-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S+sHHWANmccddPR+88j/5Sq129yFwy67UNm3CZkhrLZRYhpfr10t7IXNaUxy7z5g 62Wo8FNV4PqSVZzgqIMuRQ== 0000950130-97-001989.txt : 19970430 0000950130-97-001989.hdr.sgml : 19970430 ACCESSION NUMBER: 0000950130-97-001989 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19970429 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CCPR SERVICES INC CENTRAL INDEX KEY: 0001038374 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133120943 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-26055 FILM NUMBER: 97589889 BUSINESS ADDRESS: STREET 1: 110 EAST 59TH STREET, 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129068485 MAIL ADDRESS: STREET 2: 110 EAST 59TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CELLULAR COMMUNICATIONS OF PUERTO RICO INC CENTRAL INDEX KEY: 0000881817 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 133517074 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-26055-01 FILM NUMBER: 97589890 BUSINESS ADDRESS: STREET 1: 110 EAST 59TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 212-906-84 MAIL ADDRESS: STREET 1: 110 EAST 59TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 S-4 1 FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1997. REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 CCPR SERVICES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 4812 13-3120943 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NO.) IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 110 EAST 59TH STREET NEW YORK, NY 10022 (212) 906-8481 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) RICHARD J. LUBASCH, ESQ. SENIOR VICE PRESIDENT-GENERAL COUNSEL AND SECRETARY CCPR SERVICES, INC. 110 EAST 59TH STREET NEW YORK, NY 10022 (212) 906-8481 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPY TO: THOMAS H. KENNEDY, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 919 THIRD AVENUE NEW YORK, NY 10022 (212) 735-3000 - ------------------------------------------------------------------------------- NAME, ADDRESS AND JURISDICTION PRIMARY I.R.S. TELEPHONE NUMBER OF OF STANDARD EMPLOYER ADDITIONAL REGISTRANT ORGANIZATION INDUSTRIAL IDENTIFICATION DELAWARE CLASSIFICATION NO. CODE NUMBER 4812 13-3517074 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. 110 EAST 59TH STREET, 26TH FLOOR NEW YORK, NY 10022 (212) 355-3466 - ------------------------------------------------------------------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE TO BE PER OFFERING REGISTRATION REGISTERED REGISTERED SECURITY (1) PRICE (1) FEE (1) - ------------------------------------------------------------------------------- 10% Senior Subordinated Notes Due 2007 (2)..... $200,000,000 100% $200,000,000 $60,606.06 - ------------------------------------------------------------------------------- Guarantee of 10% Senior Subordinated Notes Due 2007 of Cellular Communications of Puerto Rico, Inc. ............ -- -- -- None(3)
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Determined in accordance with Rule 457(f) promulgated under the Securities Act of 1933, as amended. (2) Issued by CCPR Services, Inc., as obligor. (3) Pursuant to Rule 457(n), no separate fee is being paid with respect to the Guarantee. --------------- 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 EACH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION DATED APRIL 29, 1997 PRELIMINARY PROSPECTUS APRIL , 1997 OFFER FOR ALL OUTSTANDING 10% SENIOR SUBORDINATED NOTES DUE 2007 IN EXCHANGE FOR 10% SENIOR SUBORDINATED NOTES DUE 2007, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OF CCPR SERVICES, INC. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED. CCPR Services, Inc., a Delaware corporation ("Services"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"), to exchange an aggregate principal amount at maturity of up to $200,000,000 of 10% Senior Subordinated Notes Due 2007 (the "New Notes") of Services, which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount at maturity of the issued and outstanding 10% Senior Subordinated Notes Due 2007 (the "Old Notes" and, together with the New Notes, the "Notes") of Services from the holders (the "Holders") thereof. The terms of the New Notes are identical in all material respects to the Old Notes except (i) that the New Notes have been registered under the Securities Act, (ii) for certain transfer restrictions and registration rights relating to the Old Notes and (iii) that the New Notes will not contain certain provisions relating to an additional payment to be made to Holders of Old Notes under certain circumstances relating to the timing of the Exchange Offer. On January 28, 1997, Services issued $200,000,000 principal amount of Old Notes. The Old Notes were issued pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. The Notes will be redeemable at the option of Services, in whole or in part, at any time on or after February 1, 2002, at the redemption prices set forth herein plus accrued and unpaid interest, if any, to the date of redemption. Services may, at its option, redeem prior to February 1, 2000 up to a maximum of 33 1/3% of the original aggregate principal amount of the Notes at 109% of the principal amount thereof, plus accrued and unpaid interest, if any, with (i) the proceeds of a public offering of $50 million or more or (ii) the proceeds from the sale of capital stock to one or more Strategic Equity Investors (as defined herein) for an aggregate purchase price of $35 million or more. See "Description of the Notes--Redemption--Optional Redemption." The Notes are fully and unconditionally guaranteed on a senior subordinated basis (the "Guarantee") by Cellular Communications of Puerto Rico, Inc., a Delaware corporation ("CCPR" or the "Guarantor"), the sole stockholder of Services. See "Description of the Notes--Guarantee." The Notes are general unsecured obligations of Services, subordinated in right of payment to all existing and future senior indebtedness (the "Senior Debt") of Services. The Guarantee is subordinated in right of payment to all existing and future Senior Debt of CCPR. At April 28, 1997, neither Services nor CCPR had any Senior Debt. However, CCPR and its subsidiaries (including Services, the "Company") are considering entering into a senior credit facility with one or more banks. The Indenture (as defined herein) permits Services, CCPR and (under limited circumstances) their subsidiaries, to incur additional Senior Debt, subject to certain limitations, and Services, CCPR and their subsidiaries expect from time to time to incur additional indebtedness, including Senior Debt, subject to such limitations. In the event of a Change of Control Triggering Event (as defined herein), holders of the Notes will have the right to require Services to repurchase their Notes, in whole or in part, at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. There can be no assurance that Services or CCPR will have the financial resources necessary to purchase the Notes upon a Change of Control Triggering Event. See "Description of the Notes--Change of Control." For each Old Note accepted for exchange, the Holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. The New Notes will bear interest from the most recent date to which interest has been paid on the Old Notes or, if no interest has been paid on the Old Notes, from January 31, 1997. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange will not receive any payment in respect of accrued interest on such Old Notes. The New Notes are being offered hereunder in order to satisfy certain obligations of Services contained in the Registration Rights Agreement (as defined herein). Based on interpretations by the staff of the Securities and Exchange Commission (the "Commission"), as set forth in no-action letters issued to third parties, Services believes that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by Holders thereof (other than any Holder which is an "affiliate" of Services within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such New Notes are acquired in the ordinary course of such Holder's business and such Holder, other than broker-dealers, has no arrangement with any person to engage in a distribution of such New Notes. However, the Commission has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer as in such other circumstances. Each Holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement or understanding to participate in a distribution of New Notes. If any Holder is an affiliate of Services, is engaged in or intends to engage in or has any arrangement with any person to participate in the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. Services has agreed that, for a period of 90 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." Services will not receive any proceeds from the Exchange Offer. Services will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. In the event Services terminates the Exchange Offer and does not accept for exchange any Old Notes, Services will promptly return the Old Notes to the Holders thereof. See "The Exchange Offer." There is no existing trading market for the New Notes, and there can be no assurance regarding the future development of a market for the New Notes. The Initial Purchasers (as defined herein) have advised Services that they currently intend to make a market in the New Notes. The Initial Purchasers are not obligated to do so, however, and any market-making with respect to the New Notes may be discontinued at any time without notice. Services does not intend to apply for listing or quotation of the New Notes on any securities exchange or stock market. SEE "RISK FACTORS" ON PAGE 12 OF THIS PROSPECTUS FOR A DESCRIPTION OF CERTAIN FACTORS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. AVAILABLE INFORMATION CoreComm Incorporated (formerly Cellular Communications of Puerto Rico, Inc.) ("CoreComm") is subject to the informational requirements of the Exchange Act, and, in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed by CoreComm with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at its principal offices at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following Regional Offices of the Commission: 7 World Trade Center, 13th Floor, New York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. The Commission also maintains a site on the World Wide Web that contains reports, proxy and information statements and other information at http://www.sec.gov. The common stock of CoreComm, par value $0.01 per share (the "Common Stock"), is listed on The Nasdaq Stock Market's National Market ("Nasdaq") and such reports, proxy and information statements and other information concerning CoreComm can be inspected and copied at the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006-1506. Services and CCPR have filed with the Commission a registration statement on Form S-4 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act with respect to the New Notes offered hereby. This Prospectus, which forms a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits thereto, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to Services, CCPR and the New Notes offered hereby, reference is made to the Registration Statement. Any statements made in this Prospectus concerning the provisions of certain documents are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement otherwise filed with the Commission. Upon the effectiveness of the Registration Statement, Services and CCPR will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith will file reports and other information with the Commission. The Registration Statement, the exhibits forming a part thereof and the reports and other information filed by Services and CCPR with the Commission in accordance with the Exchange Act may be inspected, without charge, at the Public Reference Section of the Commission located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the following Regional Offices of the Commission: 7 World Trade Center, 13th Floor, New York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any portion of the material may be obtained from the Public Reference Section of the Commission upon payment of the prescribed fees. The Commission also maintains a site on the World Wide Web that contains reports, proxy and information statements and other information at http://www.sec.gov. In the event that Services is not required to be subject to the reporting requirements of the Exchange Act in the future, Services or CCPR will be required under the Indenture pursuant to which the Old Notes were, and the New Notes will be, issued, to continue to file with the Commission, and to furnish the Holders of the New Notes with, the information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. CERTAIN DEFINITIONS As used in this Prospectus, "Services" means CCPR Services, Inc., a Delaware corporation, "CCPR" means Cellular Communications of Puerto Rico, Inc., a Delaware corporation, "CoreComm" means CoreComm Incorporated, a Delaware corporation, and the "Company" means CCPR and its subsidiaries, including Services. "Pops," currently the most common technique for measuring the relative size of different companies in the cellular telephone business, is the estimated population of a market, as set forth in the 1995 U.S. Census Bureau population estimate, multiplied by a company's ownership interest in its entity operating its system in that market. The number of Pops owned by a cellular operator does not represent the number of users of cellular service and is not necessarily indicative of the number of potential subscribers. Rather, this term is used only as a basis for comparison of the current size of cellular systems operators. The term "FCC" refers to the Federal Communications Commission, the term "NACN" refers to the North American Cellular Network, the term "PRTC" refers to the Puerto Rico Telephone Company and the "1996 Act" refers to the Telecommunications Act of 1996. Additionally, "MSA" means Metropolitan Statistical Area in the United States, "RSA" means Rural Service Area in the United States and "MTSO" means mobile telephone switching office. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, appearing elsewhere in, or incorporated by reference in, this Prospectus. Capitalized terms used and not otherwise defined in this summary have the meanings given to them elsewhere in this Prospectus. THE COMPANY The Company owns, operates and markets its cellular and paging services throughout the Commonwealth of Puerto Rico ("Puerto Rico") and the U.S. Virgin Islands ("USVI") under the CELLULARONE(R) service mark. The Company's interests total 3.52 million Pops. In addition, the Company has entered into agreements to operate or holds interim operating authority granted by the FCC in the two remaining RSAs within Puerto Rico and the USVI which it does not own. The Company began actively marketing its island-wide cellular system in May 1993 and, as of March 31, 1997, had 166,600 cellular subscribers and 35,100 paging subscribers representing an increase in subscribers of 38,800 and 17,300, respectively, since March 31, 1996. Despite commencing active marketing of its services almost five years after its primary cellular competitor, management believes the Company's market share represents an approximately 44% share of cellular subscribers in Puerto Rico. The Company believes that Puerto Rico is an attractive market for cellular and paging services. The largest MSA in its service area, the San Juan/Caguas MSA with over two million Pops, is characterized by a high population density of 1,880 persons per square mile (mainland U.S. MSA average is 325) with 46% of commuters reporting a commute time of 30 minutes or greater (mainland U.S. MSA average is 30%). Puerto Rico did not experience the benefits of island-wide competition until early 1993, seven years after most major mainland U.S. markets. Notwithstanding, management estimates that at the end of 1996 cellular penetration in Puerto Rico was slightly less than 10% while the Cellular Telecommunications Industry Association ("CTIA") reported that cellular penetration in the U.S. as a whole first surpassed 10% during the first half of 1995. Average revenue for the Company's subscribers continues to exceed the average revenue for mainland U.S. subscribers at a similar penetration level; the average revenue for the Company's cellular subscribers in 1996 was over $70 per month, while the average revenue in the mainland U.S. as reported by the CTIA at a similar market penetration (10%) in early 1995 was less than $60 per month. The Company believes that the USVI also represents an attractive cellular and paging market, particularly because of the large amount of roaming traffic generated by visitors. The Company's primary strategy is to differentiate itself from its competition by providing superior customer service and call quality by offering state-of-the-art complementary wireless services, thereby strengthening its image as the premium provider of wireless communications in its service areas. The Company continually promotes its reliable Puerto Rico and USVI-wide mobile cellular and paging services. The Company has stressed the quality of its customer service, network, and value-added services as well as the breadth of its coverage and distribution channels in Puerto Rico and the USVI rather than the price of its services. In 1996, CELLULARONE(R) of San Juan received the "Quality One" award from the Cellular One Group, recognizing the highest level of customer service in the United States among MSAs using the CELLULARONE(R) service mark. Management believes that this strategy has attracted higher quality subscribers which generate higher than average revenues and consequently believes its market share of revenues may be somewhat higher than its market share based on number of subscribers. The Company's management is experienced in providing new product innovations to generate additional revenue as the industry's customer base shifts to lower usage subscribers. This experience has enabled the 3 Company to target specific groups of customers and provide them with value- added features. The Company was the first to offer one-stop sales in its service areas and service centers, roaming capabilities, bilingual and detailed billing service, voice mail service, 24-hour customer service, free safety and security numbers, prepaid cellular service and integrated paging and cellular service. The Company also plays an active role in the community helping to sponsor such safety initiatives as Crime Watch and *CG, a cellular number for boaters needing Coast Guard assistance and has been a significant civil defense resource during and after several major hurricanes. In addition, the Company has stressed education and employee involvement in other initiatives such as environmental programs (including The Caribbean Stranding Network hotline, tree plantings, cleanup days), educational exhibits (at Science Park and the Arecibo Observatory), and Company-sponsored scholarships in engineering at the University of Puerto Rico. Services is the principal operating subsidiary of CCPR. It operates and manages the Company's Puerto Rico cellular system. The Company's executive offices are located at 110 East 59th Street, New York, N.Y. 10022 and its telephone number is (212) 355-3466. 