchange for any Securities cancelled as
provided in this Section 2.11, except as expressly permitted in the form of
Securities and as permitted by this Indenture.
40
<PAGE>
SECTION 2.12. Defaulted Interest.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the person in
whose name that Security (or one or more predecessor Securities) is registered
at the close of business on Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date plus, to the extent
lawful, any interest payable on the defaulted interest (herein called "Defaulted
Interest") shall forthwith cease to be payable to the registered holder on the
relevant Record Date, and such Defaulted Interest may be paid by the Company, at
its election in each case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any
Defaulted Interest to the persons in whose names the Securities (or their
respective predecessor Securities) are registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each Security and the date of the proposed payment, and at the same
time the Company shall deposit with the Trustee an amount of cash equal to
the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment, such cash when
deposited to be held in trust for the benefit of the persons entitled to
such Defaulted Interest as provided in this clause (1). Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less than 10 days after
the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date and,
in the name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first-class postage prepaid, to each Holder at his
address as it appears in the Security
41
<PAGE>
register not less than 10 days prior to such Special Record Date. Notice
of the proposed payment of such Defaulted Interest and the Special Record
Date therefor having been mailed as aforesaid, such Defaulted Interest
shall be paid to the persons in whose names the Securities (or their
respective predecessor Securities) are registered on such Special Record
Date and shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the requirements
of any securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this
clause, such manner shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Security shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Security.
ARTICLE III
REDEMPTION
SECTION 3.1. Right of Redemption.
Redemption of Securities, as permitted by any provision of this
Indenture, shall be made in accordance with such provision and this Article III.
Except as required by Section 4.16, the Company will not have the right to
redeem any Securities prior to November 1, 2000. On or after November 1, 2000,
the Company will have the right to redeem all or any part of the Securities at
the Redemption Prices specified in the form of Security attached as Exhibit A
set forth therein under the caption "Redemption," in each case, including
accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date).
42
<PAGE>
SECTION 3.2. Notices to Trustee.
If the Company elects to redeem Securities pursuant to Paragraph 5
of the Securities, or is required to redeem Securities pursuant to Section 4.16
of this Indenture and Paragraph 13 of the Securities, it shall notify the
Trustee in writing of the Redemption Date and the principal amount of Securities
to be redeemed and whether it wants the Trustee to give notice of redemption to
the Holders.
If the Company elects to reduce the principal amount of Securities
to be redeemed pursuant to Paragraph 5 of the Securities by crediting against
any such redemption Securities it has not previously delivered to the Trustee
for cancellation, it shall so notify the Trustee of the amount of the reduction
and deliver such Securities with such notice, provided that no Initial
Securities received by the Company in exchange for Exchange Securities may be
made the basis for such credit.
The Company shall give each notice to the Trustee provided for in
this Section 3.2 at least 45 days before the Redemption Date (unless a shorter
notice shall be satisfactory to the Trustee). Any such notice may be cancelled
at any time prior to notice of such redemption being mailed to any Holder and
shall thereby be void and of no effect.
SECTION 3.3. Selection of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed pursuant to
Paragraph 5 thereof, and in the case of a redemption pursuant to Section 4.16 of
this Indenture and Paragraph 13 of the Securities, the Trustee shall select the
Securities to be redeemed on a pro rata basis, by lot, or by such other method
as the Trustee shall determine to be fair and appropriate and in such manner as
complies with any applicable Depository, legal and stock exchange requirements.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
in writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities in denominations of $1,000 may be redeemed only in whole.
The Trustee may
43
<PAGE>
select for redemption portions (equal to $1,000 or any integral multiple
thereof) of the principal of Securities that have denominations larger than
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
SECTION 3.4. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first class mail, postage
prepaid, to the Trustee and each Holder whose Securities are to be redeemed. At
the Company's request, the Trustee shall give the notice of redemption in the
Company's name and at the Company's expense. Each notice for redemption shall
identify the Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price, including the amount of
accrued and unpaid interest, if any, to be paid upon such redemption;
(3) the name, address and telephone number of the Paying
Agent;
(4) that Securities called for redemption must be
surrendered to the Paying Agent at the address specified in such notice to
collect the Redemption Price;
(5) that, unless (a) the Company defaults in its
obligation to deposit cash with the Paying Agent in accordance with
Section 3.6 hereof or (b) such redemption payment is prohibited pursuant
to this Indenture, and interest on Securities (or portion thereof) called
for redemption ceases to accrue on and after the Redemption Date and the
only remaining right of the Holders of such Securities is to receive
payment of the Redemption Price, including any accrued and unpaid interest
to the Redemption Date, upon surrender to the Paying Agent of the
Securities called for redemption and to be redeemed;
(6) if any Security is being redeemed in part, the
portion of the principal amount, equal to
44
<PAGE>
$1,000 or any integral multiple thereof, of such Security to be redeemed
and that, after the Redemption Date, and upon surrender of such Security,
a new Security or Securities in aggregate principal amount equal to the
unredeemed portion thereof will be issued;
(7) if less than all the Securities are to be redeemed,
the identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of such Securities to
be redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption;
(8) the CUSIP number of the Securities to be redeemed;
and
(9) that the notice is being sent pursuant to this
Section 3.4 and pursuant to the optional redemption provisions of
Paragraph 5 of the Securities or pursuant to the mandatory redemption
provisions of Section 4.16 of this Indenture and Paragraph 13 of the
Securities.
SECTION 3.5. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.4,
Securities called for redemption become due and payable on the Redemption Date
and at the Redemption Price, including any accrued and unpaid interest to the
Redemption Date. Upon surrender to the Trustee or Paying Agent, such Securities
called for redemption shall be paid at the Redemption Price, including interest,
if any, accrued and unpaid to the Redemption Date; provided that if the
Redemption Date is after a regular Record Date and on or prior to the Interest
Payment Date, the accrued interest shall be payable to the Holder of the
redeemed Securities registered on the relevant Record Date; and provided,
further, that if a Redemption Date is a Legal Holiday, payment shall be made on
the next succeeding Business Day and no interest shall accrue for the period
from such Redemption Date to such succeeding Business Day.
SECTION 3.6. Deposit of Redemption Price.
On or prior to the Redemption Date, the Company shall deposit with
the Paying Agent (other than the Company or an Affiliate of the Company) cash
sufficient to pay the
45
<PAGE>
Redemption Price of, including any accrued and unpaid interest on, all
Securities to be redeemed on such Redemption Date (other than Securities or
portions thereof called for redemption on that date that have been delivered by
the Company to the Trustee for cancellation). The Paying Agent shall promptly
return to the Company any cash so deposited which is not required for that
purpose upon the written request of the Company.
If the Company complies with the preceding paragraph and the other
provisions of this Article III and payment of the Securities called for
redemption is not prohibited under this Indenture, interest on the Securities to
be redeemed will cease to accrue on the applicable Redemption Date, whether or
not such Securities are presented for payment. Notwithstanding anything herein
to the contrary, if any Security surrendered for redemption in the manner
provided in the Securities shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the preceding paragraph,
interest shall continue to accrue and be paid from the Redemption Date until
such payment is made on the unpaid principal, and, to the extent lawful, on any
interest not paid on such unpaid principal, in each case at the rate and in the
manner provided in Section 4.1 hereof and the Securities.
SECTION 3.7. Securities Redeemed in Part.
Upon surrender of a Security that is to be redeemed in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder, without service charge to the Holder, a new Security or Securities equal
in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Securities.
The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities. An
installment of principal of or interest on the Securities shall be considered
paid on the date it is due if the Trustee or Paying Agent (other than the
Company or an Affiliate of the Company) holds for the
46
<PAGE>
benefit of the Holders, on or before 10:00 a.m. New York City time on that date,
cash deposited and designated for and sufficient to pay the installment.
The Company shall pay interest on overdue principal and on overdue
installments of interest at the rate specified in the Securities compounded
semi-annually, to the extent lawful.
SECTION 4.2. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of
New York, an office or agency where Securities may be presented or surrendered
for payment, where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Company shall give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the address of the Trustee set forth in Section 13.2.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency. The
Company hereby initially designates the Corporate Trust Office of the Trustee as
such office.
SECTION 4.3. Limitation on Restricted Payments.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly after the Issue Date, make any
Restricted Payment, if, immediately prior or after giving effect thereto (a) a
Default or an Event of Default would exist, (b) the Company's Annualized
47
<PAGE>
Operating Cash Flow Ratio for the Reference Period would exceed 8.7 to 1, or (c)
the aggregate amount of all Restricted Payments made by the Company and its
Restricted Subsidiaries, including such proposed Restricted Payment (if not made
in cash, then the fair market value of any property used therefor) from and
after the Issue Date and on or prior to the date of such Restricted Payment,
shall exceed the sum of (i) the amount determined by subtracting (x) 2.0 times
the aggregate Consolidated Interest Expense of the Company for the period (taken
as one accounting period) from the Issue Date to the last day of the last full
fiscal quarter prior to the date of the proposed Restricted Payment (the
"Computation Period") from (y) Operating Cash Flow of the Company for the
Computation Period, plus (ii) the aggregate Net Proceeds received by the Company
from the sale (other than to a Subsidiary of the Company) of its Qualified
Capital Stock after the Issue Date and on or prior to the date of such
Restricted Payment, plus (iii) to the extent not otherwise included in clause
(i) or (ii), above, an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from payments of dividends, repayments of
loans or advances, or other transfers of assets, in each case to the Company or
any Wholly Owned Restricted Subsidiary of the Company from Unrestricted
Subsidiaries, or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company and any Restricted
Subsidiary in such Unrestricted Subsidiary.
Notwithstanding the foregoing, the provisions set forth in clause
(b) or (c) of the immediately preceding paragraph will not prohibit (i) the use
of an aggregate of $12,000,000 for Restricted Payments not otherwise permitted
by this Section 4.3, (ii) the payment of any dividend within 60 days after the
date of its declaration if such dividend could have been made on the date of its
declaration in compliance with the foregoing provisions and (iii) the
redemption, defeasance, repurchase or other acquisition or retirement of any
Indebtedness or Capital Stock of the Company or its Restricted Subsidiaries
either in exchange for or out of the Net Proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of Qualified Capital
Stock (in the case of any redemption, defeasance, repurchase or other
acquisition or retirement of any Junior Indebtedness or Capital Stock of the
Company or
48
<PAGE>
its Restricted Subsidiaries) or Junior Indebtedness (in the case of any
redemption, defeasance, repurchase or other acquisition or retirement of any
Indebtedness of the Company or its Restricted Subsidiaries) of the Company.
In determining the aggregate amount expended for Restricted Payments
in accordance with clause (c) of the first paragraph of this Section 4.3, 100%
of the amounts expended under clauses (i) through (iii) of the immediately
preceding paragraph shall be deducted.
SECTION 4.4. Corporate Existence.
Subject to Article V, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and the corporate or other existence of each of its Restricted
Subsidiaries in accordance with the respective organizational documents of each
of them and the rights (charter and statutory) and corporate franchises of the
Company and each of the Company's Restricted Subsidiaries; provided, however,
that the Company shall not be required to preserve, with respect to itself, any
right or franchise, and with respect to any Restricted Subsidiaries of the
Company, any such existence, right or franchise, if (a) the Board of Directors
of the Company shall determine that the preservation thereof is no longer
desirable in the conduct of the business of such entity and (b) the loss thereof
is not disadvantageous in any material respect to the Holders.
SECTION 4.5. Payment of Taxes and Other Claims.
Except with respect to immaterial items, the Company shall, and
shall cause each of its Restricted Subsidiaries to, pay or discharge or cause to
be paid or discharged, before the same shall become delinquent, (i) all taxes,
assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon the Company
or any of its Restricted Subsidiaries or any of their respective properties and
assets and (ii) all lawful claims, whether for labor, materials, supplies,
services or anything else, which have become due and payable and which by law
have or may become a Lien upon the property and assets of the Company or any of
its Restricted Subsidiaries; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment,
49
<PAGE>
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and for which disputed amounts adequate
reserves have been established in accordance with GAAP.
SECTION 4.6. Maintenance of Properties and Insurance.
The Company shall cause all material properties used or useful to
the conduct of its business and the business of each of its Restricted
Subsidiaries to be maintained and kept in good condition, repair and working
order (reasonable wear and tear excepted) and shall cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in its reasonable judgment may be necessary, so that the business carried
on in connection therewith may be properly conducted at all times; provided,
however, that nothing in this Section 4.6 shall prevent the Company from
discontinuing any operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposal is (a), in the
judgment of the Board of Directors of the Company, desirable in the conduct of
the business of such entity and (b) not disadvantageous in any material respect
to the Holders.
The Company shall provide, or cause to be provided, for itself and
each of its Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the reasonable,
good faith opinion of the Company is adequate and appropriate for the conduct of
the business of the Company and such Restricted Subsidiaries in a prudent
manner, with (except for self-insurance) reputable insurers or with the
government of the United States of America or an agency or instrumentality
thereof, in such amounts, with such deductibles, and by such methods as shall be
customary, in the reasonable, good faith opinion of the Company and adequate and
appropriate for the conduct of the business of the Company and such Restricted
Subsidiaries in a prudent manner for entities similarly situated in the
industry, unless failure to provide such insurance (together with all other such
failures) would not have a material adverse effect on the financial condition or
results of operations of the Company or such Restricted Subsidiary.
50
<PAGE>
SECTION 4.7. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee within 120 days
after the end of its fiscal year an Officers' Certificate complying with Section
314(a)(4) of the TIA and stating that a review of its activities and the
activities of its Subsidiaries during the preceding fiscal year has been made
under the supervision of the signing Officers with a view to determining whether
the Company has kept, observed, performed and fulfilled their obligations under
this Indenture and further stating, as to each such Officer signing such
certificate, whether or not the signer knows of any failure by the Company or
any Subsidiary of the Company to comply with any conditions or covenants in this
Indenture and, if such signor does know of such a failure to comply, the
certificate shall describe such failure with particularity. The Officers'
Certificate shall also notify the Trustee should the relevant fiscal year end on
any date other than the current fiscal year end date.
(b) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, promptly upon becoming aware of any
Default, Event of Default or fact which would prohibit the making of any payment
to or by the Trustee in respect of the Securities, an Officers' Certificate
specifying such Default, Event of Default or fact and what action the Company is
taking or proposes to take with respect thereto. The Trustee shall not be deemed
to have knowledge of any Default, any Event of Default or any such fact unless
one of its Trust Officers receives notice thereof from the Company or any of the
Holders.
SECTION 4.8. Reports.
Whether or not the Company is subject to the reporting requirements
of Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the
Trustee and to each Holder and to prospective purchasers of Securities
identified to the Company by an Initial Purchaser, within 15 days after it files
or would have been required to file such with the SEC, annual and quarterly
financial statements substantially equivalent to financial statements that the
Company would have been required to file with the SEC if the Company were
subject to the requirements of Section 13 or 15(d) of the Exchange Act,
including, with respect to annual information only, a report thereon by the
Company's certi-
51
<PAGE>
fied independent public accountants as such would be required in such reports to
the SEC, and, in each case, together with a management's discussion and analysis
of financial condition and results of operations which would be so required.
SECTION 4.9. Limitation on Status as Investment Company.
The Company shall not become, nor shall it permit any of its
Restricted Subsidiaries to become an "investment company" (as that term is
defined in the Investment Company Act of 1940, as amended), or otherwise become
subject to regulation under the Investment Company Act.
SECTION 4.10. Limitation on Transactions with Related Persons.
The Company will not, and will not permit any of its Restricted
Subsidiaries or Unrestricted Subsidiaries to, after the Issue Date, enter into
any contract, agreement, arrangement or transaction with any Related Person
(each a "Related Person Transaction"), or any series of Related Person
Transactions, except for transactions made in good faith, the terms of which are
(i) fair and reasonable to the Company or such Subsidiary, as the case may be,
and (ii) are at least as favorable as the terms which could be obtained by the
Company or such Subsidiary, as the case may be, in a comparable transaction made
on an arm's length basis with Persons who are not Related Persons.
Without limiting the foregoing, (a) any Related Person Transaction
or series of Related Person Transactions with an aggregate value in excess of
$1,000,000 must first be approved by a majority of the Board of Directors of the
Company who are disinterested in the subject matter of the transaction pursuant
to a Board Resolution, and (b) with respect to any Related Person Transaction or
series of Related Person Transactions with an aggregate value in excess of
$5,000,000, the Company must first obtain a favorable written opinion from an
independent financial advisor of national reputation as to the fairness from a
financial point of view of such transaction to the Company or such Subsidiary,
as the case may be.