4 THE RESTRUCTURING CCPR is a Delaware corporation which was originally organized under the name EC Acquisition, Inc. on May 18, 1988. Prior to February 28, 1992, CCPR was a wholly owned subsidiary of Cellular Communications, Inc. ("CCI"). On February 28, 1992, CCI distributed to its stockholders the common stock, par value $.01 per share (the "Common Stock"), of CCPR (the "Distribution"). Effective as of January 31, 1997, CCPR and Services effected a corporate restructuring (the "Restructuring") whereby (i) a new entity, named CoreComm Incorporated, was formed, (ii) shareholders of CCPR became shareholders of CoreComm upon the completion of a merger of a subsidiary of CoreComm with and into CCPR, (iii) CCPR and Services repaid all amounts outstanding under their existing bank credit facility with Citibank, N.A. (the "Existing Bank Facility"), (iv) Services made a cash payment to CCPR of $80 million for a 21% interest in San Juan Cellular Telephone Company ("SJCTC"), which interest was previously held by CCPR and (v) CCPR distributed to CoreComm the $80 million in cash received from Services. As a result of the Restructuring, Services owns approximately 27% of SJCTC and CCPR (directly and through subsidiaries other than Services) owns the remaining interests in SJCTC. The restructured companies will pursue opportunities both inside and outside of Puerto Rico and the USVI. CoreComm has not guaranteed or is otherwise obligated with respect to the Notes, and neither the $80 million distributed by CCPR to CoreComm or any assets of CoreComm are available to make payments on the Notes. As of the date hereof, Services (CCPR Services, Inc.) is a wholly-owned subsidiary of CCPR (Cellular Communications of Puerto Rico, Inc.). Under the terms of certain administrative and management agreements (the "Administration and Management Agreements"), dated as of February 28, 1992, between Services and each of the Company's subsidiaries that owns or controls an FCC cellular license for Puerto Rico (collectively, the "Company Entities"), each of the Company Entities agreed to share, on an allocated basis, all the direct and indirect costs associated with the operation of the Company's Puerto Rico cellular system. Currently, Services is the principal operating subsidiary of the Company that operates and manages the Puerto Rico cellular system. The Company Entities hold the various FCC and other licenses and permits necessary to operate the Company's Puerto Rico cellular system. The Administration and Management Agreements require the Company Entities to reimburse Services for their allocable share of system expenses and to make additional payments to Services based on allocable shares of revenue and capital costs pursuant to agreed formulas. Services charges an administrative fee based on revenues generated in the Company's Puerto Rico cellular system and a capital usage fee which is the recovery of Services' capital costs. There is no financial effect on the Company from Administration and Management Agreements because the agreements only allocate costs among Services and the Company Entities. 5 THE EXCHANGE OFFER On January 28, 1997, Services issued $200 million principal amount of Old Notes. The Old Notes were sold pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws, in order to enable Services to raise funds on a more expeditious basis than necessarily would have been possible had the initial sale been pursuant to an offering registered under the Securities Act. Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc and Wasserstein Perella Securities, Inc. (the "Initial Purchasers"), as a condition to their purchase of the Old Notes, requested that Services agree to commence the Exchange Offer following the offering of the Old Notes. The Notes are unconditionally guaranteed by CCPR. Securities Offered.......... Up to $200,000,000 principal amount of 10% Senior Subordinated Notes Due 2007, which have been registered under the Securities Act. The terms of the New Notes and the Old Notes are identical in all material respects, except (i) that the New Notes have been registered under the Securities Act, (ii) for certain transfer restrictions and registration rights relating to the Old Notes and (iii) that the New Notes will not contain certain provisions relating to an additional payment to be made to the Holders of Old Notes under certain circumstances relating to the timing of the Exchange Offer described below under "--Summary Description of the New Notes." The Exchange Offer.......... The New Notes are being offered in exchange for a like principal amount of Old Notes. The issuance of the New Notes is intended to satisfy obligations of Services contained in the Registration Rights Agreement, dated January 31, 1997, among CCPR, Services and the Initial Purchasers (the "Registration Rights Agreement"). For procedures for tendering, see "The Exchange Offer." Tenders, Expiration Date; The Exchange Offer will expire at 5:00 p.m., New Withdrawal................. York City time, on 1997, or such later date and time to which it is extended. Each Holder tendering Old Notes must acknowledge that it is not engaging in, nor intends to engage in, a distribution of the New Notes. The tender of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date (as defined herein). Any Old Note not accepted for exchange for any reason will be returned without expense to the tendering Holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Federal Income Tax The exchange pursuant to the Exchange Offer Considerations............. should not result in any income, gain or loss to the Holders or Services for federal income tax purposes. See "Certain Federal Income Tax Considerations." Use of Proceeds............. There will be no proceeds to Services from the exchange pursuant to the Exchange Offer. See "Use of Proceeds." Exchange Agent.............. The Chase Manhattan Bank is serving as Exchange Agent in connection with the Exchange Offer. 6 Shelf Registration Under certain circumstances, certain holders of Statement.................. Notes (including holders who are not permitted to participate in the Exchange Offer or who may not freely resell New Notes received in the Exchange Offer) may require Services to file, and cause to become effective, a shelf registration statement under the Securities Act, which would cover resales of Notes by such holders. See "Description of the Notes--Exchange Offer; Registration Rights." CONSEQUENCES OF EXCHANGING OLD NOTES Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Services does not currently anticipate that it will register the Old Notes under the Securities Act. See "Description of the Notes--Exchange Offer; Registration Rights." Based on interpretations by the staff of the Commission, as set forth in no-action letters issued to third parties, Services believes that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by Holders thereof (other than any Holder which is an "affiliate" of Services within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such New Notes are acquired in the ordinary course of such Holder's business and such Holder, other than broker-dealers, has no arrangement with any person to participate in the distribution of such New Notes. However, the Commission has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer as in such other circumstances. Each Holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement or understanding to participate in a distribution of New Notes. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes must acknowledge that such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." In addition, to comply with the securities laws of certain jurisdictions, it may be necessary to qualify for sale or register thereunder the New Notes prior to offering or selling such New Notes. Services has agreed, pursuant to the Registration Rights Agreement, subject to certain limitations specified therein, to register or qualify the New Notes for offer or sale under the securities laws of such jurisdictions as any Holder reasonably requests in writing. Unless a Holder so requests, Services does not intend to register or qualify the sale of the New Notes in any such jurisdictions. See "The Exchange Offer--Consequences of Exchanging Old Notes." 7 SUMMARY DESCRIPTION OF THE NEW NOTES The terms of the New Notes and the Old Notes are identical in all material respects, except (i) that the New Notes have been registered under the Securities Act, (ii) for certain transfer restrictions and registration rights relating to the Old Notes and (iii) that the New Notes will not contain certain provisions relating to an additional payment to be made to Holders of Old Notes under certain circumstances relating to the timing of the Exchange Offer. The New Notes will bear interest from the most recent date to which interest has been paid on the Old Notes or, if no interest has been paid on the Old Notes, from January 31, 1997. Accordingly, registered Holders of New Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from January 31, 1997. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders whose Old Notes are accepted for exchange will not receive any payment in respect of interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer. Securities Offered.......... Up to $200,000,000 aggregate principal amount of 10% Senior Subordinated Notes due 2007, which have been registered under the Securities Act. Maturity Date............... February 1, 2007. Interest Payment Dates...... February 1 and August 1, commencing August 1, 1997. Guarantee................... The Notes are fully and unconditionally guaranteed by CCPR on a senior subordinated basis. The Guarantee is subordinated in right of payment to all existing and future Senior Debt of CCPR. See "Description of the Notes--Guarantee." At April 28, 1997, CCPR and Services did not have any Senior Debt outstanding. The Indenture permits Services, CCPR and (under limited circumstances) their subsidiaries to incur additional Senior Debt, subject to certain limitations, and Services, CCPR and their subsidiaries expect from time to time to incur additional indebtedness, including Senior Debt, subject to such limitations. Ranking..................... The Notes are general unsecured obligations of Services, subordinated in right of payment to all existing and future Senior Debt including the Potential Credit Facility (as defined herein). See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- The Company--The Potential Credit Facility." Optional Redemption......... The Notes are redeemable, in whole or in part, at the option of Services at any time on or after February 1, 2002, at the redemption prices set forth herein, plus accrued and unpaid interest to the redemption date. In addition, Services may, at its option, redeem prior to February 1, 2000 up to a maximum of 33 1/3% of the original aggregate principal amount of the Notes at 109% of the principal amount thereof, plus accrued and unpaid interest with (i) the proceeds of a public offering of $50 million or more or (ii) the proceeds from the sale of capital stock to one or more Strategic Equity Investors for an aggregate purchase price of $35 million or more. See "Description of the Notes--Redemption--Optional Redemption." 8 Change of Control........... Upon the occurrence of a Change of Control Triggering Event, each Holder shall have the right to require the repurchase of its Notes by Services in cash at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon, to the date of purchase. The failure of Services to repurchase Notes of any Holder exercising such right will constitute an Event of Default. There can be no assurance that either Services or CCPR will have the financial resources necessary to repurchase the Notes upon a Change of Control Triggering Event. See "Description of the Notes-- Change of Control." Certain Covenants........... The Indenture under which the Notes were issued contains certain covenants with respect to Services, CCPR and certain of their subsidiaries that limit the ability of Services, CCPR and certain of their subsidiaries to, among other things, (i) incur additional indebtedness, (ii) pay dividends or make other distributions or make certain other restricted payments, (iii) create certain liens, (iv) sell assets of Services, CCPR or the Restricted Subsidiaries (as defined herein), (v) enter into certain transactions with affiliates, (vi) enter into certain mergers or consolidations or (vii) sell or issue capital stock of CCPR's subsidiaries. See "Description of the Notes--Certain Covenants." The Indenture also requires Services to offer to repurchase the Notes at par under certain circumstances. See "Description of the Notes--Certain Covenants-- Limitation on Asset Sales and Sales of Restricted Subsidiary Stock." Form, Denomination and Registration of Notes...... New Notes exchanged for Old Notes will be eligible for trading through the facilities of The Depository Trust Company ("DTC"). New Notes traded through the facilities of DTC will be represented by a global note or notes in definitive, fully registered form without interest coupons deposited with the trustee for the New Notes (the "Trustee") as custodian for and registered in the name of a nominee of DTC. New Notes exchanged for Old Notes which are in the form of registered definitive certificates will be issued in the form of registered definitive certificates until otherwise directed by the holders of such New Notes. See "Description of the Notes--Book-Entry, Delivery and Form." Use of Proceeds............. Services will not receive any proceeds from the Exchange Offer. The net proceeds of the offering of the Old Notes were used to repay all outstanding indebtedness under the Existing Bank Facility (as defined herein) and to fund payments to CCPR which were further distributed to CoreComm in connection with a corporate restructuring. See "The Restructuring" and "Use of Proceeds." RISK FACTORS In addition to the information contained elsewhere in this Prospectus, Holders of the Old Notes should carefully consider the matters set forth under "Risk Factors" before making a decision to tender their Old Notes in the Exchange Offer. 9 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES SUMMARY FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT RATIOS AND AVERAGE MONTHLY REVENUE PER CELLULAR SUBSCRIBER) The summary financial and operating data of the Company presented below has been derived from financial statements of the Company appearing elsewhere in this Prospectus. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" herein and the Company's Consolidated Financial Statements and Notes thereto included herein.