Notwithstanding the foregoing, the following shall not constitute
Related Person Transactions: (i) reasonable and customary payments on behalf of
directors, officers or employees of the Company or any of its Restricted
Subsidiaries, or in reimbursement of reasonable and customary pay-
52
<PAGE>
ments or reasonable and customary expenditures made or incurred by such Persons
as directors, officers or employees, (ii) any contract, agreement, arrangement,
or transaction solely between or among the Company and any of its Restricted
Subsidiaries or between or among Restricted Subsidiaries of the Company, (iii)
any Restricted Payment of the type described by clauses (i) and (ii) of the
definition thereof made to all stockholders on a pro rata basis and not
prohibited by Section 4.3, (iv) any loan or advance by the Company or a
Restricted Subsidiary to employees of the Company or a Restricted Subsidiary in
the ordinary course of business, in an aggregate amount at any one time
outstanding not to exceed $300,000, (v) any payment pursuant to a taxsharing
agreement between the Company and any other Person with which the Company is
required or permitted to file a consolidated tax return or with which the
Company is or could be part of a consolidated group for tax purposes, which
payments are not in excess of the tax liabilities attributable solely to the
Company and its Restricted Subsidiaries (as a consolidated group) and (vi) any
transaction pursuant to an agreement described in or referred to under the
caption "Acquisitions and Dispositions -- Pending Transactions" in the Offering
Memorandum, as in effect on the Issue Date.
SECTION 4.11. Limitation on Incurrence of Additional Indebtedness.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, after the Issue Date, directly or indirectly, issue, create,
incur, assume, guarantee or otherwise directly or indirectly become liable for
(including as a result of an acquisition), or otherwise become responsible for,
contingently or otherwise (individually or collectively, to "Incur" or, as
appropriate, an "Incurrence"), any Indebtedness. Neither the accrual of interest
(including the issuance of "pay in kind" securities or similar instruments in
respect of such accrued interest) pursuant to the terms of Indebtedness Incurred
in compliance with this covenant, nor the accretion of original issue discount,
nor the mere extension of the maturity of any Indebtedness shall be deemed to be
an Incurrence of Indebtedness.
Notwithstanding the foregoing, if there exists no Default or Event
of Default immediately prior and subsequent thereto, the Company may incur
Indebtedness if the Company's Annualized Operating Cash Flow Ratio, after giving
effect to the Incurrence of such Indebtedness, would have been less than 8 to 1.
53
<PAGE>
In addition, if there exists no Default or Event of Default
immediately prior and subsequent thereto, the foregoing limitations will not
apply to the Incurrence of (i) Indebtedness by the Company or any of its
Restricted Subsidiaries constituting Existing Indebtedness, reduced by
repayments of and permanent reductions in commitments in satisfaction of the Net
Cash Proceeds application requirement set forth in Section 4.14 and by
repayments and permanent reductions in amounts outstanding pursuant to scheduled
amortizations and mandatory prepayments in accordance with the terms thereof,
(ii) Indebtedness by the Company evidenced by the Securities, (iii)(A) Permitted
Acquisition Indebtedness by the Company that satisfies the provisions of clause
(x) of the definition thereof or (B) Permitted Acquisition Indebtedness by any
Restricted Subsidiary that satisfies the provisions of clause (y) of the
definition thereof, (iv) Indebtedness between the Company and any Restricted
Subsidiary of the Company or between Restricted Subsidiaries of the Company,
provided that, in the case of Indebtedness of the Company, such obligations
shall be unsecured and subordinated in all respects to the Holders' rights
pursuant to the Securities, (v) Capitalized Lease Obligations and Purchase Money
Indebtedness in an aggregate amount or aggregate principal amount, as the case
may be, outstanding at any time not to exceed in the aggregate $10,000,000,
provided that in the case of Purchase Money Indebtedness, such Indebtedness
shall not constitute less than 75% nor more than 100% of the cost (determined in
accordance with GAAP) to the Company or such Restricted Subsidiary of the
property purchased or leased with the proceeds thereof, (vi) Indebtedness of the
Company or any Restricted Subsidiary arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or its Restricted Subsidiaries pursuant to such
agreements, in any case Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary of the Company to the extent none of
the foregoing results in the obligation to repay an obligation for money
borrowed by any Person and are limited in aggregate amount to no greater than
10% of the fair market value of such business, assets or Restricted Subsidiary
so disposed of, (vii) any guarantee by any Restricted Subsidiary of any (A)
Senior Indebtedness Incurred in compliance with this covenant or (B)
Indebtedness Incurred pursuant to clause (ix) of this paragraph, (viii)
Indebtedness of the Company or any Restricted Subsidiary under standby letters
of credit or reimbursement obligations with respect thereto issued in the
ordinary course of business and consistent with industry practices limited in
aggregate amount to
54
<PAGE>
$2,000,000 at any one time outstanding, (ix) Indebtedness of the Company (other
than Indebtedness permitted by clauses (i) through (viii) or (x) hereof) not to
exceed $50,000,000 at any one time outstanding and (x) Refinancing Indebtedness
Incurred to extend, renew, replace or refund Indebtedness permitted under
clauses (i) (as so reduced in amount), (ii), (iii) and (x) of this paragraph.
Indebtedness of any Person that is not a Restricted Subsidiary of
the Company (or that is a Non-Recourse Restricted Subsidiary designated to be a
Restricted Subsidiary, but no longer a Non-Recourse Restricted Subsidiary),
which Indebtedness is outstanding at the time such Person becomes such a
Restricted Subsidiary of the Company or is merged with or into or consolidated
with the Company or a Restricted Subsidiary of the Company shall be deemed to
have been Incurred, as the case may be, at the time such Person becomes such a
Restricted Subsidiary of the Company, or is merged with or into or consolidated
with the Company or a Restricted Subsidiary of the Company.
SECTION 4.12. Limitations on Restricting Subsidiary Dividends.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, assume or suffer to exist any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary of the Company to pay dividends or make other distributions on the
Capital Stock of any Restricted Subsidiary of the Company or pay or satisfy any
obligation to the Company or any of its Restricted Subsidiaries or otherwise
transfer assets or make or pay loans or advances to the Company or any of its
Restricted Subsidiaries, except encumbrances and restrictions existing under (i)
the Indenture and the Securities, (ii) any Existing Indebtedness, (iii) the
Credit Agreement, (iv) any applicable law or any governmental or administrative
regulation or order, (v) Refinancing Indebtedness permitted under the Indenture,
provided that the restrictions contained in the instruments governing such
Refinancing Indebtedness are no more restrictive in the aggregate than those
contained in the instruments governing the Indebtedness being refinanced
immediately prior to such refinancing, (vi) restrictions with respect solely to
a Restricted Subsidiary of the Company imposed pursuant to a binding agreement
which has been entered into for the sale or disposition of all or substantially
all of the Capital Stock or assets of such Restricted Subsidiary, provided such
restrictions apply solely to the Capital Stock or assets being sold of such
Restricted Subsidiary, (vii) restrictions
55
<PAGE>
contained in any agreement relating to the financing of the acquisition of a
Person or real or tangible personal property after the Issue Date which are not
applicable to any Person or property, other than the Person or property so
acquired and which either (A) were not put in place in anticipation of or in
connection with such acquisition or (B) constituted Permitted Acquisition
Indebtedness of a Person satisfying the provisions of clause (y) of the
definition thereof, (viii) any agreement (other than those referred to in clause
(vii)) of a Person acquired by the Company or a Restricted Subsidiary of the
Company, which restrictions existed at the time of acquisition. Notwithstanding
the foregoing, neither (a) customary provisions restricting subletting or
assignment of any lease entered into the ordinary course of business, consistent
with past practices nor (b) Liens on assets securing Senior Indebtedness, shall
in and of themselves be considered a restriction on the ability of the
applicable Restricted Subsidiary to transfer such agreement or assets, as the
case may be.
SECTION 4.13. Limitations on Liens.
The Company will not and will not permit any Restricted Subsidiary
to, directly or indirectly, Incur, or suffer to exist any Lien (other than
Permitted Liens) upon any of its property or assets, whether now owned or
hereafter acquired.
SECTION 4.14. Limitation on Asset Sales and Sales of Subsidiary
Stock.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, after the Issue Date, in one or a series of related
transactions, convey, sell, transfer, assign or otherwise dispose of, directly
or indirectly, any of its property, businesses or assets, including by merger or
consolidation, and including any sale or other transfer or issuance of any
Capital Stock of any Restricted Subsidiary of the Company, whether by the
Company or a Restricted Subsidiary (an "Asset Sale"), unless (1)(a) within 360
days after the date of such Asset Sale, the Net Cash Proceeds therefrom (the
"Asset Sale Offer Amount") are applied to the optional redemption of the
Securities in accordance with the terms of Article III of this Indenture and
Paragraph 5 of the Securities and other Indebtedness of the Company ranking pari
passu in right of payment with the Securities from time to time outstanding with
similar provisions requiring the Company to make an offer to purchase or to
redeem such Indebtedness with the proceeds from asset sales, pro rata in
proportion to the respective principal amounts (or accreted
56
<PAGE>
values in the case of Indebtedness issued with an original issue discount) of
the Securities and such other Indebtedness then outstanding or to the repurchase
of the Securities and such other Indebtedness pursuant to an irrevocable,
unconditional offer (the "Asset Sale Offer") to repurchase such Indebtedness at
a purchase price (the "Asset Sale Offer Price") of 100% of the principal amount
thereof in the case of the Securities or 100% of the principal amount (or
accreted value in the case of Indebtedness issued with an original issue
discount) of such Indebtedness, plus, in each case, accrued interest to the date
of payment, made within 330 days of such Asset Sale or (b) within 330 days of
such Asset Sale, the Asset Sale Offer Amount is (i) invested (or committed,
pursuant to a binding commitment subject only to reasonable, customary closing
conditions, to be invested, and in fact is so invested, within an additional 90
days) in tangible assets and property (other than notes, obligations or
securities), which in the good faith reasonable judgment of the Board of
Directors of the Company are of a type used in a Related Business, or Capital
Stock of a Person (which, if such Person becomes a Subsidiary of the Company by
virtue of such Asset Sale, shall initially be designated a Restricted
Subsidiary) all or substantially all of whose assets and property (in the good
faith reasonable judgment of the Board of Directors of the Company) are of a
type used in a Related Business (provided that, with respect to such Capital
Stock, all of the requirements of the last proviso of clause (v) of the
following paragraph shall have been satisfied) or (ii) used to retire Senior
Indebtedness, (2) with respect to any transaction or related series of
transactions of securities, property or assets with an aggregate fair market
value in excess of $1,000,000, at least 75% of the value of consideration for
the assets disposed of in such Asset Sale (excluding (a) Senior Indebtedness
(and any Refinancing Indebtedness issued to refinance any such Indebtedness)
assumed by a transferee which assumption permanently reduces the amount of
Indebtedness outstanding on the Issue Date and permitted to have been Incurred
pursuant to Section 4.11 (including that in the case of a revolver or similar
arrangement that makes credit available, such commitment is permanently reduced
by such amount), (b) Purchase Money Indebtedness secured exclusively by the
assets subject to such Asset Sale which is assumed by a transferee and (c)
marketable securities that are promptly converted into cash or Cash Equivalents)
consists of cash or Cash Equivalents, provided that any cash or Cash Equivalents
received within 12 months following any such Asset Sale upon conversion of any
property or assets (other than in the form of cash or Cash Equivalents) received
in consideration of such Asset Sale shall be applied promptly in the manner
required of Net
57
<PAGE>
Cash Proceeds of any such Asset Sale as set forth above, (3) no Default or Event
of Default shall occur or be continuing after giving effect to, on a pro forma
basis, such Asset Sale, and (4) the Board of Directors of the Company determines
in good faith that the Company or such Restricted Subsidiary, as applicable,
would receive fair market value in consideration of such Asset Sale.
An Asset Sale Offer may be deferred until the accumulated Net Cash
Proceeds from Asset Sales not applied to the uses set forth in (1)(b) above
exceeds $5,000,000 and each Asset Sale Offer shall remain open for 20 Business
Days following its commencement and no longer, except as otherwise required by
applicable law (the "Asset Sale Offer Period"). Upon expiration of the Asset
Sale Offer Period, the Company shall apply the Asset Sale Offer Amount, plus an
amount equal to accrued interest to the purchase of all Indebtedness properly
tendered (on a pro rata basis as discussed above if the Asset Sale Offer Amount
is insufficient to purchase all Indebtedness so tendered) at the Asset Sale
Offer Price (together with accrued interest).
Notwithstanding the foregoing provisions of the prior paragraph:
(i) the Company and its Restricted Subsidiaries may, in
the ordinary course of business, convey, sell, lease, transfer, assign or
otherwise dispose of assets acquired and held for resale in the ordinary
course of business;
(ii) the Company and its Restricted Subsidiaries may
convey, sell, lease, transfer, assign or otherwise dispose of assets
pursuant to and in accordance with Section 5.1;
(iii) the Company and its Restricted Subsidiaries may
sell or dispose of damaged, worn out or other obsolete property in the
ordinary course of business so long as such property is no longer
necessary for the proper conduct of the business of the Company or such
Restricted Subsidiary, as applicable;
(iv) the Company and its Restricted Subsidiaries may
convey, sell, lease, transfer, assign or otherwise dispose of assets to
the Company or any of its Restricted Subsidiaries; and
(v) the Company and its Restricted Subsidiaries may, in
the ordinary course of business
58
<PAGE>
(or, if otherwise than in the ordinary course of business, upon receipt of
a favorable written opinion by an independent financial advisor of
national reputation as to the fairness from a financial point of view to
the Company or such Restricted Subsidiary of the proposed transaction),
exchange all or a portion of its property, businesses or assets for
property, businesses or assets which, or Capital Stock of a Person all or
substantially all of whose assets, are of a type used in a Related
Business (provided that such Person shall initially be designated a
Restricted Subsidiary if such Person becomes a Subsidiary of the Company
by virtue of such Asset Sale), or a combination of any such property,
businesses, or assets, or Capital Stock of such a Person and cash or Cash
Equivalents; provided that (i) there shall not exist immediately prior or
subsequent thereto a Default or an Event of Default, (ii) a majority of
the independent directors of the Board of Directors of the Company shall
have approved a resolution of the Board of Directors that such exchange is
fair to the Company or such Restricted Subsidiary, as the case may be, and
(iii) any cash or Cash Equivalents received pursuant to any such exchange
shall be applied in the manner applicable to Net Cash Proceeds from an
Asset Sale as set forth pursuant to the provisions of the immediately
preceding paragraph of this covenant; and provided, further, that any
Capital Stock of a Person received in an Asset Sale pursuant to this
clause (v) shall be owned directly by the Company or a Restricted
Subsidiary and, when combined with the Capital Stock of such Person
already owned by the Company and its Restricted Subsidiaries, shall
constitute a majority of the voting power and Capital Stock of such
Person, unless (A)(i) the Company has received a binding commitment from
such Person (or the direct or indirect parent of such Person) that such
Person (or the direct or indirect parent of such Person) will distribute
to the Company in cash an amount equal to the Company's Annualized
Operating Cash Flow (determined as of the date of such Asset Sale)
attributable to the property, business, or assets of the Company and its
Restricted Subsidiaries exchanged in connection with such Asset Sale
during each consecutive 12-month period subsequent to such Asset Sale
(unless and until the Company shall have sold all of such Capital Stock,
provided that the provisions of clause (B) below, if applicable, shall
have been satisfied), (ii) immediately after such Asset Sale the aggregate
number of Net Pops of the wireless communications systems in which the
Company or any of its Restricted Subsidiaries has ownership interests
59
<PAGE>
("Company Systems") that are owned directly by a Person or Persons a
majority of whose voting power and Capital Stock is owned directly or
indirectly by the Company is no less than 80% of the aggregate number of
Net Pops of Company Systems immediately prior to such Asset Sale and (iii)
upon consummation of such Asset Sale, on a pro forma basis, the ratio of
such Person's Annualized Operating Cash Flow to the product of
Consolidated Interest Expense for the Reference Period multiplied by four
(but excluding from Consolidated Interest Expense all amounts that are not
required to be paid in cash on a current basis) shall be at least 1 to 1,
or (B) in the case of Capital Stock of a Person that is not a Subsidiary
of the Company owned by the Company or a Restricted Subsidiary that is
exchanged (the "Exchanged Capital Stock") for Capital Stock of another
Person all or substantially all of whose assets are of a type used in a
Related Business, either (i) the Exchanged Capital Stock shall not have
been acquired prior to such Asset Sale in reliance upon clause (A) of this
proviso or (ii) the requirements of subclauses (A)(i) (based on the
original guaranteed cash flow) and (A)(iii) shall be satisfied with
respect to any Capital Stock acquired in consideration of the Exchanged
Capital Stock.
Restricted Payments that are made in compliance with, and are
counted against amounts available to be made as Restricted Payments pursuant to
clause (c) of Section 4.3, without giving effect to clause (i) of the second
paragraph thereof, shall not be deemed to be Asset Sales.
The Company shall accumulate all Net Cash Proceeds and the aggregate
amount of such accumulated Net Cash Proceeds not used for the purposes permitted
and within the time provided by this Section 4.14 is referred to as the
"Accumulated Amount."