YEAR ENDED DECEMBER 31, --------------------------- 1996 1995 1994 STATEMENT OF OPERATIONS DATA: Revenues.......................................... $133,818 $108,668 $67,141 Operating expenses................................ 115,817 97,647 65,187 Operating income.................................. 18,001 11,021 1,954 Net income (loss)................................. 5,114 (1,451) (4,812) OTHER FINANCIAL DATA: EBITDA(1)......................................... 37,419 26,678 13,878 EBITDA(1)/Interest expense........................ 4.57x 3.14x 1.90x Long-term debt/EBITDA(1)(2)....................... 2.77x 3.62x 7.09x Ratio of earnings to fixed charges(3)............. 2.0:1 1.2:1 0.4:1 End of period cellular subscribers................ 159.3 115.5 68.3 Average monthly revenue per cellular subscriber... $ 73 $ 86 $ 94
AS OF DECEMBER 31, 1996 ----------------------- ACTUAL AS ADJUSTED(4) BALANCE SHEET DATA: Working capital......................................... $ 11,078 $ 10,078 Property, plant and equipment--net...................... 97,945 97,945 Total assets............................................ 300,722 299,926 Long-term debt.......................................... 115,000 200,000 Shareholders' equity.................................... 162,608 78,490
- -------------------- (1) "EBITDA" means pretax income plus depreciation, amortization and net interest. EBITDA should not be considered in isolation from, or as a substitute for, operating income, net income, cash flow from operations or cash flow statement data computed in accordance with generally accepted accounting principles or as a measure of a company's results of operations or liquidity. Although this measure of performance is not calculated in accordance with generally accepted accounting principles, it is widely used as a measure of a company's operating performance because it assists in comparing performance on a consistent basis across companies without regard to depreciation and amortization, which can vary significantly depending upon accounting methods (particularly where acquisitions are involved) or non-operating factors such as historical cost bases and capital structure. (2) Long-term debt is the average for the period, including current portion. (3) Fixed charges consist of interest expense, including capitalized interest, amortization of fees related to debt financing and rent expense deemed to be interest. (4) As adjusted to give effect to the offering of the Old Notes and the Restructuring (see "The Restructuring") and the application of the net proceeds therefrom. 10 CCPR SERVICES, INC. SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT RATIOS) The summary financial data of Services presented below has been derived from financial statements of Services appearing elsewhere in this Prospectus. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" herein and Services' Financial Statements and Notes thereto included herein.
YEAR ENDED DECEMBER 31, ------------------------- 1996 1995 1994 STATEMENT OF OPERATIONS DATA: Revenues............................................. $26,924 $17,212 $ 3,656 Operating expenses................................... 13,006 9,669 6,843 Operating income (loss).............................. 13,918 7,543 (3,187) Net income (loss).................................... 6,580 5,389 (3,090) OTHER FINANCIAL DATA: EBITDA(1)............................................ 26,924 17,212 3,656 EBITDA(1)/Interest expense........................... 3.33x 6.26x -- Long-term debt/EBITDA(1)(2).......................... 3.81x 2.61x -- Ratio of earnings to fixed charges(3)................ 1.8:1 2.5:1 --
AS OF DECEMBER 31, 1996 ----------------------- ACTUAL AS ADJUSTED(4) BALANCE SHEET DATA: Working capital......................................... $ 5,454 $ 4,454 Property, plant and equipment--net...................... 89,912 89,912 Total assets............................................ 167,268 246,472 Long-term debt.......................................... 115,000 200,000 Shareholder's equity.................................... 6,751 2,633
- -------------------- (1) "EBITDA" means pretax income plus depreciation, amortization and net interest. EBITDA should not be considered in isolation from, or as a substitute for, operating income, net income, cash flow from operations or cash flow statement data computed in accordance with generally accepted accounting principles or as a measure of a company's results of operations or liquidity. Although this measure of performance is not calculated in accordance with generally accepted accounting principles, it is widely used as a measure of a company's operating performance because it assists in comparing performance on a consistent basis across companies without regard to depreciation and amortization, which can vary significantly depending upon accounting methods (particularly where acquisitions are involved) or non-operating factors such as historical cost bases and capital structure. (2) Long-term debt is the average for the period, including current portion. (3) Fixed charges consist of interest expense, including capitalized interest, amortization of fees related to debt financing and rent expense deemed to be interest. The fixed charges coverage deficiency amounted to $3.1 million for the year ended December 31, 1994. (4) As adjusted to give effect to the offering of the Old Notes and the application of the net proceeds therefrom. 11 RISK FACTORS In addition to the other information contained in this Prospectus, Holders of Old Notes should consider carefully the following factors in evaluating the Company and its business before tendering their Old Notes in the Exchange Offer. The risk factors set forth below (other than "--Consequences of Failure to Exchange") are generally applicable to the Old Notes as well as the New Notes. The Private Securities Litigation Reform Act of 1995 provides a new "safe harbor" for certain forward-looking statements. The factors discussed below, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Prospectus, in future filings by the Company with the Commission, in the Company's press releases and in oral statements made by authorized officers of the Company. When used in this Prospectus, the words "estimate," "project," "anticipate," "expect," "intend," "believe" and similar expressions are intended to identify forward- looking statements. Consequences of Failure to Exchange. Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Services does not currently anticipate that it will register the Old Notes under the Securities Act. Based on interpretations by the staff of the Commission, as set forth in no-action letters issued to third parties, Services believes that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by Holders thereof (other than any such Holder which is an "affiliate" of Services within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such New Notes are acquired in the ordinary course of such Holder's business and such Holder, other than broker-dealers, has no arrangement with any person to participate in the distribution of such New Notes. However, the Commission has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer as in such other circumstances. Each Holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement or understanding to participate in a distribution of New Notes. If any Holder is an affiliate of Services, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. Services has agreed that, for a period of 90 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." However, to comply with the securities law of certain jurisdictions, if applicable, the New Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdictions or an exemption from registration or qualification is available and is complied with. Services has agreed, pursuant to the Registration Rights Agreement, subject to certain limitations specified therein, to register or qualify the New Notes for offer or sale under the securities laws of such jurisdictions as any Holder reasonably requests in writing. Unless a Holder so requests, Services does not currently intend to register or qualify the sale of the New Notes in any such jurisdictions. See "The Exchange Offer--Consequences of Exchanging Old Notes." 12 Substantial Leverage; Incurrence of Additional Senior Debt. As of April 28, 1997, after giving effect to the use of proceeds from the offering of the Old Notes, Services and CCPR had $200 million of total indebtedness, consisting solely of the Notes and the related Guarantee. See "Capitalization." Services' and CCPR's ability to make principal and interest payments on the Notes will be dependent on Services' and CCPR's future operating performance, which is itself dependent on a number of factors, many of which are out of Services' and CCPR's control. These factors include prevailing economic conditions and financial, competitive, regulatory and other factors affecting Services' and CCPR's business and operations, and may be dependent on the availability of borrowings. Although Services and CCPR believe that, based on current levels of operations, their cash flow from operations, together with other sources of liquidity, will be adequate to make required payments of principal and interest on their debt (including the Notes), whether at or prior to maturity, finance anticipated capital expenditures and fund working capital requirements, there can be no assurance in this regard. Additionally, Services' and CCPR's leverage could have a material adverse effect on Services' and CCPR's future operating performance, including, but not limited to, the following: (i) a substantial portion of Services' and CCPR's cash flow must be dedicated to debt service payments, thereby reducing the funds available to Services and CCPR for other purposes; (ii) Services' and CCPR's ability to obtain additional debt financing in the future for working capital, capital expenditures, acquisitions or general corporate purposes or other purposes may be impaired; (iii) Services and CCPR are substantially more leveraged than certain of their competitors, which may place Services and CCPR at a competitive disadvantage; (iv) Services' and CCPR's leverage may limit their ability to expand capacity and otherwise meet their growth objectives; and (v) Services' and CCPR's leverage may hinder their ability to adjust rapidly to changing market conditions and could make either of them more vulnerable in the event of a downturn in general economic conditions or their businesses. The Indenture permits the incurrence of Senior Debt, subject to certain limitations, and prohibits the incurrence by Services of indebtedness that is subordinate in right of payment to any Senior Debt and senior in any respect in right of payment to the Notes. See "Description of the Notes." Subordination. The Notes are general unsecured obligations of Services, and both payments under the Notes and payments under the Guarantee are subordinate in right of payment to all existing and future Senior Debt of Services and Senior Debt of CCPR, as the case may be. As of April 28, 1997, after giving effect to the application of the net proceeds from the offering of the Old Notes, neither Services nor CCPR had any Senior Debt. The Indenture permits Services, CCPR and (under limited circumstances) their subsidiaries to incur additional Senior Debt, subject to certain limitations, and Services, CCPR and their subsidiaries expect from time to time to incur additional indebtedness, including Senior Debt, subject to such limitations. By reason of the subordination provisions of the Indenture, in the event of the insolvency, liquidation, reorganization, dissolution or other winding-up of Services, other creditors who are holders of Senior Debt must be paid in full before payment of amounts due on the Notes. Accordingly, there may be insufficient assets remaining after such payments to pay amounts due on the Notes. In addition, Services may not pay principal of, premium, if any, or interest on, or any other amounts owing in respect of, the Notes, or purchase, redeem or otherwise retire the Notes, or make any deposit pursuant to defeasance provisions for the Notes, if Designated Senior Debt (as defined in the Indenture) is not paid when due, unless such default is cured or waived or has ceased to exist or such Designated Senior Debt has been repaid in full. Under certain circumstances, no payments may be made for a specified period with respect to the principal of, premium, if any, and interest on, and any other amounts owing in respect of, the Notes if a default, other than a payment default, exists with respect to Designated Senior Debt unless such default is cured, waived or has ceased to exist or such indebtedness has been repaid in full. See "Description of the Notes-- Subordination." If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. In 13 such an event, the subordination provisions of the Indenture prohibit any payments to Holders of the Notes unless and until such obligations (and any other accelerated Senior Debt) have been repaid in full. See "Description of the Notes--Subordination." In addition, CCPR, as guarantor, may not pay principal of, premium, if any, or interest on, or any other amounts owing in respect of, the Notes, or purchase, redeem or otherwise retire the Notes, or make any deposit pursuant to defeasance provisions for the Notes, if Designated Senior Debt is not paid when due, unless such default is cured or waived or has ceased to exist or such Designated Senior Debt has been repaid in full. Under certain circumstances, no payments may be made for a specified period with respect to the principal of, premium, if any, and interest on, and any other amounts owing in respect of, the Notes if a default, other than a payment default, exists with respect to Designated Senior Debt unless such default is cured, waived or has ceased to exist or such indebtedness has been repaid in full. See "Description of the Notes--Subordination." If any Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. In such an event, the subordination provisions of the Indenture prohibit any payments to Holders of the Notes unless and until such obligations (and any other accelerated Senior Debt) have been repaid in full. See "Description of the Notes--Subordination." Certain of the Company's other subsidiaries may in the future incur indebtedness. Holders of such indebtedness will have a claim against the assets of such subsidiaries that will rank prior to the claim of the Holders of the Notes and the Guarantee. As of April 28, 1997, such subsidiaries had no outstanding indebtedness for money borrowed. Because of the subordination provisions of the Notes and the Guarantee, and after the occurrence of certain events, creditors whose claims are senior to the Notes or the Guarantee may recover more, ratably, than the Holders of the Notes. See "Description of the Notes--Guarantee." Competition. The sale of cellular and paging services in each of the Company's markets is becoming increasingly competitive. In Puerto Rico and the USVI, where the Company previously had one cellular competitor in each market, the Company in the near future may face many wireless competitors due to the introduction of broadband personal communications services ("PCS") on frequencies auctioned over the last two years by the FCC and specialized mobile radio ("SMR") services on existing SMR frequencies. At least one competitor is offering PCS services in several of the Company's markets. Such services will in the future be competitive with the Company's cellular service as they develop competitive voice quality, system reliability, system coverage, product offerings, marketing techniques and pricing. The 1996 Act removed certain restrictions on the ability of the Company's competitors to offer as a single package a variety of services, such as wireless voice and data, paging, long-distance, local landline and cable services, some of which the Company does not currently provide. Increased competition could result in pricing pressure, which could contribute to lower revenues per customer, and higher customer acquisition costs resulting in lower profit margins. The Company's significant competitor is the PRTC, which is the other cellular licensee and the landline telephone service provider in Puerto Rico. The PRTC is owned by the government of Puerto Rico. The PRTC is significantly larger and better capitalized than the Company. The Company believes the PRTC currently provides service to approximately 56% of the subscribers to cellular service in Puerto Rico. In addition, the Company faces competition from alternative communications technologies, both those currently existing and those that may be introduced in the future. Continuing technological advances in the communications industry make it impossible to predict the extent of future competition for the Company. See "Business--Competition." Potential Need for Additional Capital. The acquisition, development, ownership and operation of wireless communications networks require substantial capital investment. Services does not intend to use any proceeds of the offering of the Old Notes to satisfy capital requirements for the Company. See "The Restructuring" and "Use of Proceeds." The Company and Services each currently believes that, after giving effect to the proceeds of the offering of the Old Notes, each will have adequate internal resources to meet its capital requirements. If required, sources of additional capital could include debt and equity financing by CCPR, Services or other 14 subsidiaries of CCPR. While the Company has been successful in obtaining financing for investment and capital contribution requirements to date, there can be no assurance it will be able to do so in the future. If such financing is unavailable, the Company may not be able to develop further its existing projects, and the number of projects in which the Company participates may be limited. History of Losses. Although the Company generated net earnings for the year ended December 31, 1996, the Company has never generated earnings on an annual basis prior to 1996. After the application of the net proceeds of the offering of the Old Notes, and giving effect to interest requirements on the Notes, the Company does not anticipate that it will generate any net earnings for fiscal year 1997. The Company has incurred aggregate net losses of approximately $55.4 million from March 8, 1989 (i.e., date operations commenced) through December 31, 1996. There can be no assurance that the Company will achieve profitability in the near future. Regulation. The Company is subject to significant government regulation at the Federal level by the FCC and, to some extent, the Federal Aviation Administration (the "FAA"). In Puerto Rico, the Company is subject to regulation by the Puerto Rico Planning Board (the "Planning Board"), the Administration of Regulations and Permits ("ARPE") and the newly-created Puerto Rico Telecommunications Regulatory Board (the "Board"). The Board's powers include a number of matters, such as cost based rate making, that could have an adverse effect on the Company. See "Business--Government Regulation." The Company's wireless licenses are granted for specific periods of time. The most significant cellular and paging licenses are granted for a period of ten years. The Company believes that each of its expiring licenses will be renewed based upon its prior experience with expired licenses and upon FCC rules establishing a presumption in favor of licensees that have substantially complied with their regulatory obligations during the initial license period. However, there can be no assurance that any license will be renewed. Wireless communications operations are subject to governmental regulation, which may change from time to time. There can be no assurance that material and adverse changes in the regulation of the Company's existing operating systems will not occur in the future and will not have an adverse effect on the Company's business. Lack of Geographic Diversification. The Company's business is confined to the operation of a cellular telephone system and paging operations in Puerto Rico and the USVI. As such, it is highly dependent on trends in the use of cellular telephone and paging services and is subject to economic, social, political and governmental conditions in Puerto Rico and the USVI. Technology. The operations of the Company and its ventures depend in part upon the successful deployment of continuously evolving wireless communications technologies. There can be no assurance that such technologies will be developed according to anticipated schedules, that they will perform according to expectations or that they will achieve commercial acceptance. The Company may be required to make more capital expenditures than is currently expected if a technology's performance falls short of expectations or if commercial acceptance is not achieved. Thus, there can be no assurance that technological developments will not have a material adverse effect on the Company. Value of FCC Licenses. A substantial portion of the Company's assets consist of intangible assets in the form of investments in cellular licenses, the value of which will depend upon the success of the operations of such entities and the growth and future direction of the cellular industry generally. Values of licenses also have been affected by fluctuations in the level of supply and demand for such licenses. In addition, the infrequency with which licenses are traded or sold may increase the difficulty of establishing values for the Company's license interests. Any transfer of control of an entity holding a domestic license is subject to prior FCC (and possibly state or Commonwealth of Puerto Rico regulatory) approval and the future value of such interests will depend significantly upon future regulatory actions affecting the Company or its market and the success of the Company's businesses. While the Company believes that there is currently a market for such assets, such market may not exist in the future or the values obtainable may be significantly lower than at present. As a consequence, 15 there can be no assurance that the proceeds from the liquidation or sale of the Company's assets would be sufficient to pay the Company's obligations and a significant reduction in the value of the licenses could require a charge to the Company's results of operations. Finally, under FCC rules, a license is subject to renewal. There may be competition for licenses upon the expiration of their initial ten-year terms. The Company's San Juan/Caguas license expires in 1998 and its other licenses expire in 1997 through 2002. There can be no assurance that any such license will be renewed. See "--Regulation" and "Business--Regulation." Reliance on Use of Third-Party Service Mark. The Company currently uses the registered service mark CELLULARONE(R) to market the services of its non- wireline systems. The Company's use of this service mark is governed by five- year contracts between the Company and Cellular One Group, the owner of the service mark. Such contracts expire on various dates and each is renewable at the option of the Company for three additional five-year terms, subject to the attainment of certain customer satisfaction ratings. See "Business--Customer Service." Under these agreements, the Company has agreed to meet a consistent set of operating and service quality standards for its cellular service areas. If these agreements were not renewed upon expiration or if the Company were to fail to meet the applicable operating or service quality standards, and therefore was no longer permitted to use the CELLULARONE(R) service mark, the Company's ability both to attract new subscribers and retain existing subscribers could be materially impaired. In addition, if for some reason beyond the Company's control, the name CELLULARONE(R) were to suffer diminished marketing appeal, the Company's ability both to attract new subscribers and retain existing subscribers could be materially impaired. McCaw/AT&T Wireless, which had been the single largest user of the CELLULARONE(R) brand name, has significantly reduced its use of the brand name as a primary service mark. There can be no assurance that such reduction in use by McCaw/AT&T Wireless will not have an adverse effect on the marketing appeal of the brand name. Radio Frequency Emissions Concerns. Media reports have suggested that certain radio frequency ("RF") emissions from portable cellular telephones might be linked to cancer. The Company has collected and reviewed relevant scientific information and, based on such information, is not aware of any credible evidence linking the usage of portable cellular telephones with cancer. The FCC recently updated the guidelines and methods it uses for evaluating RF emissions in radio equipment, including cellular telephones. While the new rules impose more restrictive standards on RF emissions from low-power devices such as portable cellular telephones, the Company believes that all cellular telephones currently marketed and in use comply with those standards. Additional concerns have been expressed about the safety of emissions from cellular facilities which transmit calls to customers' telephone handsets. The Company's facilities are licensed by the FCC and comply with the prior exposure levels set by the FCC and the Company believes that they comply with the new levels. The 1996 Act provides that state and local governments may not regulate the placement, construction or modification of personal wireless service facilities on the basis of the environmental effects of RF emissions as long as such facilities comply with the FCC's regulations concerning such emissions. However, local authorities still have jurisdiction over zoning and permitting of such facilities. Fraud. The cellular industry continues to be subject to fraudulent activity. Cloning, which is one form of such fraud, results from the use of scanners and other electronic devices to illegally obtain telephone numbers and electronic serial numbers during cellular transmission. These stolen telephone and serial number combinations can be programmed into a cellular phone and used to obtain fraudulent access to cellular networks. Roaming fraud occurs when a phone programmed with a number stolen from the Company's customer is used to place fraudulent calls from another carrier's market, resulting in a roaming fee charged to the Company that cannot be collected from the customer. The Company is working to reduce the negative impacts of fraud through investment in new technologies and the deployment of other measures. In its own markets, the Company has had significant success in detecting and reducing fraudulent usage of numbers stolen from the Company's customers. However, the Company continues to experience average levels of roaming fraud. The cost of cellular fraud could have a significant impact on the Company's operating results for the foreseeable future. See "Business--Customer Service." Certain Investment Company Matters. Each of CCPR, Services and CoreComm believes that it is not an investment company as defined in the Investment Company Act of 1940, as amended (the "Investment Company 16 Act"), and each intends to continue its business and conduct its operations so as not to become regulated by the Investment Company Act. If the Commission or its staff were to take the position that any of CoreComm, CCPR or Services were an investment company, each could be required either (a) to change the manner in which it conducts its operations to avoid being required to register as an investment company or (b) to register as an investment company, either of which could have an adverse effect on Services, CCPR or CoreComm. Fraudulent Conveyance Considerations. Under applicable provisions of the Bankruptcy Code or comparable provisions of state or Commonwealth of Puerto Rico fraudulent transfer law, if either Services or CCPR (as guarantor), at the time it incurred its indebtedness in connection with the offering of the Old Notes, (i) incurred such indebtedness with the intent to hinder, delay or defraud a present or future creditor or (ii)(a) received or receives less than reasonably equivalent fair value or fair consideration and (b)(1) was or is insolvent or rendered insolvent by reason of such incurrence or (2) was or is engaged in a business or transaction for which the assets remaining with it constituted unreasonably small capital or (3) intended or intends to incur, or believed or believes that it would incur, debts beyond its ability to pay such debts as they mature or (4) was a defendant in an action for money damages docketed against it (if, in either case, after final judgment the judgment is unsatisfied), the Notes (or related guarantees) could be voided, or claims in respect of the Notes (or related guarantees) could be subordinated to all other debts of Services or CCPR. In addition, the payment of principal by Services or CCPR pursuant to the Notes (or related guarantees) could be voided and be required to be returned to any such present or future creditor, or to a fund for the benefit of the creditors of Services or CCPR or to any judgment creditor referred to in clause (4) above. The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding with respect to the foregoing. Generally, however, Services or CCPR would be considered insolvent if the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all of its assets at a fair valuation or if the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature. There can be no assurance, however, as to what standard a court would apply in making such determination. Lack of Public Market for the Notes; Volatility; Restrictions on Resale. The New Notes are being offered only to the Holders of the Old Notes. The Old Notes were issued on January 28, 1997 to institutional investors and are eligible for trading in the Private Offering, Resale and Trading through Automatic Linkages ("PORTAL") Market of the National Association of Securities Dealers, Inc. screenbased, automated market for trading of securities eligible for resale under Rule 144A. To the extent that the Old Notes are tendered and accepted in the Exchange Offer, the trading market for the remaining untendered Old Notes could be adversely affected. There is no existing market for the New Notes, and there can be no assurance regarding the future development of a market for the New Notes, or the ability of the holders of the New Notes, or the price at which such holders may be able, to sell their New Notes. If such a market were to develop, the New Notes could trade at prices that may be higher or lower than the initial offering price of the Old Notes. Prevailing market prices from time to time will depend on many factors, including then existing interest rates, operating results and cash flow of Services and CCPR and the market for similar securities. The Initial Purchasers have advised Services that they currently intend to make a market in the New Notes. The Initial Purchasers are not obligated to do so, however, and any market-making with respect to the New Notes may be discontinued at any time without notice. Accordingly, even if a trading market for the New Notes does develop, there can be no assurance as to the liquidity of that market. Services does not intend to apply for listing or quotation of the New Notes on any securities exchange or stock market. 17 USE OF PROCEEDS Services will not receive any proceeds from the issuance of the New Notes offered pursuant to the Exchange Offer. In consideration for issuing the New Notes as contemplated in this Prospectus, Services will receive in exchange Old Notes in like principal amount, the terms of which are identical in all material respects to the New Notes except (i) that the New Notes have been registered under the Securities Act, (ii) for certain transfer restrictions and registration rights relating to the Old Notes and (iii) that the New Notes will not contain certain provisions relating to an additional payment to be made to Holders of Old Notes under certain circumstances relating to the timing of the Exchange Offer. The Old Notes surrendered in exchange for New Notes will be retired and cancelled and cannot be reissued. Accordingly, issuance of the New Notes will not result in any increase in the indebtedness of Services. The net proceeds received by Services from the sale of the Old Notes, after deducting the underwriting discounts and commissions and estimated expenses of the offering of the Old Notes, were approximately $194 million. Of this amount, approximately $115 million was used to repay all borrowings under the Existing Bank Facility and the balance of $79 million was used for substantially all of the $80 million payment to CCPR, which was further distributed by CCPR to CoreComm in connection with the Restructuring. The Existing Bank Facility was available until March 31, 1999, on which date it would have converted into a term loan with principal payments based on an amortization schedule until September 30, 2003. The Existing Bank Facility required the payment of interest each quarter at a floating rate, which was, at the borrower's option, either (a) the higher of the bank's base rate or the Federal Funds Rate plus 1/2%, (b) the London Interbank Offering Rate or (c) the 936 Rate, plus, based on the ratio of the Company's debt to cash flow and the floating rate in effect, either .25% to 1.875% or 1.25% to 2.875%. The effective rate on the Company's borrowings as of December 31, 1996 was 7.01%. See "The Restructuring," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--The Company" and "--Liquidity and Capital Resources--Services." 18 THE EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES Upon the terms and conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (which together constitute the Exchange Offer), Services will accept for exchange Old Notes which are properly tendered on or prior to the Expiration Date and not withdrawn as permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City time, on , 1997; provided, however, that if Services, in its sole discretion, has extended the period of time for which the Exchange Offer is open, the term "Expiration Date" means the latest time and date to which the Exchange Offer is extended. As of the date of this Prospectus, $200,000,000 aggregate principal amount of the Old Notes is outstanding. This Prospectus, together with the Letter of Transmittal, is first being sent on or about , 1997, to all Holders of Old Notes known to Services. Services' obligation to accept Old Notes for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth under "--Certain Conditions to the Exchange Offer" below. Services expressly reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open, and thereby delay acceptance for exchange of any Old Notes, by giving oral or written notice of such extension to the Holders thereof as described below. During any such extension, all Old Notes previously tendered will remain subject to the Exchange Offer and may be accepted for exchange by Services. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering Holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. Old Notes tendered in the Exchange Offer must be in denominations of principal amount of $1,000 and any integral multiple thereof. Services expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Old Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offer specified below under "--Certain Conditions to the Exchange Offer." Services will give oral or written notice of any extension, amendment, non- acceptance or termination to the Holders of the Notes as promptly as practicable, such notice in the case of any extension to be issued by means of a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. PROCEDURES FOR TENDERING OLD NOTES The tender to Services of Old Notes by a Holder thereof as set forth below and the acceptance thereof by Services will constitute a binding agreement between the tendering Holder and Services upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, a Holder who wishes to tender Old Notes for exchange pursuant to the Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal or (in the case of a book- entry transfer) an Agent's Message in lieu of such Letter of Transmittal, to The Chase Manhattan Bank (the "Exchange Agent") at the address set forth below under "Exchange Agent" on or prior to the Expiration Date. In addition, either (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely confirmation of a book- entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date with the Letter of Transmittal or an Agent's Message in lieu of such Letter of Transmittal, or (iii) the Holder must comply with the guaranteed delivery procedures described below. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to and received by the Exchange Agent and forming a part of a Book- Entry Confirmation, which states that the Book-Entry Transfer Facility has 19 received an express acknowledgment from the tendering participant, which acknowledgment states that such participant has received and agrees to be bound by the Letter of Transmittal and that the Company may enforce such Letter of Transmittal against such participant. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO SERVICES. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Notes surrendered for exchange pursuant thereto are tendered (i) by a Holder of the Old Notes who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as defined below). In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office or correspondent in the United States (collectively, "Eligible Institutions"). If Old Notes are registered in the name of a person other than a signer of the Letter of Transmittal, the Old Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by Services in its sole discretion, duly executed by the registered national securities exchange with the signature thereon guaranteed by an Eligible Institution. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Old Notes tendered for exchange will be determined by Services in its sole discretion, which determination shall be final and binding. Services reserves the absolute right to reject any and all tenders of any particular Old Note not properly tendered or to not accept any particular Old Note which acceptance might, in the judgment of Services or its counsel, be unlawful. Services also reserves the absolute right to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Old Note either before or after the Expiration Date (including the right to waive the ineligibility of any Holder who seeks to tender Old Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular Old Note either before or after the Expiration Date (including the Letter of Transmittal and the instructions thereto) by Services shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes for exchange must be cured within such reasonable period of time as Services shall determine. Neither Services, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Old Notes for exchange, nor shall any of them incur any liability for failure to give such notification. If the Letter of Transmittal is signed by a person or persons other than the registered Holder or Holders of Old Notes, such Old Notes must be endorsed or accompanied by powers of attorney, in either case signed exactly as the name or names of the registered Holder or Holders that appear on the Old Notes. If the Letter of Transmittal or any Old Notes or powers of attorneys are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by Services, proper evidence satisfactory to Services of their authority to so act must be submitted with the Letter of Transmittal. By tendering, each Holder will represent to Services that, among other things, the New Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such New Notes, whether or not such person is the Holder and that neither the Holder nor such other person has any arrangement or understanding with any person to participate in the distribution of the New Notes. If any Holder or any such other person is an "affiliate", as defined under Rule 405 of the Securities Act, of Services, is engaged in or intends to engage in or has an arrangement or understanding with any person to participate in a distribution of such New Notes to be acquired pursuant to the Exchange Offer, such Holder or any such other person (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker- dealer as a result of market-making activities or other trading 20 activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES Upon satisfaction or waiver of all of the conditions to the Exchange Offer, Services will accept, promptly after the Expiration Date, all Old Notes properly tendered and will issue the New Notes promptly after acceptance of the Old Notes. See "--Certain Conditions to the Exchange Offer" below. For purposes of the Exchange Offer, Services shall be deemed to have accepted properly tendered Old Notes for exchange when, as and if Services has given oral (promptly confirmed in writing) or written notice thereof to the Exchange Agent. For each Old Note accepted for exchange, the Holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. Accordingly, registered Holders of New Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from January 31, 1997. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Pursuant to the Registration Rights Agreement, certain additional payments are required to be made to Holders of Old Notes under certain circumstances relating to the timing of the Exchange Offer. In all cases, issuance of New Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (i) certificates for such Old Notes or a timely Book- Entry Confirmation of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, (ii) a properly completed and duly executed Letter of Transmittal or an Agent's Message in lieu thereof and (iii) all other required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Old Notes are submitted for a greater principal amount than the Holder desires to exchange, such unaccepted or non-exchanged Old Notes will be returned without expense to the tendering Holder thereof (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry procedures described below, such non-exchanged Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. BOOK-ENTRY TRANSFERS The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer within two business days after the date of this Prospectus unless an Exchange Agent already has established an account with the Book- Entry Transfer Facility suitable for the Exchange Offer, and any financial institution that is a participant in the Book-Entry Transfer Facility systems may make book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Old Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof or an Agent's Message in lieu thereof, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at the address set forth below under "--Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. GUARANTEED DELIVERY PROCEDURES If a Holder of the Old Notes desires to tender such Old Notes and the Old Notes are not immediately available, or time will not permit such Holder's Old Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (i) the tender is made through an Eligible Institution, (ii) prior to the Expiration Date, 21 the Exchange Agent received from such Eligible Institution a Notice of Guaranteed Delivery, substantially in the form provided by Services (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the Holder of the Old Notes and the amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that within five New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, together with a properly completed and duly executed appropriate Letter of Transmittal (or facsimile thereof or Agent's Message in lieu thereof) with any required signature guarantees and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book- Entry Confirmation, as the case may be, together with a properly completed and duly executed appropriate Letter of Transmittal (or facsimile thereof or Agent's Message in lieu thereof) with any required signature guarantees and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within five NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL RIGHTS Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under "--Exchange Agent." Any such notice of withdrawal must (i) specify the name of the person having tendered the Old Notes to be withdrawn, (ii) identify the Old Notes to be withdrawn (including the principal amount of such Old Notes), and (iii) (where certificates for Old Notes have been transmitted) specify the name in which such Old Notes are registered, if different from that of the withdrawing Holder. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates the withdrawing Holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such Holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by Services, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the Holder thereof without cost to such Holder (or, in the case of Old Notes tendered by book- entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "--Procedures for Tendering Old Notes" above at any time on or prior to 5:00 p.m., New York City time, on the Expiration Date. CERTAIN CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, Services shall not be required to accept for exchange, or to issue New Notes in exchange for, any Old Notes and may terminate or amend the Exchange Offer, if at any time before the acceptance of such Old Notes, any of the following events shall occur: (a) there shall be threatened, instituted or pending any action or proceeding before, or any injunction, order or decree shall have been issued by, any court or governmental agency or other governmental regulatory or administrative agency or commission, (i) seeking to restrain or prohibit the making or consummation of the Exchange Offer or any other transaction contemplated by the Exchange Offer, or assessing or seeking any damages as a result thereof, or (ii) resulting in a material delay in the ability of Services to accept for exchange or exchange some or all of the Old Notes pursuant to the Exchange Offer; or any statute, rule, regulation, order or injunction shall be sought, proposed, introduced, enacted, promulgated or deemed applicable to the Exchange Offer or any of the transactions contemplated by the 22 Exchange Offer by any government or governmental authority, domestic or foreign, or any action shall have been taken, proposed or threatened, by any government, governmental authority, agency or court, domestic or foreign, that in the sole judgment of Services might directly or indirectly result in any of the consequences referred to in clauses (i) or (ii) above or, in the sole judgment of Services, might result in the holders of New Notes having obligations with respect to resales and transfers of New Notes which are greater than those described in the interpretation of the Commission referred to on the cover page of this Prospectus, or would otherwise make it inadvisable to proceed with the Exchange Offer; or (b) there shall have occurred (i) any general suspension of or general limitation on prices for, or trading in, securities on any national securities exchange or in the over-the-counter market, (ii) any limitation by an governmental agency or authority which may adversely affect the ability of Services to complete the transactions contemplated by the Exchange Offer, (iii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or any limitation by any governmental agency or authority which adversely affects the extension of credit or (iv) a commencement of a war, armed hostilities or other similar international calamity directly or indirectly involving the United States, or, in the case of any of the foregoing existing at the time of the commencement of the Exchange Offer, a material acceleration or worsening thereof; or (c) any change (or any development involving a prospective change) shall have occurred or be threatened in the business, properties, assets, liabilities, financial condition, operations, results of operations or prospects of Services and its subsidiaries taken as a whole that, in the sole judgment of Services, is or may be adverse to Services, or Services shall have become aware of facts that, in the sole judgment of Services, have or may have adverse significance with respect to the value of the Old Notes or the New Notes; which in the sole judgment of Services in any case, and regardless of the circumstances (including any action by Services) giving rise to any such condition, makes it inadvisable to proceed with the Exchange Offer and/or with such acceptance for exchange or with such exchange. The foregoing conditions are for the sole benefit of Services and may be asserted by Services regardless of the circumstances giving rise to any such condition or may be waived by Services in whole or in part at any time and from time to time in its sole discretion. The failure by Services at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, Services will not accept for exchange any Old Notes tendered, and no New Notes will be issued in exchange for any such Old Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939, as amended. EXCHANGE AGENT The Chase Manhattan Bank has been appointed as the Exchange Agent for the Exchange Offer. All executed Letters of Transmittal should be directed to the Exchange Agent at the address set forth below. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: Main Delivery to: The Chase Manhattan Bank, As Exchange Agent By Mail, By Hand and Overnight By Facsimile: Courier: The Chase Manhattan Bank Corporate (212) 638-7380 Trust--Securities Window Room 234--North Building Confirm by Telephone: 55 Water Street New York, NY 10041 Sharon Lewis: (212) 638-0454 23 DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL. FEES AND EXPENSES Services will not make any payment to brokers, dealers, or others soliciting acceptances of the Exchange Offer except for reimbursement of mailing expenses. The estimated cash expenses to be incurred in connection with the Exchange Offer will be paid by Services and are estimated in the aggregate to be $200,000. TRANSFER TAXES Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that Holders who instruct Services to register New Notes in the name of, or request that Old Notes not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering Holder will be responsible for the payment of any applicable transfer tax thereon. CONSEQUENCES OF EXCHANGING OLD NOTES Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the provisions in the Indenture regarding transfer and exchange of the Old Notes and the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Services does not currently anticipate that it will register Old Notes under the Securities Act. See "Description of the Notes--Exchange Offer; Registration Rights." Based on interpretations by the staff of the Commission, as set forth in no-action letters issued to third parties, Services believes that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by Holders thereof (other than any such Holder which is an "affiliate" of Services within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such New Notes are acquired in the ordinary course of such Holder's business and such Holder has no arrangement or understanding with any person to participate in the distribution of such New Notes. However, the Commission has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer as in such other circumstances. Each Holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement or understanding to participate in a distribution of New Notes. If any Holder is an affiliate of Services, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker- dealer that receives New Notes for its own account in exchange for Old Notes must acknowledge that such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." In addition, to comply with the securities laws of certain jurisdictions, if applicable, the New Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdiction or an exemption from registration or qualification is available and is complied with. Services has agreed, pursuant to the Registration Rights Agreement, subject to certain limitations specified therein, to register or qualify the New Notes for offer or sale under the securities laws of such jurisdictions as any Holder reasonably requests in writing. Unless a Holder so requests, Services does not intend to register or qualify the sale of the New Notes in any such jurisdictions. 24 CAPITALIZATION SERVICES. The following table sets forth the capitalization of Services as of December 31, 1996, and as adjusted as of such date to reflect the Restructuring and the offering of the Old Notes by Services, the application of the net proceeds therefrom and the write-off of deferred financing costs. This table should be read in conjunction with the historical financial statements of Services, including the notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations--Services" and other financial information included in this Prospectus.