For purposes of this Section 4.14, "Minimum Accumulation Date" means
each date on which the Accumulated Amount exceeds $5,000,000. Not later than 10
Business Days after each Minimum Accumulation Date, the Company will commence an
Asset Sale Offer to the Holders and holders of other Indebtedness of the Company
ranking pari passu in right of payment with the Securities from time to time
outstanding with similar provisions requiring the Company to make an offer to
purchase or to redeem such Indebtedness with the proceeds from asset sales to
purchase, on a pro rata basis in proportion to the respective principal amounts
(or accreted values in the case of Indebtedness issued with
60
<PAGE>
an original issue discount) of the Securities and such other Indebtedness then
outstanding, for cash, Securities and such other Indebtedness that will have an
aggregate principal amount (and accreted value, as applicable)(the "Asset Sale
Offer Amount") on the purchase date equal to the Accumulated Amount, at a
purchase price equal to the Asset Sale Offer Price, plus accrued but unpaid
interest, if any, to, and including, the date of purchase (the "Asset Sale
Purchase Date"), which date shall be no later than 30 Business Days after the
first date on which the Asset Sale Offer is required to be made. Notice of an
Asset Sale Offer will be sent 20 Business Days prior to the close of business on
the earlier of (a) the third Business Day prior to the Asset Sale Purchase Date
and (b) the third Business Day following the expiration of the Asset Sale Offer
(such earlier date being the "Final Put Date"), by first-class mail, by the
Company to each Holder at its registered address, with a copy to the Trustee.
The notice to the Holders will contain all information, instructions and
materials required by applicable law or otherwise material to such Holders'
decision to tender Securities pursuant to the Asset Sale Offer. The notice to
Holders, which (to the extent consistent with the Indenture) shall govern the
terms of the Asset Sale Offer, shall state:
(1) that the Asset Sale Offer is being made pursuant to
such notice and this Section 4.14;
(2) the Asset Sale Offer Amount, the Asset Sale Offer
Price (including the amount of accrued and unpaid interest), the Final Put
Date, and the Asset Sale Purchase Date, which Asset Sale Purchase Date
shall be on or prior to 40 Business Days following the Minimum
Accumulation Date;
(3) that any Security or portion thereof not tendered or
accepted for payment will continue to accrue interest;
(4) that, unless the Company defaults in depositing cash
with the Paying Agent in accordance with the penultimate paragraph of this
Section 4.14 or such payment is otherwise prevented, any Security, or
portion thereof, accepted for payment pursuant to the Asset Sale Offer
shall cease to accrue interest after the Asset Sale Purchase Date;
61
<PAGE>
(5) that Holders electing to have a Security, or portion
thereof, purchased pursuant to an Asset Sale Offer will be required to
surrender the Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security completed, to the Paying Agent
(which may not for purposes of this Section 4.14, notwithstanding anything
this Indenture to the contrary, be the Company or any Affiliate of the
Company) at the address specified in the notice prior to the close of
business on the Final Put Date;
(6) that Holders will be entitled to withdraw their
elections, in whole or in part, if the Paying Agent (which may not for
purposes of this Section 4.14, notwithstanding any other provision of this
Indenture, be the Company or any Affiliate of the Company) receives, up to
the close of business on the Final Put Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Securities the Holder is withdrawing and a statement that
such Holder is withdrawing his election to have such principal amount of
Securities purchased;
(7) that if Indebtedness in a principal amount in excess
of the principal amount of Securities to be acquired pursuant to the Asset
Sale Offer is tendered and not withdrawn, the Company shall purchase
Indebtedness on a pro rata basis in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an
original issue discount) thereof (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of
$1,000 or integral multiples of $1,000 shall be acquired);
(8) that Holders whose Securities were purchased only in
part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; and
(9) a brief description of the circumstances and
relevant facts regarding such Asset Sales.
62
<PAGE>
Any such Asset Sale Offer shall comply with all applicable
provisions of Federal and state laws, including those regulating tender offers,
if applicable, and any provisions of this Indenture that conflict with such laws
shall be deemed to be superseded by the provisions of such laws.
On or before an Asset Sale Purchase Date, the Company shall (i)
accept for payment Securities or portions thereof properly tendered and not
properly withdrawn pursuant to the Asset Sale Offer on or before the Final Put
Date (on a pro rata basis if required pursuant to paragraph (7) hereof), (ii)
deposit with the Paying Agent cash sufficient to pay the Asset Sale Offer Price
for all Securities or portions thereof so tendered and accepted and (iii)
deliver to the Trustee Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof being purchased by the
Company. The Paying Agent shall on each Asset Sale Purchase Date mail or deliver
to Holders of Securities so accepted payment in an amount equal to the Asset
Sale Offer Price for such Securities, and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Security equal in
principal amount to any unpurchased portion of the Security surrendered. Any
Security not so accepted shall be promptly mailed or delivered by the Company to
the Holder thereof.
If the amount required to acquire all Indebtedness properly tendered
by Holders pursuant to the Asset Sale Offer (the "Acceptance Amount") made
pursuant to this Section 4.14 is less than the Asset Sale Offer Amount, the
excess of the Asset Sale Offer Amount over the Acceptance Amount may be used by
the Company for general corporate purposes without restriction, unless otherwise
restricted by the other provisions of the Indenture. Upon consummation of any
Asset Sale Offer made in accordance with the terms of the Indenture, the
Accumulated Amount will be reduced to zero irrespective of the amount of
Indebtedness tendered pursuant to the Asset Sale Offer.
SECTION 4.15. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law which would prohibit or forgive the Company from paying
all or any portion of the principal of, premium of, or interest on the
Securities as contemplated herein,
63
<PAGE>
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 4.16. Limitation on Use of Proceeds.
At least $95,000,000 of all proceeds (net of discounts to the
Initial Purchasers and commissions and other transaction expenses as set forth
in the Offering Memorandum under the caption "Use of Proceeds") received by the
Company from the sale of the Securities shall be applied by the Company to
Permitted Proceeds Uses. Simultaneously with the closing of the initial sale of
the Securities, the net proceeds therefrom shall either be applied concurrently
with the closing of the initial sale of the Securities to the purchase of
properties as described under the caption "Acquisitions and Dispositions --
Pending Transactions" in the Offering Memorandum or held by the Company in a
segregated account, pending the application of such net proceeds in compliance
with this Section 4.16.
In the event that at least $95,000,000 of such net proceeds have not
been so applied by the Company within 140 days of the Issue Date, the Company
shall make an unconditional and irrevocable pro rata offer to all Holders of the
Securities (a "Proceeds Purchase Offer") to repurchase for cash, such Holders'
outstanding Securities in an aggregate principal amount equal to the net
proceeds (as determined above) from the sale of the Securities, less the amount
thereof previously applied to Permitted Proceeds Uses (the "Proceeds Purchase
Offer Amount"), at a purchase price (the "Proceeds Purchase Offer Price") equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the date of repurchase. The Company shall keep the Proceeds Purchase
Offer open for 20 Business Days following its commencement and no longer, except
to the extent that a longer period is required by applicable law (the "Proceeds
Purchase Offer Period"). Upon the expiration of the Proceeds Purchase Offer
Period, the Company shall apply the Proceeds Purchase Offer Amount to the
repurchase, on a pro rata basis, of all outstanding Securities tendered pursuant
to the Proceeds Purchase Offer at the Proceeds Purchase Offer Price.
64
<PAGE>
Notice of a Proceeds Purchase Offer will be sent on the second
Business Day immediately following the termination of the above-mentioned
140-day period, by first-class mail, by the Company to each Holder at its
registered address, with a copy to the Trustee. Any notice relating to a
Proceeds Purchase Offer will contain all information, instructions and materials
required by applicable law or otherwise material to such Holders' decision to
tender Securities pursuant to such Proceeds Purchase Offer. Any such notice of a
Proceeds Purchase Offer shall state:
(1) that the offer to repurchase is being made pursuant
to such notice and this Section 4.16;
(2) the Proceeds Purchase Offer Amount, the Proceeds
Purchase Offer Price (including the amount of accrued and unpaid
interest), and the purchase date, which shall be on or prior to 30
Business Days following the date of such notice;
(3) that any Security or portion thereof not tendered or
accepted for payment will continue to accrue interest;
(4) that, unless the Company defaults in depositing cash
with the Paying Agent in accordance with the last paragraph of this
Section 4.16 or such payment is otherwise prevented, any Security, or
portion thereof, accepted for payment pursuant to the Proceeds Purchase
Offer shall cease to accrue interest after its repurchase;
(5) that Holders electing to have a Security, or portion
thereof, repurchased pursuant to a Proceeds Purchase Offer will be
required to surrender the Security, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Security completed, to the
Paying Agent (which may not for purposes of this Section 4.16,
notwithstanding anything this Indenture to the contrary, be the Company or
any Affiliate of the Company) at the address specified in the notice prior
to the close of business on the purchase date;
(6) that Holders will be entitled to withdraw their
elections, in whole or in part, if the Paying Agent (which may not for
purposes of
65
<PAGE>
this Section 4.16, notwithstanding any other provision of this Indenture,
be the Company or any Affiliate of the Company) receives, up to the close
of business on the repurchase date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Securities the Holder is withdrawing and a statement that
such Holder is withdrawing his election to have such principal amount of
Securities repurchased;
(7) that if Securities in a principal amount in excess
of the principal amount of Securities to be acquired pursuant to the
Proceeds Purchase Offer are tendered and not withdrawn, the Company shall
purchase Securities on a pro rata basis (with such adjustments as may be
deemed appropriate by the Company so that only Securities in denominations
of $1,000 or integral multiples of $1,000 shall be acquired);
(8) that Holders whose Securities were repurchased only
in part will be issued new Securities equal in principal amount to the
unrepurchased portion of the Securities surrendered; and
(9) a brief description of the circumstances and
relevant facts regarding such repurchase, including that Securities not
tendered pursuant thereto will be subject to redemption as set forth in
this Section 4.16.
Any such purchase shall comply with all applicable provisions of
Federal and state laws, including those regulating tender offers, if applicable,
and any provisions of this Indenture that conflict with such laws shall be
deemed to be superseded by the provisions of such laws.
On or before the repurchase date, the Company shall (i) accept for
payment Securities or portions thereof properly tendered and not properly
withdrawn pursuant to the Proceeds Purchase Offer (on a pro rata basis if
required pursuant to paragraph (7) hereof), (ii) deposit with the Paying Agent
cash sufficient to pay the Proceeds Purchase Offer Price for all Securities or
portions thereof so tendered and accepted and (iii) deliver to the Trustee
Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof being purchased by the Company. The Paying Agent
shall on the repurchase
66
<PAGE>
date mail or deliver to Holders of Securities so accepted payment in an amount
equal to the aggregate Proceeds Purchase Offer Price for such Securities, and
the Trustee shall promptly authenticate and mail or deliver to such Holders a
new Security equal in principal amount to any unrepurchased portion of the
Security surrendered. Any Security not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof.
SECTION 4.17. Rule 144A Information Requirement.
The Company shall furnish to the Holders of the Securities and
prospective purchasers of Securities designated by the Holders of Transfer
Restricted Securities, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act until such time
as the Company either concluded an offer to exchange the Exchange Securities for
the Initial Securities or a registration statement relating to resales of the
Securities has become effective under the Securities Act. The Company shall also
furnish such information during the pendency of any suspension of effectiveness
of the resale registration statement.
SECTION 4.18. Limitation on Lines of Business.
The Company shall not, nor shall it permit any of its Restricted
Subsidiaries to, directly or indirectly engage in any line or lines of business
activity other than that which, in the reasonable, good faith judgment of the
Board of Directors of the Company, is a Related Business.
SECTION 4.19. Restriction on Sale and Issuance of Subsidiary Stock.
The Company will not sell, and will not permit any of its Restricted
Subsidiaries to issue or sell, any shares of Capital Stock of any Restricted
Subsidiary of the Company to any Person other than the Company or a Wholly Owned
Restricted Subsidiary of the Company, except for shares of common stock with no
preferences or special rights or privileges and with no redemption or prepayment
provisions ("Special Rights"); provided that, in the case of a Restricted
Subsidiary that is a partnership or joint venture partnership (a "Restricted
Partnership") the Company or any of its Restricted Subsidiaries may sell or such
Restricted Partnership may issue or sell Capital Stock of such Restricted
Partnership with Special Rights no more favorable than those held by the Company
or such Restricted Subsidiary in such Restricted Partnership.
67
<PAGE>
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation.
(a) The Company will not consolidate with or merge with or
into another Person or sell, lease, convey, transfer or otherwise dispose of all
or substantially all of its assets (computed on a consolidated basis), whether
in a single transaction or a series of related transactions, to another Person
or group of affiliated Persons, unless (i) either (a) the Company is the
continuing entity or (b) the resulting, surviving or transferee entity is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by supplemental indenture all of
the obligations of the Company in connection with the Securities and the
Indenture; (ii) no Default or Event of Default shall exist or shall occur
immediately after giving effect on a pro forma basis to such transaction; (iii)
(A) immediately after giving effect to such transaction on a pro forma basis,
the consolidated resulting, surviving or transferee entity would immediately
thereafter be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Annualized Operating Cash Flow Ratio provision set forth in the
second paragraph of Section 4.11 or (B), if the requirement of clause (A) is not
satisfied, (x) any Indebtedness of the resulting surviving or transferee entity
in excess of the amount of the Company's Indebtedness immediately prior to such
transaction is Permitted Acquisition Indebtedness and (y) the requirement of
clause (A) is not satisfied solely due to the Incurrence of such Permitted
Acquisition Indebtedness; and (iv) the Company shall have delivered to the
Trustee an Officers' Certificate confirming compliance with the requirements of
this Section 5.1.
(b) For purposes of clause (a), the sale, lease, conveyance,
assignment, transfer, or other disposition of all or substantially all of the
properties and assets of one or more Restricted Subsidiaries of the Company,
which properties and assets, if held by the Company instead of such Restricted
Subsidiaries, would constitute all or substantially all of the properties and
assets of the Company on a consolidated basis, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
68
<PAGE>
SECTION 5.2. Successor Corporation Substituted.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with the foregoing,
the successor corporation formed by such consolidation or into which the Company
is merged or to which such transfer is made, shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if such successor corporation had been
named therein as the Company, and when a successor corporation duly assumes all
of the obligations of the Company pursuant hereto and pursuant to the
Securities, the predecessor shall be released from such obligations.
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) failure to pay any installment of interest on the
Securities as and when the same becomes due and payable, and the
continuance of such failure for a period of 30 days;
(2) failure to pay all or any part of the principal of, or
premium, if any, on the Securities when and as the same becomes due and
payable at maturity, redemption, by acceleration, or otherwise, including,
without limitation, payment of the Change of Control Purchase Price in
accordance with Article XI, the Asset Sale Offer Price in accordance with
Section 4.14 or the Proceeds Purchase Offer Amount in accordance with
Section 4.16;
(3) failure by the Company to observe or perform any covenant,
agreement or warranty contained in the Securities or this Indenture (other
than a default in the performance of any covenant, agreement or warranty
which is specifically dealt with elsewhere in this Section 6.1), or
failure by the Company to cause
69
<PAGE>
each Unrestricted Subsidiary to comply with clause (c) of the definition
of "Unrestricted Subsidiary," and continuance of such failure for a period
of 30 days after (subject to the following paragraph) there has been
given, by registered or certified mail, to the Company by the Trustee, or
to the Company and the Trustee by Holders of at least 25% in aggregate
principal amount of the outstanding Securities, a written notice
specifying such default or breach, requiring it to be remedied and stating
that such notice is a "Notice of Default" hereunder;
(4) (i) a default in any Indebtedness (other than the Credit
Agreement) of the Company or any of its Restricted Subsidiaries with an
aggregate principal amount in excess of $5,000,000 (a) resulting from the
failure to pay principal or interest (in the case of an interest default
or a default in the payment of principal other than at its stated
maturity, after the expiration of the applicable grace period) when due or
(b) as a result of which the maturity of such Indebtedness has been
accelerated prior to its stated maturity, or (ii) a default in the Credit
Agreement (with an aggregate principal amount in excess of $5,000,000
outstanding with respect thereto) (a) resulting from the failure to pay
principal at maturity or (b) as a result of which the maturity of such
Indebtedness has been accelerated prior to its stated maturity;
(5) a decree, judgment, or order by a court of competent
jurisdiction shall have been entered adjudging the Company or any of its
Significant Restricted Subsidiaries as bankrupt or insolvent, or approving
as properly filed a petition seeking reorganization of the Company or any
of its Significant Restricted Subsidiaries under any bankruptcy or similar
law, and such decree or order shall have continued undischarged and
unstayed for a period of 60 days; or a decree or order of a court of
competent jurisdiction over the appointment of a receiver, liquidator,
trustee, or assignee in bankruptcy or insolvency of the Company, any of
its Significant Restricted Subsidiaries, or of the property of any such
Person, or for the winding up or liquidation of the affairs of any such
Person, shall have been entered, and such decree, judgment, or order shall
have remained in force undischarged and unstayed for a period of 60 days;
(6) the Company or any of its Significant Restricted
Subsidiaries shall institute proceedings to
70
<PAGE>
be adjudicated a voluntary bankrupt, or shall consent to the filing of a
bankruptcy proceeding against it, or shall file a petition or answer or
consent seeking reorganization under any bankruptcy or similar law or
similar statute, or shall consent to the filing of any such petition, or
shall consent to the appointment of a Custodian, receiver, liquidator,
trustee, or assignee in bankruptcy or insolvency of it or any of its
assets or property, or shall make a general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall, within the meaning of any
Bankruptcy Law, become insolvent, fails generally to pay its debts as they
become due, or takes any corporate action in furtherance of or to
facilitate, conditionally or otherwise, any of the foregoing; or
(7) final unsatisfied judgments not covered by insurance, or
the issuance of any warrant of attachment against any portion of the
property or assets of the Company or any of its Restricted Subsidiaries,
aggregating in excess of $5,000,000 at any one time rendered against the
Company or any of its Restricted Subsidiaries and not stayed, bonded or
discharged for a period (during which execution shall not be effectively
stayed) of 60 days (or, in the case of any such final judgment which
provides for payment over time, which shall so remain unstayed, unbonded
or undischarged beyond any applicable payment date provided therein).