DECEMBER 31, 1996 ----------------- AS ACTUAL ADJUSTED (IN THOUSANDS) Long Term Debt: Existing Bank Facility.................................... $115,000 $ -- 10% Senior Subordinated Notes due 2007.................... -- 200,000 -------- -------- Total Long Term Debt.................................... 115,000 200,000 Shareholder's Equity: Common stock-$1 par value; 1,000 shares authorized, issued and outstanding.......................................... 1 1 Additional paid-in capital................................ 5,258 5,258 Retained earnings (deficit)............................... 1,492 (2,626) -------- -------- Total Shareholder's Equity.............................. 6,751 2,633 -------- -------- Total Capitalization........................................ $121,751 $202,633 ======== ========
THE COMPANY. The following table sets forth the consolidated capitalization of the Company as of December 31, 1996, and as adjusted as of such date to reflect the Restructuring and the offering of the Old Notes by Services, the application of the net proceeds therefrom and the write-off of deferred financing costs. This table should be read in conjunction with the historical consolidated financial statements of the Company, including the notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations--the Company" and other financial information included in this Prospectus.
DECEMBER 31, 1996 ------------------ AS ACTUAL ADJUSTED (IN THOUSANDS) Long Term Debt: Existing Bank Facility .................................. $115,000 $ -- 10% Senior Subordinated Notes due 2007................... -- 200,000 -------- -------- Total Long Term Debt................................... 115,000 200,000 Shareholders' Equity: Series A Junior Participating Preferred Stock-$.01 par value; authorized 2,500,000 shares; issued and outstanding none........................................ -- -- Common Stock-$.01 par value; authorized 30,000,000 shares, issued 13,432,000 shares; as adjusted 1,000 shares authorized, issued and outstanding............... 134 -- Additional paid-in capital............................... 226,160 137,971 (Deficit)................................................ (55,363) (59,481) -------- -------- 170,931 78,490 Treasury stock-at cost, 343,000 shares; as adjusted none.................................................... (8,323) -- -------- -------- Total Shareholders' Equity............................. 162,608 78,490 -------- -------- Total Capitalization....................................... $277,608 $278,490 ======== ========
25 SELECTED CONSOLIDATED FINANCIAL INFORMATION CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES The selected consolidated financial information of the Company presented below under the captions Statement of Operations Data for each of the five years in the period ended December 31, 1996 and Balance Sheet Data as of December 31, 1996, 1995, 1994, 1993 and 1992 has been derived from consolidated financial statements of the Company audited by Ernst & Young LLP. The Company did not declare or pay any cash dividends during the periods indicated. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations--The Company" and the Company's Consolidated Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1996 1995 1994 1993 1992 (IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues: Service revenue....... $119,839 $ 94,409 $ 55,900 $ 22,256 $ 9,624 Equipment revenue..... 13,979 14,259 11,241 6,890 2,362 -------- -------- -------- -------- -------- 133,818 108,668 67,141 29,146 11,986 -------- -------- -------- -------- -------- Costs and expenses: Cost of equipment sold................. 17,962 20,635 13,818 8,386 2,250 Operating expenses.... 15,214 10,207 8,501 4,913 3,368 Selling, general and administrative expenses............. 63,223 51,148 30,944 18,512 9,432 Depreciation of rental equipment............ 521 225 312 278 158 Depreciation expense.. 12,710 9,638 6,400 4,887 3,697 Amortization expense.. 6,187 5,794 5,212 5,047 4,687 -------- -------- -------- -------- -------- 115,817 97,647 65,187 42,023 23,592 -------- -------- -------- -------- -------- Operating income (loss)................. 18,001 11,021 1,954 (12,877) (11,606) Interest income and other, net............. 646 358 867 551 414 Interest expense........ (8,181) (8,501) (7,305) (6,249) (3,658) -------- -------- -------- -------- -------- Income (loss) before income tax provisions and minority interests.............. 10,466 2,878 (4,484) (18,575) (14,850) Income tax (provision) benefit................ (5,352) (4,007) (328) (156) 724 -------- -------- -------- -------- -------- Income (loss) before minority interests..... 5,114 (1,129) (4,812) (18,731) (14,126) Minority interests...... -- (322) -- -- -- -------- -------- -------- -------- -------- Net income (loss)....... $ 5,114 $ (1,451) $ (4,812) $(18,731) $(14,126) ======== ======== ======== ======== ======== Net income (loss) per common share(1)........ $ .36 $ (.13) $ (.49) $ (1.93) $ (1.56) ======== ======== ======== ======== ======== Weighted average number of Common Shares used in computation of net income (loss) per share including common stock equivalents(1)......... 14,027 11,070 9,867 9,699 9,073 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges(2)....... 2.0:1 1.2:1 0.4:1 -- -- AS OF DECEMBER 31, ------------------------------------------------ 1996 1995(3) 1994 1993 1992 (IN THOUSANDS) BALANCE SHEET DATA: Working capital......... $ 11,078 $ 12,444 $ 10,808 $ 18,658 $ 33,934 Property, plant and equipment-net.......... 97,945 75,769 55,077 42,653 38,733 Total assets............ 300,722 256,997 231,371 218,669 222,745 Long-term debt.......... 115,000 90,000 101,212 95,506 92,456 Shareholders' equity.... 162,608 144,152 112,784 111,621 124,454
- -------------------- (1) After giving retroactive effect to the five-for-four stock split by way of stock dividend paid in October 1992. (2) Fixed charges consist of interest expense, including capitalized interest, amortization of fees related to debt financing and rent expense deemed to be interest. The fixed charges coverage deficiency amounted to $18.6 million and $14.9 million for the years ended December 31, 1993 and 1992, respectively. (3) In 1995, the entire $40 million principal amount of 8 1/4% Convertible Senior Subordinated Notes due 2000 were converted into approximately 2,778,000 shares of common stock. 26 SELECTED FINANCIAL INFORMATION CCPR SERVICES, INC. The selected financial information of Services presented below under the captions Statement of Operations Data for each of the five years in the period ended December 31, 1996 and Balance Sheet Data as of December 31, 1996, 1995, 1994, 1993 and 1992 have been derived from financial statements of Services audited by Ernst & Young LLP. The following information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations--Services" and Services' Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1996 1995 1994 1993 1992 (IN THOUSANDS, EXCEPT RATIOS) STATEMENT OF OPERATIONS DATA: Revenues................ $ 26,924 $ 17,212 $ 3,656 $ 2,225 $ 1,600 Depreciation and amortization........... 13,006 9,669 6,843 5,393 4,138 -------- -------- -------- -------- -------- Operating income (loss)................. 13,918 7,543 (3,187) (3,168) (2,538) Interest income and other, net ............ 1,343 707 97 15 (108) Interest expense........ (8,094) (2,751) -- -- -- Equity in net income of SJCTC.................. 304 -- -- -- -- -------- -------- -------- -------- -------- Income (loss) before income tax provision... 7,471 5,499 (3,090) (3,153) (2,646) Income tax provision.... (891) (110) -- -- -- -------- -------- -------- -------- -------- Net income (loss)....... $ 6,580 $ 5,389 $ (3,090) $ (3,153) $ (2,646) ======== ======== ======== ======== ======== Ratio of earnings to fixed charges(1)....... 1.8:1 2.5:1 -- -- -- AS OF DECEMBER 31, ------------------------------------------------ 1996 1995(2) 1994 1993 1992 (IN THOUSANDS) BALANCE SHEET DATA: Working capital......... $ 5,454 $ 15,194 $(33,694) $(20,486) $(13,535) Property, plant and equipment--net......... 89,912 69,507 52,656 42,362 38,358 Total assets............ 167,268 113,496 75,194 54,477 55,594 Long-term debt.......... 115,000 90,000 -- -- -- Shareholder's equity.... 6,751 171 19,930 23,020 26,173
- --------------------- (1) Fixed charges consist of interest expense, including capitalized interest, amortization of fees related to debt financing and rent expense deemed to be interest. The fixed charges coverage deficiency amounted to $3.1 million, $3.2 million and $2.6 million for the years ended December 31, 1994, 1993 and 1992, respectively. (2) In 1995, Services assumed CCPR's liability under the Existing Bank Facility of $80 million, net of deferred financing costs of $5 million. This transaction was recorded by Services as a $50 million reduction of the amount due to CCPR included in current liabilities and a $25 million return of capital to CCPR. 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE COMPANY The following discussion of the financial condition and results of operations of the Company relates to the fiscal years ended December 31, 1996, 1995, and 1994, and should be read in conjunction with the preceding Selected Consolidated Financial Information and the Company's Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus. The following information does not purport to be indicative of results that may occur in the future. All references to full years are to the applicable fiscal year of the Company. RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996 AND 1995 Service revenues increased to $119,839,000 from $94,409,000 as a result of subscriber growth that increased the Company's current revenue stream. Average monthly revenue per subscriber decreased to $73 in 1996 from $86 in 1995. Ending subscribers were 159,300 and 115,500 as of December 31, 1996 and 1995, respectively. The loss from equipment, before depreciation of rental equipment, decreased to $3,983,000 from $6,376,000 primarily because of reductions in the cost of cellular telephones offset by an increase in the loss from pager sales. The Company sells cellular telephones and pagers below cost in response to competition and to generate subscriber growth. Operating expenses increased to $15,214,000 from $10,207,000 primarily due to increased usage of the network and additional costs associated with the expanded network (including paging operations), which account for 90% and 10% of the increase, respectively. Selling, general and administrative expenses increased to $63,223,000 from $51,148,000 as a result of increased selling and marketing to increase the customer base and additional personnel to service the expanding customer base. Increases in bad debt expense, customer retention expense, property taxes and subscriber billing expense also contributed to this increase. The increases in selling and marketing costs, personnel costs, bad debt expense, customer retention expense, property taxes and subscriber billing expense were 31%, 8%, 12%, 13%, 8% and 11%, respectively, of the total $12,075,000 increase. Depreciation of rental equipment increased to $521,000 from $225,000 due to an increase in the number of rental pagers, offset by a decrease in rental telephone depreciation due to rental telephones becoming fully depreciated. Depreciation expense increased to $12,710,000 from $9,638,000 primarily because of an increase in property, plant and equipment. Amortization expense increased to $6,187,000 from $5,794,000 primarily due to increases in license acquisition costs. Interest income and other, net, increased to $646,000 from $358,000 primarily due to an increase in interest income on short term investments. Interest expense decreased to $8,181,000 from $8,501,000 as a result of lower effective interest rates on long-term debt outstanding during 1996. The provision for income taxes increased to $5,352,000 from $4,007,000 as a result of an increase in Puerto Rico or U.S. Virgin Islands taxable income of certain of the Company's consolidated subsidiaries and an increase in deferred Puerto Rico income tax liability. 28 YEARS ENDED DECEMBER 31, 1995 AND 1994 Service revenues increased to $94,409,000 from $55,900,000 as a result of subscriber growth that increased the Company's current revenue stream. Average monthly revenue per subscriber decreased to $86 for the year ended December 31, 1995 from $94 for the year ended December 31, 1994. Ending subscribers were 115,500 and 68,300 as of December 31, 1995 and 1994, respectively. Paging operations commenced in the second quarter of 1995. As of December 31, 1995, there were 13,300 pagers in use. The loss from equipment, before depreciation of rental telephones, increased to $6,376,000 from $2,577,000 as a result of the increase in new subscribers. The Company sells telephone and accessories below cost in response to competition and to increase subscriber growth. Operating expenses increased to $10,207,000 from $8,501,000 primarily due to additional costs associated with the expanded cellular network and increased usage of the network, which account for 74% and 26% of the increase, respectively. Operating expenses declined to 11% of service revenue for the year ended December 31, 1995 from 15% for the year ended December 31, 1994. Selling, general and administrative expenses increased to $51,148,000 from $30,944,000 as a result of increased selling and marketing to increase the customer base and additional personnel to service the expanding customer base. Increases in bad debt expense and subscriber billing expense also contributed to this increase. The increases in selling and marketing costs, personnel costs, bad debt expense and subscriber billing expense were 53%, 11%, 17% and 8%, respectively, of the total $20,204,000 increase. Depreciation of rental telephones decreased to $225,000 from $312,000 due to rental telephones in the corporate account rental program being fully depreciated. Depreciation expense increased to $9,638,000 from $6,400,000 primarily because of an increase in property, plant and equipment. Amortization expense increased to $5,794,000 from $5,212,000 due to increases in license acquisition costs as a result of the USVI acquisitions in July and October 1994. Interest income and other, net, decreased to $358,000 from $867,000 due to an increase in losses on disposals of equipment. Interest expense increased to $8,501,000 from $7,305,000 as a result of a higher average balance of long-term debt outstanding during 1995. Income tax provision increased to $4,007,000 from $328,000 as a result of an increase in Puerto Rico or USVI taxable income of certain of the Company's consolidated subsidiaries. LIQUIDITY AND CAPITAL RESOURCES The Company requires capital to expand its cellular and paging networks, for debt service and, potentially, for the acquisition and development of additional wireless licenses or communication businesses. The Company is currently adding cell sites and increasing capacity throughout its Puerto Rico and USVI markets. The Company expects to use approximately $34,000,000 in 1997 for contemplated additions to the cellular system, the paging network and for other non-cell site related capital expenditures. Additionally, the 1997 amount includes one time expenditures of approximately $4,000,000 for the occupancy of a new building and $5,000,000 for hardware and software for an in-house billing system. The Company's commitments at December 31, 1996 of $8,800,000 for cellular network and other equipment and for construction services are included in the total anticipated expenditures. The Company expects to be able to meet these requirements with cash on hand and cash from operations. 