If a Default occurs and is continuing, the Trustee must, within 90
days after the occurrence of such default, give to the Holders notice of such
default.
SECTION 6.2. Acceleration of Maturity Date; Rescission and
Annulment.
If an Event of Default (other than an Event of Default specified in
Section 6.1(5) or (6) relating to the Company or any of its Restricted
Subsidiaries) occurs and is continuing, then, and in every such case, unless the
principal of all of the Securities shall have already become due and payable,
either the Trustee or the Holders of not less than 25% in aggregate principal
amount of then outstanding Securities, by notice in writing to the Company (and
to the Trustee if given by Holders) (an "Acceleration Notice"), may declare all
of the principal of the Securities (or the Change of Control Purchase Price if
the Event of Default includes failure to pay the Change of Control Purchase
Price), determined as set forth below, including in each
71
<PAGE>
case accrued interest thereon, to be due and payable immediately. If an Event of
Default specified in Section 6.1(5) or (6) relating to the Company or any
Significant Restricted Subsidiary occurs, all principal (or the Change of
Control Purchase Price, as applicable) and accrued interest thereon will be
immediately due and payable on all outstanding Securities without any
declaration or other act on the part of Trustee or the Holders.
At any time after such a declaration of acceleration being made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article VI, the Holders of a
majority in aggregate principal amount of then outstanding Securities, by
written notice to the Company and the Trustee, may rescind, on behalf of all
Holders, any such declaration of acceleration if:
(1) the Company has paid or deposited with the Trustee cash
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, applicable
to) any Securities which would become due otherwise than by such
declaration of acceleration, and interest thereon at the rate borne
by the Securities,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by the
Securities,
(D) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and
(2) all Events of Default, other than the non-payment of the
principal of, premium, if any, and interest on Securities which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 6.12, including, if applicable, any Event of
Default relating to the covenants contained in Section 11.1.
Notwithstanding the previous sentence of this Section 6.2, no waiver shall be
effective against any Holder for any Event of Default or event which with notice
or lapse of time
72
<PAGE>
or both would be an Event of Default with respect to any covenant or provision
which cannot be modified or amended without the consent of the Holder of each
outstanding Security affected thereby, unless all such affected Holders agree,
in writing, to waive such Event of Default or other event. No such waiver shall
cure or waive any subsequent default or impair any right consequent thereon.
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if an Event of Default in payment of
principal, premium, or interest specified in clause (1) or (2) of Section 6.1
occurs and is continuing, the Company shall, upon demand of the Trustee, pay to
it, for the benefit of the Holders of such Securities, the whole amount then due
and payable on such Securities for principal, premium (if any) and interest,
and, to the extent that payment of such interest shall be legally enforceable,
interest on any overdue principal (and premium, if any) and on any overdue
interest, at the rate borne by the Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the reasonable costs and expenses
of collection, including compensation to, and expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust in favor of the
Holders, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Company or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
73
<PAGE>
SECTION 6.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise to take any and
all actions under the TIA, including
(1) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in respect
of the Securities and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel) and of
the Holders allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment, or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
74
<PAGE>
SECTION 6.5. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust in favor of the Holders, and any
recovery of judgment shall, after provision for the payment of compensation to,
and expenses, disbursements and advances of the Trustee, its agents and counsel,
be for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
SECTION 6.6. Priorities.
Any money collected by the Trustee pursuant to this Article VI shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal, premium
(if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the Trustee in payment of all amounts due pursuant to
Section 7.7;
SECOND: To the Holders in payment of the amounts then due and unpaid
for principal of, premium (if any) and interest on, the Securities in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due and
payable on such Securities for principal, premium (if any) and interest,
respectively; and
THIRD: To whomsoever may be lawfully entitled thereto, the
remainder, if any.
SECTION 6.7. Limitation on Suits.
No Holder of any Security shall have any right to order or direct
the Trustee to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless
75
<PAGE>
(A) such Holder has previously given written notice to
the Trustee of a continuing Event of Default;
(B) the Holders of not less than 25% in principal amount
of then outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(C) such Holder or Holders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities to be incurred or reasonably probable to be incurred in
compliance with such request;
(D) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and
(E) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the Holders of
a majority in principal amount of the outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 6.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision of this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of, and premium (if any) and accrued interest
on, such Security on the Maturity Date of such payments as expressed in such
Security (in the case of redemption, the Redemption Price on the applicable
Redemption Date, in the case of the Change of Control Payment, on the applicable
Change of Control Payment Date, in the case of an Asset Sale Offer, the Asset
Sale Offer Price on the Asset Sale Purchase Date, and, in the case of a Proceeds
Purchase Offer, the Proceeds Purchase Offer Price on the applicable date of
purchase) and to institute suit for the enforcement of any such
76
<PAGE>
payment after such respective dates, and such rights shall not be impaired
without the consent of such Holder.
SECTION 6.9. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 2.7, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 6.10. Delay or Omission Not Waiver.
No delay or omission by the Trustee or by any Holder of any Security
to exercise any right or remedy arising upon any Event of Default shall impair
the exercise of any such right or remedy or constitute a waiver of any such
Event of Default. Every right and remedy given by this Article VI or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 6.11. Control by Holders.
The Holder or Holders of a majority in aggregate principal amount of
then outstanding Securities will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred upon the Trustee, provided that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) the Trustee shall not determine that the action so
directed would be unjustly prejudicial to the Holders not taking part in
such direction, and
(3) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
77
<PAGE>
SECTION 6.12. Waiver of Past Default.
Subject to Section 6.8, the Holder or Holders of not less than a
majority in aggregate principal amount of the outstanding Securities may, on
behalf of all Holders, prior to the declaration of the acceleration of the
maturity of the Securities, waive any past default hereunder and its
consequences, except a default
(A) in the payment of the principal of, premium, if any,
or interest on, any Security as specified in clauses (1) and (2) of
Section 6.1, or
(B) in respect of a covenant or provision hereof which,
under Article IX, cannot be modified or amended without the consent of the
Holder of each outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair the exercise of any right arising therefrom.
SECTION 6.13. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted to be taken by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 6.13 shall not apply to any suit instituted
by the Company, to any suit instituted by the Trustee, to any suit instituted by
any Holder, or group of Holders, holding in the aggregate more than 10% in
aggregate principal amount of the outstanding Securities, or to any suit
instituted by any Holder for enforcement of the payment of principal of, or
premium (if any) or interest on, any Security on or after the Maturity Date
expressed in such Security (including, in the case of redemption, on or after
the Redemption Date).
78
<PAGE>
SECTION 6.14. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this
Indenture and covenants and agrees to perform the same, as herein expressed.
SECTION 7.1. Duties of Trustee.
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent Person would exercise or use under the circumstances in the conduct
of his own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no others, and no covenants
or obligations shall be implied in or read into this Indenture which are
adverse to the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
79
<PAGE>
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 7.1.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.11.
(d) No provision of this Indenture shall require the trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or to take or omit to take any
action under this Indenture or at the request, order or direction of the Holders
or in the exercise of any of its rights or powers if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of this
Section 7.1.
(f) The Trustee shall not be liable for interest on any assets
received by it except as the Trustee may agree in writing with the Company.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
SECTION 7.2. Rights of Trustee.
Subject to Section 7.1:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall
80
<PAGE>
conform to Sections 13.4 and 13.5. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such certificate
or advice of counsel.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee will not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers conferred upon it by this Indenture.
(e) The Trustee will not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit.
(f) The Trustee will be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders, pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
(g) Unless otherwise specifically provided for in this
Indenture, any demand, request, direction or notice from the Company shall be
sufficient if signed by an Officer of the Company.
(h) The Trustee shall have no duty to inquire as to the
performance of the covenants in Article IV hereof. In addition, the Trustee
shall not be deemed to have knowledge of any Default or Event of Default except
(i) any Event of Default occurring pursuant to Sections 6.1(1), 6.1(2) and 4.1,
or (ii) any Default or Event of Default of which the Trustee shall have received
written notification or obtained actual knowledge.
SECTION 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or any of
the Company's Subsidiaries, or their respective Affiliates with the same
rights it would have if it were not Trustee. Any Agent may
81
<PAGE>
do the same with like rights. However, the Trustee must comply with Sections
7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy
of this Indenture or the Securities and it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement in the Securities, other than the Trustee's
certificate of authentication, or the use or application of any funds received
by a Paying Agent other than the Trustee.
SECTION 7.5. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if
it is known to the Trustee, the Trustee shall mail to each Securityholder notice
of the uncured Default or Event of Default within 90 days after such Default or
Event of Default occurs. Except in the case of a Default or an Event of Default
in payment of principal (or premium, if any) of, or interest on, any Security
(including the payment of the Change of Control Purchase Price on the Change of
Control Payment Date, the payment of the Redemption Price on the Redemption Date
and the payment of the Offer Price on the Purchase Date), the Trustee may
withhold the notice if and so long as a Trust Officer in good faith determines
that withholding the notice is in the interest of the Securityholders.
SECTION 7.6. Reports by Trustee to Holders.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, the Trustee shall, if required by law, mail to each
Securityholder a brief report dated as of such May 15 that complies with TIA ss.
313(a). The Trustee also shall comply with TIA ss.ss. 313(b) and 313(c).
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or automatic quotation system.
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Securities are listed.
82
<PAGE>
SECTION 7.7. Compensation and Indemnity.
The Company agrees to pay to the Trustee from time to time
reasonable compensation for its services. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances incurred or made by it. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents, accountants, experts and counsel.
The Company agrees to indemnify the Trustee (in its capacity as
Trustee) and each of its officers, directors, attorneys-in-fact and agents for,
and hold it harmless against, any claim, demand, expense (including but not
limited to reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel), loss or liability incurred by it without negligence or bad
faith on its part, arising out of or in connection with the administration of
this trust and its rights or duties hereunder including the reasonable costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek indemnity. The Company shall defend the claim and
the Trustee shall provide reasonable cooperation at the Company's expense in the
defense. The Trustee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel; provided that the Company will not
be required to pay such fees and expenses if they assume the Trustee's defense
and there is no conflict of interest between the Company and the Trustee in
connection with such defense. The Company need not pay for any settlement made
without their written consent. The Company need not reimburse any expense or
indemnify against any loss or liability to the extent incurred by the Trustee
through its negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a lien prior to the Securities on all assets held or
collected by the Trustee, in its capacity as Trustee, except assets held in
trust to pay principal and premium, if any, of or interest on particular
Securities.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.1(5) or (6) occurs, the expenses and the
compensation for the
83
<PAGE>
services are intended to constitute expenses of administration under any
Bankruptcy Law.
The Company's obligations under this Section 7.7 and any lien
arising hereunder shall survive the resignation or removal of the Trustee, the
discharge of the Company's obligations pursuant to Article VIII of this
Indenture and any rejection or termination of this Indenture under any
Bankruptcy Law.
SECTION 7.8. Replacement of Trustee.
The Trustee may resign by so notifying the Company in writing. The
Holder or Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Company and the Trustee in
writing and may appoint a successor trustee with the Company's consent. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver, Custodian, or other public officer takes
charge of the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holder or
Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that
and provided that all sums owing to the trustee provided for in Section 7.7 have
been paid, the retiring Trustee shall transfer all property held by it as
trustee to the successor Trustee, subject to the lien provided in Section 7.7,
the resignation or removal of the retiring Trustee shall become effective, and
the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Holder.
84
<PAGE>
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holder or Holders of at least 10% in principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.8, the Company's obligations under Section 7.7 shall continue for the benefit
of the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
The Trustee shall at all times satisfy the requirements of TIA ss.
310(a)(1), (2) and (5). The Trustee shall have a combined capital and surplus of
at least $10,000,000 as set forth in its most recent published annual report of
condition. The Trustee shall comply with TIA ss. 310(b).
SECTION 7.11. Preferential Collection of Claims
against Company.
The Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated.
85
<PAGE>
ARTICLE VIII
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. Option to Effect Legal Defeasance or
Covenant Defeasance.
The Company may, at its option at any time, elect to have Section
8.2 or Section 8.3 applied to all outstanding Securities upon compliance with
the conditions set forth below in this Article VIII.
SECTION 8.2. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.1 of the option
applicable to this Section 8.2, the Company shall be deemed to have been
discharged from its obligations with respect to all outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Securities, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.5 and the other Sections of
this Indenture referred to in (a) and (b) below, and to have satisfied all its
other obligations under such Securities and this Indenture (and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Securities to receive solely from the trust fund described in
Section 8.4, and as more fully set forth in such Section 8.4, payments in
respect of the principal of, premium, if any, and interest on such Securities
when such payments are due, (b) the Company's obligations with respect to such
Securities under Sections 2.4, 2.6, 2.7, 2.10 and 4.2, (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith and (d) this Article VIII. Subject to
compliance with this Article VIII, the Company may exercise its option under
this Section 8.2 notwithstanding the prior exercise of its option under Section
8.3 with respect to the Securities.
SECTION 8.3. Covenant Defeasance.
Upon the Company's exercise under Section 8.1 of the option
applicable to this Section 8.3, the Company shall be released from its
obligations under the covenants con-
86
<PAGE>
tained in Sections 4.3, 4.5, 4.6, 4.7, 4.8, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16,
4.18, 4.19 and Article V (other than the obligation of any successor to assume
the obligations of the Company hereunder) with respect to the outstanding
Securities on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Securities shall thereafter be
deemed not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder. For this purpose, such Covenant Defeasance
means that, with respect to the outstanding Securities, the Company need not
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document, but, except as specified above, the remainder of this Indenture and
such Securities shall be unaffected thereby.
SECTION 8.4. Conditions to Legal or Covenant
Defeasance.
The following shall be the conditions to the application of either
Section 8.2 or Section 8.3 to the outstanding Securities:
(a) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the requirements of
Section 7.10 who shall agree to comply with the provisions of this Article VIII
applicable to it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of such Securities, (a) cash in an amount, or (b)
U.S. Government Obligations or U.S. Legal Tender Equivalents, or (c) a
combination thereof, in such amounts, as in each case will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
and discharge and which shall be applied by the Trustee (or other qualifying
trustee) to pay and discharge (i) the principal of, premium, if any, and
interest on the outstanding Securities on the Stated Maturity or on the
applicable Redemption Date, as the case may be, of such principal or installment
of principal, premium, if any, or interest and the Holders of Securities shall
have a valid, perfected, exclusive security interest
87
<PAGE>
in the assets of such trust; provided that the Trustee shall have been
irrevocably instructed to apply such cash and the proceeds of such U.S.
Government Obligations or U.S. Legal Tender Equivalents to said payments with
respect to the Securities;
(b) In the case of an election under Section 8.2, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably satisfactory to the Trustee confirming that (i) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (ii) since the date hereof, there has been a change in the applicable
Federal income tax law, in either case to the effect that, and based thereon
such opinion shall confirm that, the Holders of the outstanding Securities will
not recognize income, gain or loss for Federal income tax purposes as a result
of such Legal Defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred;
(c) In the case of an election under Section 8.3, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to such Trustee confirming that the Holders of the
outstanding Securities will not recognize income, gain or loss for Federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to Federal income tax in the same amount, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(d) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such deposit or,
in so far as Section 6.1(5) or 6.1(6) is concerned, at any time during the
period ending on the 91st day after the date of such deposit (it being
understood that this condition is a condition subsequent which shall not be
deemed satisfied until the expiration of such period, but in the case of
Covenant Defeasance, the covenants which are defeased under Section 8.3 will
cease to be in effect unless an Event of Default under Section 6.1(5) or 6.1(6)
occurs during such period);
(e) Such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under this Indenture
or any other material agreement or instrument to which the Company or any
88
<PAGE>
of the Company's Subsidiaries is a party or by which any of them is bound;
(f) In the case of an election under either Section 8.2 or
8.3, the Company shall have delivered to the Trustee an Officers' Certificate
stating that the deposit made by the Company pursuant to its election under
Section 8.2 or 8.3 was not made by the Company with the intent of preferring the
Holders over any other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and
(g) The Company shall have delivered to the Trustee an
Officers' Certificate stating that all conditions precedent provided for or
relating to either the Legal Defeasance under Section 8.2 or the Covenant
Defeasance under Section 8.3 (as the case may be) have been complied
with as contemplated by this Section 8.4.
SECTION 8.5. Deposited U.S. Legal Tender Equivalents and U.S.
Government Obligations to be Held in Trust; Other Miscellaneous Provisions.
Subject to Section 8.6, all cash, U.S. Legal Tender Equivalents and
U.S. Government Obligations (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.5, the "Trustee") pursuant to Section 8.4 in respect of the outstanding
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and this Indenture, to the payment, either
directly or through any Paying Agent as the Trustee may determine, to the
Holders of such Securities of all sums due and to become due thereon in respect
of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
SECTION 8.6. Repayment to the Company.
Subject to any applicable escheat or abandoned property laws, any
money deposited with the Trustee or any Paying Agent, or then held by the
Company, in trust for the payment of the principal of, premium, if any, or
interest on any Security and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request; and the Holder of such Security shall
thereafter look only to the Company for payment thereof, and all liability of
the
89
<PAGE>
Trustee or such Paying Agent with respect to such trust money shall thereupon
cease.
SECTION 8.7. Reinstatement.
If the Trustee or Paying Agent is unable to apply any cash, U.S.
Legal Tender Equivalents or U.S. Government Obligations in accordance with
Section 8.2 or 8.3, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.2 or 8.3 until such time as the
Trustee or Paying Agent is permitted to apply such money in accordance with
Sections 8.2 and 8.3, as the case may be; provided, however, that, if the
Company makes any payment of principal of, premium, if any, or interest on any
Security following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the cash held by the Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holder, the Company, when authorized by
Board Resolutions, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect, or inconsistency, or to
make any other provisions with respect to matters or questions arising under
this Indenture which shall not be inconsistent with the provisions of this
Indenture, provided such action pursuant to this clause (1) shall not adversely
affect the interests of any Holder in any respect;
(2) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon the
Company or to make any other change that does not adversely affect the rights of
any Holder, provided that the Company has delivered to the
90
<PAGE>
Trustee an Opinion of Counsel stating that such change does not adversely affect
the rights of any Holder;
(3) to provide for collateral or guarantors for the
Securities;
(4) to evidence the succession of another Person to the
Company, and the assumption by any such successor of the obligations of the
Company, herein and in the Securities in accordance with Article V;
(5) to comply with the TIA; or
(6) to provide for the issuance and authorization of the
Exchange Securities.
SECTION 9.2. Amendments, Supplemental Indentures and Waivers with
Consent of Holders.
Subject to Section 6.8, with the consent of the Holders of not less
than a majority in aggregate principal amount of then outstanding Securities, by
written act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by Board Resolutions, and the Trustee may amend or
supplement this Indenture or the Securities or enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
the Securities or of modifying in any manner the rights of the Holders under
this Indenture or the Securities. Subject to Section 6.8, the Holder or Holders
of not less than a majority, in principal amount of then outstanding Securities
may waive compliance by the Company with any provision of this Indenture or the
Securities. Notwithstanding any of the above, however, no such amendment,
supplemental indenture or waiver shall, without the consent of the Holder of
each outstanding Security affected thereby:
(1) reduce the percentage of principal amount of Securities whose
Holders must consent to an amendment, supplement or waiver of any provision of
this Indenture or the Securities;
(2) reduce the rate or extend the time for payment of interest on
any Security;
(3) reduce the principal amount of any Security, the Change of
Control Purchase Price, the Proceeds Purchase
91
<PAGE>
Offer Price, the Proceeds Purchase Offer Amount, the Asset Sale Offer Price or
the Redemption Price;
(4) change the Stated Maturity or the Change of Control Purchase
Date, the Proceeds Purchase Offer Period, the Asset Sale Purchase Date, the
Asset Sale Offer Period, or the Change of Control Offer Period of any Security;
(5) alter the redemption provisions of Article III or paragraph 5 of
the Securities or the terms or provisions of Section 4.14 or Section 4.16 or the
terms or provisions of Article XI, in any case, in a manner adverse to any
Holder;
(6) make any changes in the provisions concerning waivers of
Defaults or Events of Default by Holders of the Securities or the rights of
Holders to recover the principal or premium of, interest on, or redemption
payment with respect to, any Security, including without limitation any changes
in Section 6.8, 6.12 or this third sentence of this Section 9.2;
(7) make the principal of, or the interest on, any Security payable
with anything or in any manner other than as provided for in this Indenture
(including changing the place of payment where, or the coin or currency in
which, any Security or any premium or the interest thereon is payable) and the
Securities as in effect on the date hereof; or
(8) make the Securities subordinated in right of payment to any
extent or under any circumstances to any other indebtedness.
It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.2
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture or
waiver.
92
<PAGE>
After an amendment, supplement or waiver under this Section 9.2 or
Section 9.4 becomes effective, it shall bind each Holder.
In connection with any amendment, supplement or waiver under this
Article IX, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or waiver.
SECTION 9.3. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security, even if notation of the consent is not
made on any Security. However, any such Holder or subsequent Holder may revoke
the consent as to his Security or portion of his Security by written notice to
the Company or the Person designated by the Company as the Person to whom
consents should be sent if such revocation is received by the Company or such
Person before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities have
consented (and not theretofore revoked such consent) to the amendment,
supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. If a record date is fixed,
then notwithstanding the last sentence of the immediately preceding paragraph,
those Persons who were Holders at such record date, and only those Persons (or
their duly designated proxies), shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
93
<PAGE>
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (8) of Section 9.2, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided that any such waiver
shall not impair or affect the right of any Holder to receive payment of
principal and premium of and interest on a Security, on or after the respective
dates set for such amounts to become due and payable expressed in such Security,
or to bring suit for the enforcement of any such payment on or after such
respective dates.
SECTION 9.5. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee or require the Holder to put an appropriate notation on the
Security. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms. Any failure to make the appropriate notation or to issue a new Security
shall not affect the validity of such amendment, supplement or waiver.
SECTION 9.6. Trustee to Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; provided that the Trustee may, but shall
not be obligated to, execute any such amendment, supplement or waiver which
affects the Trustee's own rights, duties or immunities under this Indenture. The
Trustee shall be entitled to receive, and shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of any amendment,
supplement or waiver authorized pursuant to this Article IX is authorized or
permitted by this Indenture.
94
<PAGE>
ARTICLE X
[RESERVED]
ARTICLE XI
RIGHT TO REQUIRE REPURCHASE
SECTION 11.1. Repurchase of Securities at Option of the Holder Upon
a Change of Control.
(a) In the event that a Change of Control occurs, each Holder
will have the right, at such Holder's option, to require the Company to
repurchase all or any part of such Holder's Securities pursuant to an
unconditional, irrevocable offer by the Company (provided that the principal
amount of such Securities at stated maturity must be $1,000 or an integral
multiple thereof) on the date that is no later than 45 Business Days after the
occurrence of such Change of Control (the "Change of Control Purchase Date"), at
a cash price (the "Change of Control Purchase Price") equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any, to
and including the Change of Control Purchase Date.
(b) In the event that, pursuant to this Section 11.1, the
Company shall be required to commence such an offer to purchase Securities (a
"Change of Control Offer"), the Company shall follow the procedures set forth in
this Section 11.1 as follows:
(1) the Change of Control Offer shall commence within 20
Business Days following the Change of Control date;
(2) the Change of Control Offer shall remain open for 20
Business Days, except to the extent that a longer period is required by
applicable law (the "Change of Control Offer Period");
(3) upon the expiration of a Change of Control Offer Period,
the Company shall purchase all of the properly tendered and not properly
withdrawn Securities in response to the Change of Control Offer;
(4) the Company shall provide the Trustee with notice of the
Change of Control Offer at least 5 Business Days before the commencement
of any Change of Control Offer; and
95
<PAGE>
(5) on or before the commencement of any Change of Control
Offer, the Company or the Trustee (upon the request and at the expense of
the Company) shall send, by first-class mail, a notice to each of the
Securityholders, which (to the extent consistent with this Indenture)
shall govern the terms of the Change of Control Offer and shall state:
(i) that the Change of Control Offer is being made
pursuant to such notice and this Section 11.1 and that all Securities, or
portions thereof, tendered will be accepted for payment;
(ii) the Change of Control Purchase Price (including the
amount of accrued and unpaid interest), the Change of Control Purchase
Date and the Change of Control Put Date (as defined below);
(iii) that any Security, or portion thereof, not
tendered or accepted for payment will continue to accrue interest;
(iv) that, unless the Company defaults in depositing
cash with the Paying Agent in accordance with the last paragraph of this
clause (b) or such payment is prevented, any Security, or portion thereof,
accepted for payment pursuant to the Change of Control Offer shall cease
to accrue interest after the Change of Control Purchase Date;
(v) that Holders electing to have a Security, or portion
thereof, purchased pursuant to a Change of Control Offer will be required
to surrender the Security, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Security completed, to the Paying
Agent (which may not for purposes of this Section 11.1, notwithstanding
anything in this Indenture to the contrary, be the Company or any
Affiliate of the Company) at the address specified in the notice prior to
the close of business on the earlier of (a) the third Business Day prior
to the Change of Control Purchase Date and (b) the third Business Day
following the expiration of the Change of Control Offer (such earlier date
being the "Change of Control Put Date");
(vi) that Holders will be entitled to withdraw their
election, in whole or in part, if the Paying Agent (which may not for
purposes of this Section 11.1, notwithstanding anything in this Indenture
96
<PAGE>
to the contrary, be the Company or any Affiliate of the Company) receives,
up to the close of business on the Change of Control Put Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Securities the Holder is withdrawing
and a statement that such Holder is withdrawing his election to have such
principal amount of Securities purchased; and
(vii) a brief description of the events resulting in
such Change of Control.
Any such Change of Control Offer shall comply with all applicable
provisions of Federal and state securities laws, including those regulating
tender offers, if applicable, and any provisions of this Indenture which
conflict with such laws shall be deemed to be superseded by the provisions of
such laws.
On or before the Change of Control Purchase Date, the Company will
(i) accept for payment Securities or portions thereof properly tendered and not
properly withdrawn pursuant to the Change of Control Offer, (ii) deposit with
the Paying Agent cash sufficient to pay the Change of Control Purchase Price
(including accrued and unpaid interest) for all Securities or portions thereof
so tendered and (iii) deliver to the Trustee Securities so accepted together
with an Officers' Certificate listing the Securities or portions thereof being
purchased by the Company. The Paying Agent will on the Change of Control
Purchase Date promptly deliver to Holders of Securities so accepted payment in
an amount equal to the Change of Control Purchase Price for such Securities,
together with any accrued but unpaid interest, and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Security equal in
principal amount to any unpurchased portion of the Security surrendered. Any
Securities not so accepted shall be promptly mailed or delivered by the Company
to the Holder thereof. The Company will announce publicly the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Purchase Date.
ARTICLE XII
[RESERVED]
97
<PAGE>
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of the TIA, the imposed duties, upon
qualification of this Indenture under the TIA, shall control.
SECTION 13.2. Notices.
Any notices or other communications to the Company or the Trustee
required or permitted hereunder shall be in writing, and shall be sufficiently
given if made by hand delivery, by telex, by telecopier or registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
if to the Company:
PriCellular Wireless Corporation
45 Rockefeller Plaza
New York, New York 10020
Attention: Chief Financial Officer
Telecopy: (212) 245-3058
if to the Trustee:
Bank of Montreal Trust Company
77 Water Street
4th Floor
New York, New York 10005
Attention: Corporate Trust Department
Telecopy: (212) 701-7684
Any party by notice to each other party may designate additional or
different addresses as shall be furnished in writing by such party. Any notice
or communication to any party shall be deemed to have been given or made as of
the date so delivered, if personally delivered; when answered back, if telexed;
when receipt is acknowledged, if telecopied; and five Business Days after
mailing if sent by registered or certified mail, postage prepaid (except that a
notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be
mailed to him by first class mail or
98
<PAGE>
other equivalent means at his address as it appears on the registration books of
the Registrar and shall be sufficiently given to him if so mailed within the
time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.3. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA ss. 312(c).
SECTION 13.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, such Person shall furnish to the Trustee:
(1) an Officers' Certificate (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion of
such counsel, all such conditions precedent have been complied with.
SECTION 13.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate
or opinion has read such covenant or condition;
99
<PAGE>
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he
has made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of
each such Person, such condition or covenant has been complied with;
provided, however, that with respect to matters of fact an Opinion of
Counsel may rely on an Officers' Certificate or certificates of public
officials.
SECTION 13.6. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting
of Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 13.7. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in New York, New York are authorized or obligated by law or
executive order to close. If a payment date is a Legal Holiday at such place,
payment may be made at such place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
SECTION 13.8. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE COMPANY HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE SECURITIES, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCON-
100
<PAGE>
DITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY
SECURITYHOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER
JURISDICTION.
SECTION 13.9. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or any of its respective Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 13.10. No Recourse against Others.
No direct or indirect employee, stockholder, director or officer, as
such, past, present or future of the Company, or any successor entity, shall
have any personal liability in respect of the obligations of the Company under
the Securities or this Indenture by reason of his or its status as such
stockholder, employee, director or officer. Each Securityholder by accepting a
Security waives and releases all such liability. Such waiver and release are
part of the consideration for the issuance of the Securities.
SECTION 13.11. Successors.
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 13.12. Duplicate Originals.
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of them
together shall represent the same agreement.
101
<PAGE>
SECTION 13.13. Severability.
In case any one or more of the provisions in this Indenture or in
the Securities shall be held invalid, illegal or unenforceable, in any respect
for any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 13.14. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and headings of the
Articles and the Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 13.15. Qualification of Indenture.
The Company shall qualify this Indenture under the TIA in accordance
with the terms and conditions of the Registration Rights Agreement and shall pay
all costs and expenses (including attorneys' fees for the Company and the
Trustee) incurred in connection therewith, including, but not limited to, costs
and expenses of qualification of the Indenture and the Securities and printing
this Indenture and the Securities. The Trustee shall be entitled to receive from
the Company any such Officers' Certificates, Opinions of Counsel or other
documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
SECTION 13.16. Registration Rights.
Certain Holders of the Securities are entitled to certain
registration rights with respect to such Securities pursuant to, and subject to
the terms of, the Registration Rights Agreement.
102
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
PRICELLULAR WIRELESS CORPORATION,
a Delaware corporation
By: ________________________________________
Name:
Title:
BANK OF MONTREAL TRUST COMPANY,
Trustee
By: ________________________________________
Name:
Title:
103
<PAGE>
Exhibit A
[FORM OF SECURITY]
10-3/4% SERIES [A/B] SENIOR NOTE DUE 2004
No. $170,000,000
CUSIP No.
PriCellular Wireless Corporation, a Delaware corporation
(hereinafter called the "Company," which term includes any successors under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to Cede & Co., or registered assigns, the principal sum of $170,000,000 Dollars,
on November 1, 2004.
Interest Payment Dates: May 1 and November 1; commencing May 1,
1997.
Record Dates: April 15 and October 15.
Reference is made to the further provisions of this Security on the
reverse side, which will, for all purposes, have the same effect as if set forth
at this place.
IN WITNESS WHEREOF, the Company has caused this Instrument to be
duly executed under its corporate seal.
Dated:
PRICELLULAR WIRELESS CORPORATION,
a Delaware corporation
By: _________________________________________
Name:
Title:
Attest: ___________________
Secretary
A-1
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned
Indenture.
BANK OF MONTREAL TRUST COMPANY,
as Trustee
By _________________________________________
Authorized Signatory
Dated:
A-2
<PAGE>
PRICELLULAR WIRELESS CORPORATION
10-3/4% Series [A/B] Senior Note due 2004
Unless and until it is exchanged in whole or in part for Securities
in definitive form, this Security may not be transferred except as a whole by
the Depository to a nominee of the Depository or by a nominee of the Depository
to the Depository or another nominee of the Depository or by the Depository or
any such nominee to a successor Depository or a nominee of such successor
Depository. Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation, ("DTC"), to the Company
or its agent for registration of transfer, exchange or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein. (1)
THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
THIS SECURITY, AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY MAY NOT
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE THIRD ANNIVERSARY
OF THE LATER OF THE ISSUANCE HEREOF (OR ANY PREDECESSOR NOTE HERETO) OR THE SALE
HEREOF (OR ANY PREDECESSOR SECURITY HERETO) BY THE ISSUER OR ANY AFFILIATE OF
THE ISSUER (COMPUTED IN ACCORDANCE WITH PARAGRAPH (D) OF RULE 144 UNDER THE
SECURITIES ACT) OR (Y) BY AN AFFILIATE OF THE ISSUER OR BY ANY HOLDER THAT WAS
AN AFFILIATE OF THE ISSUER AT ANY TIME DURING THE THREE MONTHS PRECEDING THE
DATE OF SUCH TRANSFER, IN EITHER CASE, OTHER THAN (1) TO THE ISSUER OR ITS
PARENT, (2) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER OVER WHICH IT EXERCISES SOLE INVESTMENT DISCRETION THAT IS AWARE THAT THE
RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (3)
PURSUANT TO ANY EXEMPTION FROM REGISTRATION IN ACCORDANCE WITH REGULATION S
UNDER THE SECURITIES ACT, (4) TO AN INSTITU-
- --------
(1) This paragraph should only be added if the Security is issued in global
form.