29 In April 1995, CCPR and Services entered into the Existing Bank Facility, which was a $200,000,000 revolving credit facility with various banks. The line of credit was available until March 31, 1999, on which date it would have converted into a term loan with principal payments based on an amortization schedule until September 30, 2003. In January 1997, Services issued $200,000,000 principal amount of Old Notes and received proceeds of $194,500,000 after discounts and commissions. The Notes are unconditionally guaranteed by CCPR. CCPR and Services used approximately $116,000,000 of the proceeds to repay the $115,000,000 principal outstanding plus accrued interest and fees under the Existing Bank Facility. In addition, Services used the balance to make a cash payment to CCPR of $80,000,000 in exchange for a 21% interest in SJCTC, and CCPR distributed that amount to CoreComm. The Notes are due February 1, 2007. Interest on the Notes is payable semiannually commencing on August 1, 1997. The Notes are redeemable, in whole or in part, at the option of Services at any time on or after February 1, 2002, at a redemption price of 105% that declines annually to 100% in 2005, in each case together with accrued and unpaid interest to the redemption date. The Indenture contains certain covenants with respect to CCPR, Services and certain subsidiaries that limit their ability to, among other things, (i) incur additional indebtedness, (ii) pay dividends or make other distributions or restricted payments, (iii) create liens, (iv) sell assets, (v) enter into mergers or consolidations or (vi) sell or issue stock of subsidiaries. In April 1996, the Company announced that its Board of Directors authorized the repurchase of up to an additional 750,000 shares of the Company's common stock through open market purchases from time to time as market conditions warrant. This repurchase plan is in addition to a previously announced repurchase plan for up to 250,000 shares. Through April 14, 1997, 585,000 shares of Common Stock have been repurchased for an aggregate of $15,156,000, of which 207,000 shares of Common Stock with a cost of $6,145,000 have been retired. Cash provided by operating activities was $28,912,000 for the year ended December 31, 1996 and cash used in operating activities was $7,779,000 for the year ended December 31, 1995. Cash used in operating activities in 1995 included $12,978,000 of accrued interest expense that was paid in connection with the repayment of outstanding debt. The increase in cash flow from operating activities is also a result of the increase in net income and from changes in operating assets and liabilities. Purchases of property, plant and equipment of $36,564,000 in 1996 were primarily for additional cell sites and increased capacity in the Company's cellular and paging systems. Purchases of cellular license interests of $5,811,000 in 1996 are comprised of $5,755,000 (including expenses of $5,000) paid to acquire the remaining interests, aggregating 49%, in Star Associates, Inc., the company which owns the FCC license for the non-wireline cellular system in Adjuntas, Puerto Rico (RSA-2), plus $56,000 in expenses paid in connection with the acquisition by Services of the remaining minority interests aggregating 6.14% in SJCTC. This acquisition was in exchange for approximately 820,000 shares of CCPR's common stock which was valued at $21,536,000, the fair market value on the date of acquisition. As a result of these acquisitions, CCPR owns, either directly or through its subsidiaries, 100% of Star Associates, Inc. and SJCTC. SJCTC made a special cash distribution of $1,172,000 to its minority interest holders in 1996. The allowance for doubtful accounts was $3,767,000 as of December 31, 1996 and $3,233,000 as of December 31, 1995. Write-offs net of recoveries as a percentage of service revenue was 5.8% for the year ended December 31, 1996 compared to 4.8% for the year ended December 31, 1995. This percentage increased because the Company has attracted and continues to attract new segments of the market. The Company continues to attempt to reduce this percentage by improving credit procedures and instituting innovative forms of payment such as prepaid billing. The Company may also require additional capital for acquisitions of minority interests in its Aguadilla market, or for the acquisition of certain other RSAs or in other telecommunications related industries, if opportunities for such acquisitions arise. The Company has from time to time engaged in discussions with third parties regarding such acquisitions both inside and outside of Puerto Rico and the USVI. 30 THE POTENTIAL CREDIT FACILITY The Company intends to initiate discussions with one or more commercial banks regarding the arrangement of a senior secured revolving credit facility (the "Potential Credit Facility"). It is expected that the Potential Credit Facility would be senior to the Notes and may be secured by various assets of CCPR, SJCTC, Services and other subsidiaries of CCPR. The arrangement of the Potential Credit Facility is subject to the satisfaction of a number of significant conditions, including, among other things, (i) reaching an agreement in principle regarding the terms of the Potential Credit Facility, (ii) the banks' credit committee approval, (iii) the negotiation and execution of definitive credit agreements and related documents satisfactory to the Company and the banks, and (iv) the completion of due diligence satisfactory to the banks. The Company can give no assurance that any such conditions will be satisfied or that the Potential Credit Facility will be entered into. The Company expects that the Potential Credit Facility will contain various covenants, including financial covenants restricting changes of control (or making such an event of default) and limiting various other activities that the borrowing group may otherwise engage in, in particular, restricting the payment of dividends or distributions by the borrowing group to CCPR, SJCTC, Services and other subsidiaries of CCPR if an event of default under the Potential Credit Facility has occurred and is continuing and restricting the payments of such dividends out of excess cash flow. Indebtedness under the Potential Credit Facility is expected to be incurred by each member of the relevant borrowing group and to be secured and guaranteed in a manner to be agreed with the banks. EFFECT OF INFLATION The results of operations of the Company have not been significantly affected by inflation. SERVICES The following discussion of the financial condition and results of operations of Services relates to the fiscal years ended December 31, 1996, 1995 and 1994 and should be read in conjunction with the preceding Selected Financial Information and Services' Financial Statements and Notes thereto included elsewhere in this Prospectus. The following information does not purport to be indicative of results that may occur in the future. All references to full years are to the applicable fiscal year of Services. Services operates and manages the Company's Puerto Rico cellular system on behalf of each of the Company Entities. See "Business--Intercompany Administration and Management Agreements." Services charges an administrative fee based on revenues generated in the Company's Puerto Rico cellular system and a capital usage fee which is the recovery of Services' capital costs. RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996 AND 1995 Administrative and capital usage fees charged to affiliates increased to $26,924,079 from $17,212,735 as a result of increases in revenues and capital costs in CCPR's Puerto Rico cellular system. Depreciation and amortization increased to $13,005,623 from $9,669,381 primarily because of an increase in property, plant and equipment. Intercompany interest income increased to $741,010 from $536,775 as a result of the increase in amounts due from affiliates. Interest and other income increased to $601,533 from $169,398 as a result of increases in cash available for short term investment. Interest expense increased to $8,094,399 from $2,750,576 as a result of a higher average balance on long-term debt outstanding during 1996. 31 Equity in net income of SJCTC of $304,374 in 1996 is the result of the acquisition of an approximately 6% ownership interest in the partnership in February 1996. The provision for income taxes increased to $890,766 from $109,955 as a result of an increase in Puerto Rico income tax, a substantial portion of which is a deferred liability. YEARS ENDED DECEMBER 31, 1995 AND 1994 Administrative and capital usage fees charged to affiliates increased to $17,212,735 from $3,656,492 as a result of increases in revenues and capital costs in CCPR's Puerto Rico cellular system, as well as an increase in the administrative fee rate and a change in the capital usage fee computation. Depreciation and amortization increased to $9,669,381 from $6,843,383 primarily because of an increase in property, plant and equipment. Intercompany interest income increased to $536,775 from $198,507 as a result of the increase in amounts due from affiliates. Interest and other income increased to income of $169,398 from expense of $101,982 as a result of increases in cash available for short term investment and a reduction in losses on disposals of equipment. Interest expense increased to $2,750,576 from none as a result of long-term debt incurred in 1995. The provision for income taxes increased to $109,955 from none as a result of an increase in Puerto Rico taxable income. LIQUIDITY AND CAPITAL RESOURCES Services requires capital to expand the Company's Puerto Rico cellular system and for debt service. Services is currently adding cell sites and increasing capacity throughout Puerto Rico on behalf of CCPR's operating subsidiaries. Services expects to use approximately $31,000,000 in 1997 for contemplated additions to the Puerto Rico cellular system and for other non- cell site related capital expenditures. Additionally, the 1997 figure includes one time expenditures of approximately $4,000,000 for the occupancy of a new building and $5,000,000 for hardware and software for an in-house billing system. Services' commitments at December 31, 1996 of $8,655,000 for cellular network and other equipment and for construction services are included in the total anticipated expenditures. Services expects to be able to meet these requirements with cash on hand and cash from operations. In April 1995, CCPR and Services entered into the Existing Bank Facility, which was a $200,000,000 revolving credit facility with various banks. As of December 31, 1996, Services had $115,000,000 principal amount outstanding. The line of credit was available until March 31, 1999, on which date it would have converted into a term loan with principal payments based on an amortization schedule until September 30, 2003. In January 1997, Services issued $200,000,000 principal amount of Old Notes and received proceeds of $194,500,000 after discounts and commissions. The Notes are unconditionally guaranteed by CCPR. Services used approximately $116,000,000 of the proceeds to repay the principal outstanding plus accrued interest and fees under the Existing Bank Facility. In addition, Services used the balance to make a cash payment to CCPR of $80,000,000 in exchange for a 21% interest in SJCTC. The Notes are due on February 1, 2007. Interest on the Notes is payable semiannually commencing on August 1, 1997. The Notes are redeemable, in whole or in part, at the option of Services at any time on or after February 1, 2002, at a redemption price of 105% that declines annually to 100% in 2005, in each case together with accrued and unpaid interest to the redemption date. The Indenture contains certain covenants with respect to Services, CCPR and certain subsidiaries of CCPR that limit their ability to, among other things, (i) incur additional indebtedness, (ii) pay dividends or make other distributions or restricted payments, (iii) create liens, (iv) sell assets, (v) enter into mergers or consolidations or (vi) sell or issue stock of subsidiaries. 32 Cash provided by operating activities was $8,941,892 and $21,809,188 for the years ended December 31, 1996 and 1995, respectively. The decrease is primarily a result of an increase in cash paid for interest (exclusive of amounts capitalized) and income taxes of $5,164,879 and changes in other operating assets and liabilities. Purchases of property, plant and equipment of $34,846,405 were primarily for additional cell sites and increased capacity in the Puerto Rico cellular system. Proceeds from borrowings of $52,000,000 were used for loans to affiliates of $42,000,000 and for purchases of property, plant and equipment of $10,000,000. The allowance for doubtful accounts was $3,471,653 as of December 31, 1996 and $2,903,430 as of December 31, 1995. Write-offs net of recoveries as a percentage of service revenues of affiliates was 6.0% for the year ended December 31, 1996 compared to 5.0% for the year ended December 31, 1995. This percentage increased because Services has attracted and continues to attract new segments of the market. Services continued to attempt to reduce this percentage by improving credit procedures and instituting innovative forms of payment such as prepaid billing. EFFECT OF INFLATION The results of operations of Services have not been significantly affected by inflation. 