A-3
<PAGE>
TIONAL INVESTOR THAT IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT WHICH DELIVERS A CERTIFICATE
IN THE FORM OF EXHIBIT B TO THE INDENTURE TO THE INDENTURE TRUSTEE UNDER THE
INDENTURE DATED AS OF NOVEMBER 1, 1996, BETWEEN THE ISSUER, PRICELLULAR
CORPORATION AND THE BANK OF MONTREAL TRUST COMPANY, AS INDENTURE TRUSTEE, OR (5)
ANY OTHER APPLICABLE EXEMPTION UNDER THE SECURITIES LAWS. (2)
1. Interest.
PriCellular Wireless Corporation, a Delaware corporation
(hereinafter called the "Company," which term includes any successors under the
Indenture hereinafter referred to), promises to pay interest on the principal
amount of this Security at the rate and in the manner specified below. Interest
will accrue at 10-3/4% per annum and will be payable semi-annually in cash on
each May 1 and November 1, commencing May 1, 1997, or if any such day is not a
Business Day on the next succeeding Business Day (each an "Interest Payment
Date") to Holders of record of the Securities at the close of business on the
immediately preceding April 15 or October 15, whether or not a Business Day.
Interest will be computed on the basis of a 360-day year consisting of twelve
30-day months. Interest shall accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of issuance. To
the extent lawful, the Company shall pay interest on overdue principal at the
rate of the then applicable interest rate on the Securities; it shall pay
interest on overdue installments of interest (without regard to any applicable
grace periods) at the same rate to the extent lawful.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the Persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date. Holders must
surrender Securities to a Paying Agent to collect principal payments. Except as
provided below, the Company shall pay principal and interest in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for payment of public and private debts ("U.S. Legal Tender").
However, the Company may pay principal and interest by wire transfer of Federal
- --------
(2) This paragraph should be included only for the Initial Securities.
A-4
<PAGE>
funds, or interest by its check payable in such U.S. Legal Tender. The Company
may deliver any such interest payment to the Paying Agent or the Company may
mail any such interest payment to a Holder at the Holder's registered address.
3. Paying Agent and Registrar.
Initially, Bank of Montreal Trust Company (the "Trustee") will act
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders. The Company or any of
its Subsidiaries may, subject to certain exceptions, act as Paying Agent,
Registrar or co-Registrar.
4. Indenture.
The Company issued the Securities under an Indenture, dated as of
November 1, 1996 (the "Indenture"), between the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act, as in effect on the date of the Indenture. The Securities are
subject to all such terms, and Holders of Securities are referred to the
Indenture and said Act for a statement of them. The Securities are general
unsecured obligations of the Company limited in aggregate principal amount to
$170,000,000.
5. Redemption.
The Company will not have the right to redeem any Securities prior
to November 1, 2000. On or after November 1, 2000, the Company will have the
right to redeem all or any part of the Securities in cash at the redemption
prices (expressed as a percentage of the principal amount thereof) set forth
below, in each case together with accrued and unpaid interest, if any, to the
applicable Redemption Date (subject to the right of Holders of record on the
relevant regular Record Date to receive interest due on an Interest Payment Date
that is on or prior to the Redemption Date) if redeemed during the 12-month
period beginning November 1 of the years indicated below:
A-5
<PAGE>
Redemption
Year Price
---- ----------
2000 .................. 105.375%
2001 .................. 103.583%
2002 .................. 101.791%
2003 and thereafter.... 100.000%
In the case of a partial redemption, the Trustee shall select the
Securities or portions thereof for redemption on a pro rata basis, by lot, or in
such other manner as it deems appropriate and fair. The Securities may be
redeemed in part in multiples of $1,000 only.
Any such redemption will comply with Article III of the Indenture.
6. Notice of Redemption.
Notice of redemption will be sent by first class mail, at least 30
days and not more than 60 days prior to the Redemption Date to the Holder of
each Security to be redeemed at such Holder's last address as then shown upon
the registry books of the Registrar.
Any notice which relates to a Security to be redeemed in part only
must state the portion of the principal amount to be redeemed and must state
that on and after the date fixed for redemption, upon surrender of such
Security, a new Security or Securities in a principal amount equal to the
unredeemed portion thereof will be issued. On and after the date fixed for
redemption, interest will cease to accrue on the portions of the Securities
called for redemption.
7. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder may register
the transfer of, or exchange Securities in accordance with, the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
of or exchange any Securities selected for redemption prior to 15 days after the
notice of redemption.
A-6
<PAGE>
8. Persons Deemed Owners.
The registered Holder of a Security may be treated as the owner of
it for all purposes.
9. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee and the Paying Agent(s) will pay the money back to
the Company at its written request. After that, all liability of the Trustee and
such Paying Agent(s) with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
Except as set forth in the Indenture, if the Company irrevocably
deposits with the Trustee, in trust, for the benefit of the Holders, cash, U.S.
Legal Tender Equivalents, U.S. Government Obligations or a combination thereof,
in such amounts as will be sufficient in the opinion of a nationally recognized
firm of independent public accountants selected by the Trustee, to pay the
principal of, premium, if any, and interest on the Securities to redemption or
maturity and comply with the other provisions of the Indenture relating thereto,
the Company will be discharged from certain provisions of the Indenture and the
Securities (including the financial covenants, but excluding their obligation to
pay the principal of and interest on the Securities). Upon satisfaction of
certain additional conditions set forth in the Indenture, the Company may elect
to have its obligations discharged with respect to outstanding Securities.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may
be amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture or the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
or make any other change that does not adversely affect the rights of any Holder
of a Security.
A-7
<PAGE>
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries to, among other things, incur additional
Indebtedness and Disqualified Capital Stock, pay dividends or make certain other
restricted payments, enter into certain transactions with Affiliates, incur
Liens, sell assets, merge or consolidate with any other Person or transfer (by
lease, assignment or otherwise) substantially all of the properties and assets
of the Company. The limitations are subject to a number of important
qualifications and exceptions. The Company must periodically report to the
Trustee on compliance with such limitations.
13. Repurchase at Option of Holder; Special Redemption.
(a) If there is a Change of Control, the Company shall be required
to offer to purchase on the Change of Control Payment Date all outstanding
Securities at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the Change of Control Payment Date.
Holders of Securities will receive a Change of Control Offer from the Company
prior to any related Change of Control Payment Date and may elect to have such
Securities purchased by completing the form entitled "Option of Holder to Elect
Purchase" appearing below.
(b) The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries to sell assets. In the event the
proceeds from a permitted Asset Sale exceed certain amounts, as specified in the
Indenture, the Company will be required either to reinvest the proceeds of such
Asset Sale as described in the Indenture or to make an offer to purchase each
Holder's Securities at 100% of the principal amount thereof, plus accrued
interest, if any, to the purchase date.
(c) If the Company does not apply at least $95,000,000 of the net
proceeds from the sale of the Securities to Permitted Proceeds Uses within 140
days of the closing of the sale of the Securities, the Company is required to
offer to purchase outstanding Securities with an aggregate principal amount
equal to such remaining net proceeds at 101% of the principal amount thereof on
the purchase date.
A-8
<PAGE>
14. Successors.
When a successor assumes all the obligations of its predecessor
under the Securities and the Indenture, the predecessor will be released from
those obligations.
15. Defaults and Remedies.
If an Event of Default occurs and is continuing (other than as Event
of Default relating to certain events of bankruptcy, insolvency or
reorganization), then in every such case, unless the principal of all of the
Securities shall have already become due and payable, either the Trustee or the
Holders of 25% in aggregate principal amount of Securities then outstanding may
declare all the Securities to be due and payable immediately in the manner and
with the effect provided in the Indenture. The Holders of Securities may not
enforce the Indenture or the Securities except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Securities. Subject to certain limitations, Holders of a
majority in aggregate principal amount of the Securities then outstanding may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of Securities notice of any continuing Default or Event of
Default (except a Default in payment of principal or interest), if it determines
that withholding notice is in their interest.
16. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company or its Affiliates, and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
17. No Recourse Against Others.
No stockholder, director, officer or employee, as such, past,
present or future, of the Company or any successor corporation shall have any
personal liability in respect of the obligations of the Company under the
Securities or the Indenture by reason of his or its status as such stockholder,
director, officer or employee. Each Holder of a Security by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities.
A-9
<PAGE>
18. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this
Security.
19. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
20. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
21. Additional Rights of Holders of Transfer Restricted
Securities.
In addition to the rights provided to Holders of Securities under
the Indenture, Holders of Securities shall have all the rights set forth in the
Registration Rights Agreement.
A-10
<PAGE>
[FORM OF] ASSIGNMENT
I or we assign this Security to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying
number of assignee
_________________________
and irrevocably appoint __________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
Dated: __________ Signed: ______________________________
________________________________________________________________________________
(Sign exactly as name appears on
the other side of this Security)
A-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.14, Section 4.16 or Article XI of the Indenture, check the
appropriate box: |_| Section 4.14 |_| Section 4.16 |_| Article XI
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.14, Section 4.16 or Article XI of the
Indenture, as the case may be, state the principal amount you want to be
purchased: $__________
Date: ________________ Signature: ___________________________________
(Sign exactly as your
name appears on the
other side of this Security)
A-12
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES (3)
The following exchanges of a part of this Global Security for
Definitive Securities have been made:
Signature of
Amount of Amount of Principal Amount authorized
decrease in increase in of this Global officer
Principal Amount Principal Amount Security following of Trustee or
Date of of this Global of this Global such decrease (or Securities
Exchange Security Security increase) Custodian
- --------------------------------------------------------------------------------
- --------
(3) This schedule should only be added if the Security is issued in global
form.
A-13
<PAGE>
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF
TRANSFER OF SECURITIES (4)
Re: 10-3/4% SERIES A SENIOR NOTES DUE 2004 OF PRICELLULAR
WIRELESS CORPORATION.
This Certificate relates to $______ principal amount of Securities held in
*_____ book-entry or * ______ definitive form by _____ (the "Transferor").
1. The Transferor:*
|_| (a) has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Security held by the Depository a Security
or Securities in definitive, registered form of authorized denominations and an
aggregate principal amount equal to its beneficial interest in such Global
Security (or the portion thereof indicated above); or
|_| (b) has requested the Trustee by written order to exchange or register the
transfer of a Security or Securities.
2. In connection with any such request prior to the date which is three
years after the later of the issuance of this Security (or any predecessor
Security) and the sale hereof by an Affiliate (as defined in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act")) of the Company
(computed in accordance with paragraph (d) of Rule 144 under the Securities Act)
or by a Transferor that was at the date of such transfer or during the three
months preceding such date of transfer an Affiliate of the Company, and in
respect of each such Security, the Transferor does hereby certify that
Transferor is familiar with the Indenture relating to the above-captioned
Securities and as provided in Section 2.6 of such Indenture, the transfer of
this Security does not require registration under the Securities Act because:*
|_| (a) Such Security is being acquired for the
Transferor's own account, without transfer (in satisfaction
- --------
(4) The following should be included only for Initial Securities.
*Check applicable box.
A-14
<PAGE>
of Section 2.6(a)(ii)(A) or Section 2.6(d)(i)(A) of the Indenture).
|_| (b) Such Security is being transferred to a person who the Transferor
reasonably believes is a "qualified institutional buyer" (as defined in Rule
144A under the Securities Act) purchasing for its own account or for the account
of a qualified institutional buyer over which it exercises sole investment
discretion that is aware that the transfer is being made in reliance on Rule
144A (in satisfaction of Section 2.6(a)(ii)(B), Section 2.6(b)(i) or Section
2.6(d)(i)(B) of the Indenture).
|_| (c) Such Security is being transferred pursuant to an exemption from
registration in accordance with Regulation S under the Securities Act (in
satisfaction of Section 2.6(a)(ii)(C) or Section 2.6 (d)(i)(C) of the
Indenture).
|_| (d) Such Security is being transferred to an institutional investor that is
an "accredited investor" within the meaning of Rule 501(a)(1),(2),(3) or (7)
under the Securities Act which delivers a certificate in the form of Exhibit B
to the Indenture to the Trustee (in satisfaction of Section 2.6(a)(ii)(D) or
Section 2.6(d)(i)(D) of the Indenture).
|_| (e) Such Security is being transferred in reliance on and in compliance with
another exemption from the registration requirements of the Securities Act. An
Opinion of Counsel to the effect that such transfer does not require
registration under the Securities Act accompanies this Certificate (in
satisfaction of Section 2.6(a)(ii)(E) or Section 2.6(d)(i)(E) of the Indenture).
______________________________________
[INSERT NAME OF TRANSFEROR]
______________________________________
By:
Date:____________________________
A-15
<PAGE>
3. Affiliation with the Company [check if applicable]
[ ] (a) The undersigned represents and warrants that it is, or at some
time during which it held this Security was, an Affiliate of the
Company.
(b) If 3(a) above is checked and if the undersigned was not an Affiliate
of the Company at all times during which it held this Security,
indicate the periods during which the undersigned was an Affiliate of
the Company: ________________________________.
(c) If 3(a) above is checked and if the Transferee will not pay the full
purchase price for the transfer of this Security on or prior to the
date of transfer indicate when such purchase price will be paid:
________________________________.
TO BE COMPLETED BY TRANSFEREE IF 2(b) ABOVE IS CHECKED AND THE TRANSFEROR IS NOT
A QUALIFIED INSTITUTIONAL BUYER:
The undersigned represents and warrants that it is a "qualified
institutional buyer" as defined in Rule 144A under the Securities Act of 1933,
as amended, and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information.
Dated:____________________ _____________________________________________
NOTICE: To be executed by an officer.
TO BE COMPLETED BY TRANSFEREE IF 2(c) ABOVE IS CHECKED:
The undersigned represents and warrants that it is not a "U.S.
Person" (as defined in Regulation S under the Securities Act of 1933, as
amended).
Dated:____________________ _____________________________________________
NOTICE: To be executed by an officer.
If none of the boxes under Section 2 of this certificate is checked or if any of
the above representations required to be made by the Transferee is not made, the
Registrar shall
A-16
<PAGE>
not be obligated to register this Security in the name of any person other than
the Holder hereof.
THE UNDERSIGNED HEREBY AGREES THAT, UNLESS THE BOX ABOVE UNDER ITEM 3(a) IS
CHECKED, THE UNDERSIGNED SHALL BE DEEMED TO HAVE REPRESENTED THAT IT IS NOT NOR
HAS IT BEEN AT ANY TIME DURING WHICH IT HELD THIS SECURITY AN AFFILIATE, AS
DEFINED IN RULE 144 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OF THE
COMPANY.
Dated: __________________ ______________________________________________
NOTICE: The signature of the Holder to this
assignment must correspond with the name as
written upon the face of this Security
particular, without alteration or enlargement
or any change whatsoever.
A-17
<PAGE>
EXHIBIT B
Bank of Montreal Trust Company
Dear Sirs:
In connection with our proposed purchase of $_______ principal
amount of 10-3/4% Senior Notes due 2004 (the "Notes") of PriCellular Wireless
Corporation (the "Issuer"), we confirm that:
1. We acknowledge that we have been informed that the Notes were
originally issued and sold to purchasers who have received a copy of the
Offering Memorandum dated October 30, 1996, relating to the Notes and understand
that the Notes have not been, and will not be, registered under the Securities
Act of 1933, as amended (the "Securities Act") and may not be sold except as
permitted in the following sentence. We agree, on our own behalf and on behalf
of any accounts for which we are acting as hereinafter stated, that if we should
sell, pledge or otherwise transfer any Notes prior to the third anniversary of
the later of the original issuance of the Notes or the sale thereof by the
Issuer or an affiliate (within the meaning of Rule 144 under the Securities Act
or any successor rule thereto, an "Affiliate") of the Issuer (computed in
accordance with paragraph (d) of Rule 144 under the Securities Act) or if we are
at the proposed date of such transfer or were during the three months preceding
such proposed date of transfer an Affiliate of the Issuer, we will do so in
compliance with any applicable state securities or "Blue Sky" laws and only (A)
to Issuer, (B) in accordance with Rule 144A under the Securities Act (as
indicated by the box checked by the transferor on the form of assignment on the
reverse of the Note), (C) pursuant to any exemption from registration in
accordance with Regulation S under the Securities Act (as indicated by the box
checked by the transferor on the form of assignment on the reverse of the Note),
(D) to an institutional investor that is an "accredited investor" within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act which
delivers a certificate in the form hereof to the trustee under the Indenture
dated as of November 1, 1996 between Issuer and Bank of Montreal Trust Company,
as trust-
B-1
<PAGE>
ee (the "Indenture Trustee"), or (E) pursuant to any other applicable exemption
under the securities laws, and we further agree, in the capacities stated above,
to provide to any person purchasing any of the Notes from us a notice advising
such purchaser that resales of the Notes are restricted as stated herein.
In addition, we understand that, upon any proposed resale of any
Note prior to the third anniversary of the later of the original issuance of
such Note (or any predecessor Note thereof) or the sale of such Note (or any
predecessor Note thereof) by Issuer or an Affiliate of Issuer (computed in
accordance with paragraph (d) of Rule 144 under the Securities Act) or if we are
at the proposed date of such transfer or were during the three months preceding
such proposed date of transfer an Affiliate of the Issuer, we will be required
to furnish to the Indenture Trustee, such certification and other information
(including, without limitation, an opinion of counsel) as the Indenture Trustee,
or Issuer may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that certificates evidencing
Notes purchased by us will bear a legend to the foregoing effect until the third
anniversary of the later of the original issuance of the Notes (or any
predecessor Notes thereof) or the sale thereof by Issuer or an Affiliate of
Issuer (computed in accordance with paragraph (d) of Rule 144 under the
Securities Act) and for so long as we are or during the preceding three months
have been an Affiliate of the Issuer.
2. We are an institutional investor and an "accredited investor"
(within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act)
and have such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of our investment in the Notes,
and we and any account for which we are acting are each able to bear the
economic risk of our or its investment and can afford the complete loss of such
investment.
3. We are acquiring the Notes purchased by us for our own account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion and for
each of which we are acquiring not less than $250,000 aggregate principal amount
of Notes.
4. We have received such information as we deem necessary in
order to make our investment decision.
B-2
<PAGE>
You and the Issuer are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
[Purchaser]
By: _______________________________
Name:
Title:
B-3
<PAGE>
Exhibit 5.1
November 22, 1996
PriCellular Wireless Corporation
45 Rockefeller Plaza
New York, New York 10020
Ladies and Gentlemen:
We have acted as special counsel to PriCellular Wireless Corporation (the
"Company") in connection with the Company's offer (the "Exchange Offer") to
exchange its 10 3/4% Senior Exchange Notes due 2004 (the "New Notes") for any
and all of its outstanding 10 3/4% Senior Notes due 2004 (the "Old Notes").
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and other instruments as we have deemed necessary or advisable for the
purpose of rendering this opinion.
Upon the basis of the foregoing and assuming the due execution and
delivery of the New Notes, we are of the opinion that the New Notes, when
executed, authenticated and delivered in exchange for the Old Notes in
accordance with the Exchange Offer will be valid and binding obligations of the
Company enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
similar laws affecting creditors' rights generally and equitable principles.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of
<PAGE>
PriCellular Wireless 2 November 22, 1996
Corporation
New York, the federal laws of the United States of America and the General
Corporation Law of the State of Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement relating to the Exchange Offer. We also consent to the
reference to us under the caption "Legal Matters" in the Prospectus contained in
such Registration Statement.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by or furnished to any other person without our prior written
consent except that The Bank of Montreal Trust Company, as Exchange Agent for
the Exchange Offer may rely upon this opinion as if it were addressed directly
to it.
Very truly yours,
/s/ Davis Polk & Wardwell
<PAGE>
EXHIBIT 12.1
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Years Ended December 31,
----------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense $29,533 $12,279 $21,569 $2,245 $458 $573 $97
Interest capitalized during
period
Portion of rent expense
representative of interest 450 185 292 55 32 25 24
------- ------- ------- ------ ------- -------- --------
$29,983 $12,464 $21,861 $2,300 $490 $598 $121
------- ------- ------- ------ ------- -------- --------
------- ------- ------- ------ ------- -------- --------
Earnings:
Income from operations
before income taxes $(13,157) $1,556 $(7,094) $(1,235) $10,641 $(2,565) $(4,914)
Fixed charges per above 29,983 12,464 21,861 2,300 490 598 121
------- ------- ------- ------ ------- -------- --------
$16,826 $14,020 $14,767 $1,065 $11,131 $(1,967) $(4,793)
------- ------- ------- ------ ------- -------- --------
------- ------- ------- ------ ------- -------- --------
Ratio of Earnings to Fixed
Charges(1) 1.1 22.7
</TABLE>
(1) The ratio of earnings to fixed charges is not meaningful for periods that
result in a deficit. For the nine months ended September 30, 1996 and the
years ended December 31, 1995, 1994, 1992 and 1991, the deficit of earnings
to fixed charges was $13,157, $7,094, $1,235, $2,565, and $4,914,
respectively.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 and related Prospectus of PriCellular
Wireless Corporation (the "Company") to be filed on or about November 22, 1996
for the registration of $170 million of 10.75% Senior Notes due 2004, to the
inclusion of our report dated January 24, 1996 and to the incorporation by
reference therein of our reports dated January 24, 1996 with respect to the
consolidated financial statements and schedules of the Company included in its
Annual Report on Form 10-K for the year ended December 31, 1995, filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
New York, New York
November 21, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and the related Prospectus of PriCellular
Wireless Corporation for the registration of $170 million of 10.75% Senior Notes
due 2004 and to the incorporation by reference therein of our report dated April
19, 1995, with respect to the combined financial statements of Illinois RSA 4
and 6 for the year ended December 31, 1994 included in the form S-4 No. 33-91006
previously filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
San Antonio, Texas
November 25, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of PriCellular Wireless Corporation on Form S-4 (File No. 333- ) of our
reports, which include an explanatory paragraph discussing the reorganization of
Cellular Information Systems and certain of its subsidiaries under Chapter 11 of
the United States Bankruptcy Code, dated October 1, 1994 and December 12, 1994,
on our audits of the consolidated financial statements of Cellular Information
Systems, Inc. and Subsidiaries. In addition, our report dated December 12, 1994,
includes an explanatory paragraph discussing the acquisition of Cellular
Information Systems, Inc. and Subsidiaries by PriCellular Corporation. We also
consent to the reference to our firm under the caption "Experts".
COOPERS & LYBRAND LLP
New York, New York
November 26, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated March 3, 1995 (except with respect to the matters discussed in
Notes 1 and 7, as to which the date is June 28, 1996) (and to all references to
our firm) included in or made a part of PriCellular Wireless Corporation's
exchange offer registration statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 21, 1996
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 3, 1995 on the financial statements of
USCOC of Ohio RSA #7, Inc. as of December 31, 1994, and for the year then ended,
(and to all references to our firm) included in or made a part of PriCellular
Wireless Corporation's Form S-4 registration statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 26, 1996
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of PriCellular Wireless Corporation on Form S-4 (File No. 333- ) of our
report dated January 25, 1996, on our audits of the financial statements of
Cellular of Upstate New York, Inc. as of December 31, 1995 and 1994 and for the
years then ended. We also consent to the reference to our firm under the caption
"Experts".
COOPERS & LYBRAND LLP
Albany, New York
November 17, 1996
<PAGE>
CONFORMED COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility of a trustee
Pursuant to Section 305(b) ____
BANK OF MONTREAL TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
New York 13-4941093
(JURISDICTION OF INCORPORATION OR ORGANIZATION (I.R.S. EMPLOYER
IF NOT A US NATIONAL BANK) IDENTIFICATION NO.)
77 Water Street
New York, New York 10005
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Mark F. McLaughlin
Bank of Montreal Trust Company
77 Water Street, New York, NY 10005
(212) 701-7602
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
____________________________________
PRICELLULAR WIRELESS CORPORATION
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
Delaware 13-3784318
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
45 Rockefeller Center
New York, New York 10020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
-------------------------------------------
10-3/4% SENIOR SUBORDINATED CONVERTIBLE DISCOUNT NOTES DUE 2004
(TITLE OF THE INDENTURE SECURITIES)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- 2 -
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Reserve Bank of New York
33 Liberty Street, New York NY 10045
State of New York Banking Department
2 Rector Street, New York, NY 10006
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of eligibility.
1. Copy of Organization Certificate of Bank of Montreal Trust
Company to transact business and exercise corporate trust powers;
incorporated herein by reference as Exhibit "A" filed with Form
T-1 Statement, Registration No. 33-46118.
2. Copy of the existing By-Laws of Bank of Montreal Trust Company;
incorporated herein by reference as Exhibit "B" filed with Form
T-1 Statement, Registration No. 33-80928.
3. The consent of the Trustee required by Section 321(b) of the Act;
incorporated herein by reference as Exhibit "C" with Form T-1
Statement, Registration No. 33-46118.
4. A copy of the latest report of condition of Bank of Montreal
Trust Company published pursuant to law or the requirements of
its supervising or examining authority, attached hereto as
Exhibit "D".
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of
1939 the Trustee, Bank of Montreal Trust Company, a corporation
organized and existing under the laws of the State of New York, has
duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in the City of New
York, and State of New York, on the 25th day of November, 1996.
BANK OF MONTREAL TRUST COMPANY
By /S/ Amy Roberts
-------------------------
Amy Roberts
Assistant Vice President
<PAGE>
EXHIBIT "D"
STATEMENT OF CONDITION
BANK OF MONTREAL TRUST COMPANY
NEW YORK
______________________________
ASSETS
Due From Banks $1,570,159
-----------
Investment Securities:
State & Municipal 17,025,354
Other 100
-----------
TOTAL SECURITIES 17,025,454
-----------
Loans and Advances
Federal Funds Sold 12,000,000
Overdrafts (336,057)
-----------
TOTAL LOANS AND ADVANCES 11,663,943
-----------
Investment in Harris Trust, NY 6,656,129
Premises and Equipment 509,422
Other Assets 2,494,863
-----------
TOTAL ASSETS $39,919,970
-----------
-----------
LIABILITIES
Trust Deposits $ 9,859,384
Other Liabilities 9,239,409
-----------
TOTAL LIABILITIES 19,098,793
-----------
CAPITAL ACCOUNTS
Capital Stock, Authorized, Issued and
Fully Paid - 10,000 Shares of $100 Each 1,000,000
Surplus 4,222,188
Retained Earnings 15,510,844
Equity - Municipal Gain/Loss 88,145
-----------
TOTAL CAPITAL ACCOUNTS 20,821,177
-----------
TOTAL LIABILITIES
AND CAPITAL ACCOUNTS $39,919,970
-----------
-----------
I, Mark F. McLaughlin, Vice President, of the above-named bank do hereby
declare that this Report of Condition is true and correct to the best of my
knowledge and belief.
Mark F. McLaughlin
December 31, 1995
We, the undersigned directors, attest to the correctness of this statement
of resources and liabilities. We declared that it has been examined by us, and
to the best of our knowledge and belief has been prepared in conformance with
the instructions and is true and correct.
Sanjiv Tandon
Kevin O. Healey
Steven R. Rothbloom
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
Offer to Exchange
10 3/4% Senior Exchange Notes due 2004
for Any and All Outstanding
10 3/4% Senior Notes due 2004
of
PriCellular Wireless Corporation
THE EXCHANGE OFFER WILL EXPIRE AT 5:00P.M.,
NEW YORK CITY TIME ON ____________________, 1996
(THE "EXPIRATION DATE")
UNLESS EXTENDED BY PRICELLULAR WIRELESS CORPORATION
EXCHANGE AGENT:
THE BANK OF MONTREAL TRUST COMPANY
By Mail, by Overnight
Courier or by Hand
The Bank of Montreal
Trust Company
77 Water Street
Attn: Amy Roberts,
Corporate Trust
Department
New York, NY 10005
By Facsimile:
(212) 701-7684
Confirm by Telephone:
(212) 701-7653
Delivery of this Letter of Transmittal to an address other than as set
forth above or transmission of Instructions via a facsimile transmission to a
number other than as set forth above will not constitute a valid delivery.
<PAGE>
The undersigned acknowledges receipt of the Prospectus dated _________,
1996 (the "Prospectus") of PriCellular Wireless Corporation (the "Company")
which, together with this Letter of Transmittal (the "Letter of Transmittal"),
describes the Company's offer (the "Exchange Offer") to exchange $1,000 in
principal amount of a new series of 10 3/4% Senior Subordinated Discount
Exchange Notes due 2004 (the "New Notes") for each $1,000 in principal amount of
outstanding 10 3/4% Senior Subordinated Discount Notes due 2004 (the "Old
Notes"). The terms of the New Notes are identical in all material respects
(including principal amount, interest rate and maturity) to the terms of the Old
Notes for which they may be exchanged pursuant to the Exchange Offer, except
that the offering of the New Notes will have been registered under the
Securities Act of 1933, as amended and, therefore, the New Notes will not bear
legends restricting the transfer thereof.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OR TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, the Certificate Numbers and Principal
Amounts should be listed on a separate signed schedule affixed
hereto.
2
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED HEREWITH
- --------------------------------------------------------------------------------
Name(s) and Address(es) Certificate Aggregate Principal
of Registered Holder(s) Number(s)* Principal Amount
(Please fill in) Amount Tendered**
Represented
by Notes*
---------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------
*Need not be completed by book-entry holders.
**Unless otherwise indicated, the holder will be deemed to have tendered the
full aggregate principal amount represented by Old Notes.
See Instruction 2.
- --------------------------------------------------------------------------------
3
<PAGE>
This Letter of Transmittal is to be used either if certificates for Old
Notes are to be forwarded herewith or if delivery of Old Notes is to be made by
book-entry transfer to an account maintained by the Exchange Agent at The
Depository Trust Company ("DTC"), pursuant to the procedures set forth in "The
Exchange Offer--Book-Entry Transfer" in the Prospectus. Delivery of documents to
a book-entry transfer facility does not constitute delivery to the Exchange
Agent.
Unless the context requires otherwise, the term "Holder" for purposes of
this Letter of Transmittal means any person in whose name Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder or any person whose Old
Notes are held of record by DTC who desires to deliver such Old Notes by
book-entry transfer at DTC.
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other documents required hereby to the Exchange
Agent on or prior to the Expiration Date may tender their Old Notes according to
the guaranteed delivery procedure set forth in the Prospectus under the caption
"The Exchange Offer--Guaranteed Delivery Procedures."
_______ CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH
THE DEPOSITORY TRUST COMPANY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ____________________________________________
___________________________________
The Depository Trust Company
Account Number _______________________________________
Transaction Code Number __________________________________________________
_______ CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) _____________________________________________
_________________________________
Name of Eligible Institution that Guaranteed Delivery
__________________________________________________________________________
___________________________________________________________
4
<PAGE>
If Delivered by Book-Entry Transfer:
Account Number ___________________________________________________________
______
______ CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ____________________________________________________________________
____________________________________________________________
Address: _________________________________________________________________
____________________________________________________________
5
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above-described principal amount
of Old Notes. Subject to, and effective upon, the acceptance for exchange of the
Old Notes tendered herewith, the undersigned hereby exchanges, assigns and
transfers to, or upon the order or, the Company all right, title and interest in
and to such Old Notes. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent as the true and lawful agent and attorney-in-fact of
the undersigned (with full knowledge that said Exchange Agent acts as the agent
of the undersigned in connection with the Exchange Offer) to cause the Old Notes
to be assigned, transferred and exchanged. The undersigned represents and
warrants that it has full power and authority to tender, exchange, assign and
transfer the Old Notes and to acquire New Notes issuable upon the exchange of
such tendered Old Notes, and that, when the same are accepted for exchange, the
Company will acquire good and unencumbered title to the tendered Old Notes, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The undersigned also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent or the
Company to be necessary or desirable to complete the exchange, assignment and
transfer of tendered Old Notes or transfer ownership of such Old Notes on the
account books maintained by the Depository Trust Company.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer." The undersigned recognizes
that as a result of these conditions (which may be waived, in whole or in part,
by the Company), as more particularly set forth in the Prospectus, the Company
may not be required to exchange any of the Old Notes tendered hereby and, in
such event, the Old Notes not exchanged will be returned to the undersigned at
the address shown below the signature of the undersigned.
By tendering, each holder of Old Notes represents to the Company that (i)
the New Notes acquired pursuant to the
6
<PAGE>
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such person is such holder, (ii)
neither the holder of Old Notes nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes, (iii) if the holder is not a broker-dealer or is a broker-dealer but will
not receive new Notes for its own account in exchange for Old Notes, neither the
holder nor any such other person is engaged in or intends to participate in a
distribution of the New Notes and (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act of 1933, as amended (the "Act"). If the tendering holder is a
broker-dealer (whether or not it is also an "affiliate") that will receive New
Notes for its own account in exchange for Old Notes, it represents that the Old
Notes to be exchanged for the New Notes were acquired by it as a result of
marketing-making activities or other trading activities, and acknowledges that
it will deliver a prospectus meeting the requirements of the Act in connection
with any resale of such New Notes. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Act in connection with
any resale of such New Notes, the undersigned is not deemed to admit that it is
an "underwriter" within the meaning of the Act.
All authority herein conferred or agreed to be conferred shall survive the
death, bankruptcy or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Tendered Old Notes may be withdrawn
at any time prior to the Expiration Date.
Certificates for all New Notes delivered in exchange for tendered Old
Notes and any Old Notes delivered herewith but not exchanged, in each case
registered in the name of the undersigned, shall be delivered to the undersigned
at the address shown below the signature of the undersigned.
7
<PAGE>
TENDERING HOLDER(S) SIGN HERE
________________________________________________________________________________
________________________________________________________________________________
Signature(s) of Holder(s)
Dated: _________________________________, 1996
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) for Old Notes or by any person(s) authorized to become registered
holder(s) by endorsements and documents transmitted herewith or, if the Old
Notes are held of record by DTC, the person in whose name such Old Notes are
registered on the books of DTC. If signature by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, please set forth the
full title of such person.) See Instruction 3.
Name(s): _______________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title): _________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
(Including Zip Code)
Area Code and Telephone No. ____________________________________________________
________________________________________________________________________________
Tax Identification No.
GUARANTEE OF SIGNATURE(S)
(If Required--See Instruction 3)
Authorized Signature: __________________________________________________________
Name: __________________________________________________________________________
8
<PAGE>
Title: _________________________________________________________________________
Address: _______________________________________________________________________
Name of Firm: __________________________________________________________________
Area Code and Telephone No. ____________________________________________________
Dated: ______________, 1996
9
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Delivery of this Letter of Transmittal and Certificates. Certificates for all
physically delivered Old Notes or confirmation of any book-entry transfer to the
Exchange Agent's account at The Depository Trust Company of Old Notes tendered
by book-entry transfer, as well as a properly completed and duly executed copy
of this Letter of Transmittal or facsimile thereof, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at any of its addresses set forth herein on or prior to the Expiration Date.
The method of delivery of this Letter of Transmittal, the Old Notes and
any other required documents is at the election and risk of the holder and,
except as otherwise provided below, the delivery will be deemed made only when
actually received by the Exchange Agent. If such delivery is by mail, it is
suggested that registered mail with return receipt requested, properly insured,
be used.
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other required documents to the Exchange Agent
on or prior to the Expiration Date or comply with book-entry transfer procedures
on a timely basis may tender their Old Notes pursuant to the guaranteed delivery
procedure set forth in the Prospectus under "The Exchange Offer-- Guaranteed
Delivery Procedures." Pursuant to such procedure: (i) such tender must be made
by or through an Eligible Institution (as defined therein); (ii) on or prior to
the Expiration Date the Exchange Agent must have received from such Eligible
institution, a letter, telegram or facsimile transmission setting forth the name
and address of the tendering holder, the names in which such Old Notes are
registered, and, if possible, the certificate numbers of the Old Notes to be
tendered; and (iii) all tendered Old Notes (or a confirmation of any book-entry
transfer of such Old Notes into the Exchange Agent's account at The Depository
Trust Company) as well as this Letter of Transmittal and all other documents
required by this Letter of Transmittal must be received by the Exchange Agent
within five New York Stock Exchange trading days after the
10
<PAGE>
date of execution of such letter, telegram or facsimile transmission, all as
provided in the Prospectus under the caption "The Exchange Offer--Guaranteed
Delivery Procedures."
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Old Notes for exchange.
2. Partial Tenders; Withdrawals. Tenders of Old Notes will be accepted in all
denominations of $1000 and integral multiples in excess thereof. If less than
the entire principal amount of Old Notes evidenced by a submitted certificate is
tendered, the tendering holder must fill in the principal amount tendered in the
box entitled "Principal Amount Tendered." A newly issued certificate for the
principal amount of Old Notes submitted but not tendered will be sent to such
holder as soon as practicable after the Expiration Date. All Old Notes delivered
to the Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
Tenders of Old Notes pursuant to the Exchange Offer are irrevocable,
except that Old Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date. To be effective, a written,
telegraphic or facsimile transmission notice of withdrawal must be timely
received by the Exchange Agent. Any such notice of withdrawal must specify the
person named in the Letter of Transmittal as having tendered Old Notes to be
withdrawn, the certificate numbers of the Old Notes to be withdrawn, the
principal amount of Old Notes delivered for exchange, a statement that such a
holder is withdrawing its election to have such Old Notes exchanged, and the
name of the registered holder of such Old Notes, and must be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has succeeded
to the beneficial ownership of the Old Notes being withdrawn. The Exchange Agent
will return the properly withdrawn Old Notes promptly following receipt of
notice of withdrawal. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer, any
11
<PAGE>
notice of withdrawal must specify the name and number of the account at The
Depository Trust Company to be credited with the withdrawn Old Notes or
otherwise comply with The Depository Trust Company's procedures.
3. Signature on this Letter of Transmittal; Written Instruments and
Endorsements; Guarantee of Signatures. If this Letter of Transmittal is signed
by the registered holder(s) of the Old Notes tendered hereby, the signature must
correspond with the name(s) as written on the face of certificates without
alteration, enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Old Notes.
When this Letter of Transmittal is signed by the registered holder or
holders of Old Notes and tendered hereby, no endorsements of certificates or
separate written instruments of transfer or exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the Old Notes listed, such Notes must be
endorsed or accompanied by separate written instruments of transfer or exchange
in form satisfactory to the Company and duly executed by the registered holder,
in either case signed exactly as the name or names of the registered holder or
holders appear(s) on the Old Notes.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
12
<PAGE>
Endorsements on certificates or signatures on separate written instruments
of transfer or exchange required by this Instruction 3 must be guaranteed by an
Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Old Notes are tendered: (i) by a registered
holder of such Old Notes and the certificates for New Notes to be issued in
exchange therefor are to be issued (or any untendered amount of Old Notes are to
be reissued) to the registered holder; or (ii) for the account of any Eligible
Institution.
4. Transfer Taxes. The Company shall pay all transfer taxes, if any, applicable
to the transfer and exchange of Old Notes to it or its order pursuant to the
Exchange Offer. If, however, New Notes are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the Old Notes tendered hereby, or if a transfer tax is imposed for any reason
other than the transfer of Old Notes to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other person) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exception therefrom is not
submitted herewith the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
5. Waiver of Conditions. The Company reserves the absolute right to waive, in
whole or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
6. Mutilated, Lost, Stolen or Destroyed Notes. Any holder whose Old Notes have
been mutilated, lost, stolen or destroyed should contact the Exchange Agent at
the address indicated below for further instructions.
7. Requests for Assistance or Additional Copies. Questions relating to the
procedure for tendering, as well
13
<PAGE>
as requests for additional copies of the Prospectus and this Letter of
Transmittal, may be directed to the Exchange Agent at the address and telephone
number set forth below. In addition, all questions relating to the Exchange
Offer, as well as requests for assistance or additional copies of the Prospectus
and this Letter of Transmittal, may be directed to the Company at 45 Rockefeller
Plaza, New York, New York 10020. Attention: Stuart B. Rosenstein (212) 459-0800.
8. Irregularities. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of Letters of Transmittal or Old
Notes will be resolved by the Company, whose determination will be final and
binding. The Company reserves the absolute right to reject any or all Letters of
Transmittal or tenders that are not in proper form or the acceptance of which
would, in the opinion of the Company's counsel, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender as to the
particular Old Notes covered by any Letter of Transmittal or tendered pursuant
to such letter. None of the Company, the Exchange Agent or
any other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification. The Company's interpretation of the terms and conditions of the
Exchange Offer shall be final and binding.
9. Definitions. Capitalized terms used in this Letter of Transmittal and not
otherwise defined have the meanings given in the Prospectus.
IMPORTANT: This Letter of Transmittal or a facsimile thereof
(together with certificates for Old Notes or confirmation of book-entry transfer
and all other required documents) or a Notice of Guaranteed Delivery must be
received by the Exchange Agent on or prior to the Expiration Date.
14
<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
for
Offer to Exchange
10 3/4% Senior Exchange Notes due 2004
for Any and All Outstanding
10 3/4% Senior Notes due 2004
of
PRICELLULAR WIRELESS CORPORATION
Registered holders of outstanding 10 3/4% Senior Notes due 2004 (the "Old
Notes") who wish to tender their Old Notes in exchange for a like principal
amount of 10 3/4% Senior Exchange Notes due 2004 (the "New Notes") and, in each
case, whose Old Notes are not immediately available or who cannot deliver their
Old Notes and Letter of Transmittal (and any other documents required by the
Letter of Transmittal (and any other documents required by the Letter of
Transmittal) to The Bank of Montreal Trust Company (the "Exchange Agent") prior
to the Expiration Date, may use this Notice of Guaranteed Delivery or one
substantially equivalent hereto. This Notice of Guaranteed Delivery may be
delivered by hand or sent by facsimile transmission (receipt confirmed by
telephone and an original delivered by guaranteed overnight delivery) or mail to
the Exchange Agent. See "The Exchange Offer - Guaranteed Delivery Procedures" in
the Prospectus.
The Exchange Agent for the Exchange Offer is:
THE BANK OF MONTREAL TRUST COMPANY
By Mail, by Overnight
Courier or by Hand:
The Bank of Montreal Trust Company
77 Water Street
Attn: Amy Roberts,
Corporate Trust Department
New York, NY 10005
By Facsimile:
(212) 701-7684
Confirm by Telephone:
(212) 701-7653
<PAGE>
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of instructions via a facsimile transmission to
a number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on Letter of Transmittal is required to be guaranteed
by an Eligible Institution, such signature guarantee mush appear in the
applicable space provided on the Letter of Transmittal for Guarantee of
Signatures.
2
<PAGE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(Note to be used for signature guarantee)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, hereby guarantees to deliver to
the Exchange Agent at one of its addresses set forth above, the certificates
representing the Old Notes, together with a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, and any other documents required by the Letter of Transmittal within
five New York Stock Exchange, Inc. trading days after the date of execution of
this Notice of Guaranteed Delivery.
Name of Firm:______________________ ____________________________________
(Authorized Signature)
Address:___________________________ Title:______________________________
___________________________________ Name:_______________________________
(Zip Code) (Please type or print)
Area Code and Telephone Number: Date:_______________________________
___________________________________
NOTE: DO NOT SEND NOTES WITH THIS NOTICE OF GUARANTEED
DELIVERY. NOTES SHOULD BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
3
<PAGE>
Exhibit 99.3
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER OF PARTICIPANT FROM OWNER
OF
PRICELLULAR WIRELESS CORPORATION
10 3/4% Senior Notes due 2004
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
_______________, 1996 (the "Prospectus") of Pricellular Wireless Corporation, a
Delaware corporation (the "Company"), and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer"). Capitalized terms used but not defined herein have
the meaning as ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of the
undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount):
$ of the 10 3/4% Senior Notes due 2004
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
|_| To TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered, (if
any):
$ of the 10 3/4% Senior Subordinated Discount Notes due
2004.
|_| NOT to TENDER any Old Notes held by you for the account of the
undersigned.
<PAGE>
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i) the
New Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the undersigned, (ii) neither the undersigned nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, (iii) if the undersigned is
not a broker-dealer, or is a broker-dealer but will not receive New Notes for
its own account in exchange for Old Notes, neither the undersigned nor any such
other person is engaged in or intends to participate in the distribution of such
New Notes and (iv) neither the undersigned nor any such person is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act of 1933,
as amended (the "Securities Act"). If the undersigned is a broker-dealer
(whether or not it is also an "affiliate") that will receive New Notes for its
own account in exchange for Old Notes, it represents that such old Notes were
acquired as a result of market-making activities or other trading activities,
and it acknowledges that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such New Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes, the undersigned is not deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
2
<PAGE>
SIGN HERE
Name of beneficial owner(s): ___________________________________________________
Signature(s): __________________________________________________________________
Name(s) (please print): ________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Telephone Number: ______________________________________________________________
Taxpayer identification or Social Security Number: _____________________________
________________________________________________________________________________
Date: __________________________________________________________________________
3
<PAGE>
Exhibit 99.4
Offer to Exchange
10 3/4% Senior Exchange Notes due 2004
for Any and All Outstanding
10 3/4% Senior Discount Notes due 2004
of
PRICELLULAR WIRELESS CORPORATION
To Our Clients:
We are enclosing herewith a Prospectus, dated ___________, 1996, of
PriCellular Wireless Corporation (the "Company"), a Delaware corporation, and a
related Letter of Transmittal (which together constitute the "Exchange Offer")
relating to the offer by the Company to exchange its 10 3/4 Senior Exchange
Notes due 2004 (the "New Notes"), pursuant to an offering registered under the
Security Act of 1933, as amended (the "Securities Act"), for a like principal
amount of its issued and outstanding 10 3/4% Senior Notes due 2004 (the "Old
Notes") upon the terms and subject to the conditions set forth in the Exchange
Offer.
Please note that the Offer will expire at 5:00 p.m., New York City time,
on __________, 1997, unless extended.
The Offer is not conditioned upon any minimum number of Old Notes being
tendered.
We are the holder of record and/or participant in the book-entry transfer
facility of Old Notes held by us for your account. A tender of such Old Notes
can be made only by us as the record holder and/or participant in the book-entry
transfer facility and pursuant to your instructions. The Letter of Transmittal
is furnished to you for your information only and cannot be used by you to
tender Old Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of the
Old Notes held by us for your account pursuant to the terms and conditions of
the Exchange Offer. We also request that you confirm that we may on your behalf
make the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the New Notes acquired in the Exchange Offer
are being obtained in the ordinary course of business of the person receiving
such New Notes, whether or not such person is such holder, (ii) neither the
holder of the Old Notes nor any such other person has an arrangement or
understanding
<PAGE>
with any person to participate in the distribution of such New Notes, (iii) if
the holder is not a broker-dealer or is a broker-dealer but will not receive New
Notes for its own account in exchange for Old Notes, neither the holder nor any
such other person is engaged in or intends to participate in a distribution of
the New Notes and (iv) neither the holder nor any such other person is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act of 1933, as amended. If the tendering holder is a broker-dealer (whether or
not it is also an "affiliate") that will receive New Notes for its own account
in exchange for Old Notes, we will represent on behalf of such broker-dealer
that the Old Notes to be exchanged for the New Notes were acquired by it as a
result of marketing-making activities or other trading activities, and
acknowledge on behalf of such broker-dealer that it will deliver a prospectus
meeting the requirements of the Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Act in connection with any resale of such New
Notes, the undersigned is not deemed to admit that it is an "underwriter" within
the meaning of the Act.
Very truly yours,
2
<PAGE>
Exhibit 99.5
Offer to Exchange
10 3/4% Senior Exchange Notes due 2004
for Any and All Outstanding
10 3/4% Senior Notes due 2004
of
PRICELLULAR WIRELESS CORPORATION
To Registered Holders and Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer
by PriCellular Wireless Corporation (the "Company"), a Delaware corporation, to
exchange its 10 3/4% Senior Exchange Notes due 2004 (the "New Notes"), pursuant
to an offering registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount of its issued and outstanding 10
3/4% Senior Notes due 2004 (the "Old Notes") upon the terms and subject to the
conditions set forth in the Company's Prospectus, dated ___________, 1996, and
the related Letter of Transmittal (which together constitute the "Exchange
Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated November ___, 1996;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder and/or Book-Entry Transfer
Participant from Owner; and
5. Letter which may be sent to your clients for whose account you hold
Old Notes in your name or in the name of your nominee, to accompany
the instruction form referred to above, for obtaining such client's
instruction with regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the Offer
will expire at 5:00 p.m., New York City time, on __________, 1997, unless
extended.
The Offer is not conditioned upon any minimum number of Old Notes being
tendered.
<PAGE>
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the New Notes acquired in the Exchange Offer
are being obtained in the ordinary course of business of the person receiving
such New Notes, whether or not such person is such holder, (ii) neither the
holder of the Old Notes nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Notes, (iii) if the holder is not a broker-dealer or is a broker-dealer but will
not receive New Notes for its own account in exchange for Old Notes, neither the
holder nor any such other person is engaged in or intends to participate in a
distribution of the New Notes and (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act of 1933, as amended. If the tendering holder is a broker-dealer
that will receive New Notes for its own account in exchange for Old Notes, you
will represent on behalf of such broker-dealer that the Old Notes to be
exchanged for the New Notes were acquired by it as a result of market-making
activities or other trading activities, and acknowledge on behalf of such
broker-dealer that it will deliver a prospectus meeting the requirements of the
Act in connection with any resale of such New Notes. By acknowledging that it
will deliver and by delivering a prospectus meeting the requirements of the Act
in connection with any resale of such New Notes, the undersigned is not deemed
to admit that it is an "underwriter" within the meaning of the Act.
The enclosed Instruction to Registered Holder and/or Book-Entry Transfer
Participant from Owner contains an authorization by the beneficial owners of the
Old Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Offer. The Company will pay
or cause to be paid any transfer taxes payable on the transfer of Old Notes to
it, except as otherwise provided in Instruction 4 of the enclosed Letter of
Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
THE BANK OF MONTREAL TRUST COMPANY
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF PRICELLULAR WIRELESS CORPORATION OR THE BANK OF MONTREAL TRUST COMPANY
OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN
CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE
STATEMENTS CONTAINED THEREIN.
2