33 BUSINESS GENERAL The Company owns, operates and markets its cellular and paging services throughout Puerto Rico and the USVI under the CELLULARONE(R) service mark. The Company's interests total 3.52 million Pops. In addition, the Company has entered into agreements to operate or holds interim operating authority granted by the FCC in the two remaining RSAs within Puerto Rico and the USVI which it does not own. The Company began actively marketing its island-wide cellular system in May 1993 and, as of March 31, 1997, had 166,600 cellular subscribers and 35,100 paging subscribers representing an increase in subscribers of 38,800 and 17,300, respectively, since March 31, 1996. Despite commencing active marketing of its services almost five years after its primary cellular competitor, management believes the Company's market share represents an approximately 44% share of cellular subscribers in Puerto Rico. The Company believes that Puerto Rico is an attractive market for cellular and paging services. The largest MSA in its service area, the San Juan/Caguas MSA with over two million Pops, is characterized by a high population density of 1,880 persons per square mile (mainland U.S. MSA average is 325) with 46% of commuters reporting a commute time of 30 minutes or greater (mainland U.S. MSA average is 30%). Puerto Rico did not experience the benefits of island-wide competition until early 1993, seven years after most major mainland U.S. markets. Notwithstanding, management estimates that at the end of 1996 cellular penetration in Puerto Rico was slightly less than 10% while the CTIA reported that cellular penetration in the U.S. as a whole first surpassed 10% during the first half of 1995. Average revenue for the Company's subscribers continues to exceed the average revenue for mainland U.S. subscribers at a similar penetration level; the average revenue for the Company's cellular subscribers in 1996 was over $70 per month, while the average revenue in the mainland U.S. as reported by the CTIA at a similar market penetration (10%) in early 1995 was less than $60 per month. The Company believes that the USVI also represents an attractive cellular and paging market, particularly because of the large amount of roaming traffic generated by visitors. The Company's primary strategy is to differentiate itself from its competition by providing superior customer service and call quality by offering state-of-the-art complementary wireless services, thereby strengthening its image as the premium provider of wireless communications in its service areas. The Company continually promotes its reliable Puerto Rico and USVI-wide mobile cellular and paging services. The Company has stressed the quality of its customer service, network, and value-added services as well as the breadth of its coverage and distribution channels in Puerto Rico and the USVI rather than the price of its services. In 1996, CELLULARONE(R) of San Juan received the "Quality One" award from the Cellular One Group, recognizing the highest level of customer service in the United States among MSAs using the CELLULARONE(R) service mark. Management believes that this strategy has attracted higher quality subscribers which generate higher than average revenues and consequently believes its market share of revenues may be somewhat higher than its market share based on number of subscribers. The Company's management is experienced in providing new product innovations to generate additional revenue as the industry's customer base shifts to lower usage subscribers. This experience has enabled the Company to target specific groups of customers and provide them with value-added features. The Company was the first to offer one-stop sales in its service areas and service centers, roaming capabilities, bilingual and detailed billing service, voice mail service, 24-hour customer service, free safety and security numbers, prepaid cellular service and integrated paging and cellular service. The Company also plays an active role in the community helping to sponsor such safety initiatives as Crime Watch and *CG, a cellular number for boaters needing Coast Guard assistance and has been a significant civil defense resource during and after several major hurricanes. In addition, the Company has stressed education and employee involvement in other initiatives such as environmental programs (including The Caribbean Stranding Network hotline, tree plantings, cleanup days), educational exhibits (at Science Park and the Arecibo Observatory), and Company-sponsored scholarships in engineering at the University of Puerto Rico. 34 CELLULAR TELEPHONE OWNERSHIP INTERESTS The following table sets forth the Company's cellular MSA and RSA markets and approximate percentage ownership as of December 31, 1996:
MARKET POPULATION(1)(2) OWNERSHIP POPS ------ ---------------- --------- --------- San Juan/Caguas MSA(3).................. 2,124,891 100.00% 2,124,891 Aguadilla MSA........................... 180,687 99.01 178,898 Mayaguez MSA............................ 227,941 100.00 227,941 Ponce MSA............................... 261,585 100.00 261,585 Arecibo MSA............................. 195,843 100.00 195,843 PR-1 Rincon RSA......................... 13,726 100.00 13,726 PR-2 Adjuntas RSA....................... 276,517 100.00 276,517 PR-3 Ciales RSA......................... 126,052 100.00 126,052 PR-4 Aibonito RSA(4).................... 295,140 0.00 0 PR-5 Ceiba RSA(5)....................... 42,172 0.00 0 PR-6 Vieques RSA........................ 8,975 100.00 8,975 PR-7 Culebra RSA........................ 1,598 100.00 1,598 USVI-1 St. Thomas/St. John.............. 51,670 100.00 51,670 USVI-2 St. Croix........................ 50,139 100.00 50,139 --------- --------- Total................................. 3,856,936 3,517,835 ========= =========
- --------------------- (1) 1995 U.S. Census Bureau Population Estimates for Puerto Rico. (2) 1990 U.S. Census Bureau Population Estimates for the USVI. (3) In February 1996, the Company acquired the remaining minority interests aggregating 6.14% in the San Juan Cellular Telephone Company, the entity holding the operating license for the San Juan/Caguas MSA. (4) In December 1995, the Company signed various agreements with the holder of the construction permit for the PR-4 Aibonito RSA setting forth the material terms and obligations between both parties. These agreements include: (i) a Dual Licensing Agreement, (ii) a Switching and Interconnect Agreement, (iii) a Tower and Building Lease Agreement and (iv) a Roaming Agreement. (5) The Company has received interim operating authority in the PR-5 Ceiba RSA from the FCC and from Puerto Rico authorities. The FCC is currently considering whether permanent operating authority with respect to PR-5 Ceiba RSA should be issued by lottery or by auction. The Company had, as of March 31, 1997, an aggregate of 166,600 subscribers which represents a penetration rate (i.e., the number of subscribers divided by the total estimated population of the Company's markets) for the Company of approximately 4.3%. See "--Sales and Marketing." PAGING A subsidiary of the Company has received authorization from the FCC to operate two 900 MHz paging systems to serve Puerto Rico and the USVI. The Company completed the construction of the Puerto Rico paging system and began operations during March 1995. The Company completed construction of the USVI paging system and began operations in November 1995. As of March 31, 1997, the Company's paging operations had 38,800 pagers in use. COMMONWEALTH OF PUERTO RICO Puerto Rico has been a territory of the United States since 1898 and a Commonwealth since 1952. Puerto Ricans are U.S. citizens with non-voting representation in Congress, but cannot vote in national elections unless they reside in the United States. The system of government is modeled after the state governments of the United States, with an executive branch headed by a Governor and a legislature consisting of a 27-member Senate and a 53-member House of Representatives. The judicial system is closely linked to the United States system. Most United States laws apply in Puerto Rico and Puerto Rico is under the jurisdiction of the First Circuit, United 35 States Court of Appeals, which maintains a United States District Court in Puerto Rico. Judicial decisions may be appealed to the Supreme Court of the United States in the same manner that decisions are appealed from state courts. The United States and Puerto Rico also share common monetary, defense and postal systems. Puerto Rico has a land area approximately 70 percent the size of Connecticut and has a population of approximately 3.7 million people. The population is concentrated primarily in Puerto Rico's coastal regions, in particular, the San Juan metropolitan area. Puerto Rico maintains a highway and road network of approximately 8,600 miles, including a partially completed all island beltway loop. The largest MSA in Puerto Rico, the San Juan/Caguas MSA with over 2 million Pops, is characterized by a high population density of 1,880 persons per square mile (mainland U.S. MSA average is 325) with 46% of commuters reporting a commute time of greater than 30 minutes (mainland U.S. average is 30%). THE U.S. VIRGIN ISLANDS The USVI has been a territory of the United States since 1917. Virgin Islanders are U.S. citizens with non-voting representation in Congress, but cannot vote in national elections unless they reside in the United States. The system of government is modeled after the state governments of the United States, with three main branches of government. The executive branch is headed by a Governor, elected every four years through a direct vote. The legislative branch consists of one chamber having 14 members. The judicial system is closely linked to the United States system with a Territorial Court that has jurisdiction over local matters and a United States District Court, which falls under the jurisdiction of the Third Circuit, United States Court of Appeals. Judicial decisions may be appealed to the Supreme Court of the United States in the same manner that decisions are appealed from state courts. United States Federal law applies in the USVI. The United States and the USVI share common monetary, defense and postal systems. The USVI has a land area of approximately 84 square miles and has a population of approximately 102,000 people. The population is divided in three islands: St. Thomas (with a population of approximately 46,000 people), St. Croix (with a population of approximately 50,000 people) and St. John (with a population of approximately 6,000 people). SALES AND MARKETING Through its direct and indirect distribution channels and aggressive advertising, the Company targets subscribers. The Company relies on its direct sales force, indirect channels such as dealers, retailers and resellers, sales literature, sponsorship of local events, and substantial television, print and radio advertising campaigns to create awareness of its services and to communicate the benefits and promotional offers associated with it. Sales are targeted at two primary segments: individual and corporate accounts. Each segment has its own dedicated direct sales force. The Company has over 300 employees in sales and marketing functions. Direct sales, including corporate accounts, represented over 50% of the Company's total sales in 1996. The 120-person direct sales force is distributed among twelve fixed sales and service centers throughout Puerto Rico and the USVI, with five in San Juan/Caguas, one in Ponce, one in Fajardo, one in Arecibo, one in Mayaguez and three in the USVI, as well as four kiosks located in major shopping centers, 19 mini-kiosks inside large retail stores (WalMart, Sams, Western Auto) and four mobile units. The sales and service centers are designed for up-market consumers, have convenient hours of operation, and the ability to sell and service cellular telephones while the customer waits. The sales and service centers also play a major role in the Company's ability to provide superior customer service. See "--Customer Service." In addition, the Company utilizes a network of carefully selected independent dealers and large retailers (such as Sears and Radio Shack) which accounted for over 40% of the Company's new activations in 1996. Currently, resellers account for only a small percentage of new activations. The use of a broad mix of different distribution channels in Puerto Rico gives the Company a widespread marketing presence and provides easy access to its subscriber base while maintaining a premium quality of service to its subscribers. In addition, the Company's growing network of direct sales, dealers and large retailers 36 provide it with strong marketing clout in preparation for upcoming competition. The Company markets its services under the nationally recognized CELLULARONE(R) brand name and its sales and marketing strategy carefully promotes CELLULARONE(R)'s premium brand image. Although the Company employs a segmented pricing approach whereby specific pricing plans are developed to attract different segments of the market, the Company has differentiated itself from the PRTC primarily by offering premium services at premium prices and directing significant efforts toward customer service, technical excellence and advanced calling features. In contrast, the Company believes that the PRTC has tended to compete on the basis of name recognition and appeal to local sentiment. CUSTOMER SERVICE An important element in the Company's business strategy is to provide the highest quality, localized customer service in the individual markets it serves. This is especially significant because, in the Company's view, customer service has not been emphasized by the PRTC. The Company's strict adherence to superior quality service is reflected by the 96% overall satisfaction rating--the highest in the United States--it received from its subscribers in an annual independent survey of customer satisfaction conducted by the Cellular One Group. This rating far exceeded the 86% U.S. national average. The Company has introduced a full-service program utilizing customer service representatives and local customer service centers in all of its major markets. A recent introduction to the Puerto Rican cellular market, customer service centers are located within existing sales and service distribution outlets, offering a specific, non-sales-oriented point of contact where existing customers can pay their bills, ask questions about their cellular service or hardware, etc. In addition, the Company provides a 24-hour customer service hotline. This full-service policy means that a customer service person is available at all times to answer inquiries and to respond rapidly to customer emergencies. The Company proactively implements fraud detection and sophisticated prevention mechanisms to protect its subscribers and in 1992 implemented the Coral System's Fraud Buster program. Through programs such as this, the Company has taken a leading role in the industry to educate the public about the growing problem of cellular telephone fraud and how to detect and prevent its occurrence. In addition, through its participation in the NACN, the Company is assured that only bona-fide subscribers enjoy roaming services. As a result of all of its efforts, the Company maintains one of the lowest percentages of fraud losses in the industry. The Company also employs a proactive, segment-driven approach to customer retention and loyalty, beginning with a "welcome call" shortly after a subscriber receives its first bill. Subsequently, each subscriber is classed according to segment (corporate or individual), usage (high, medium, low), tenure, payment history, etc., and subsequent contact patterns and methods depend on a subscriber's class. This allows the Company to cost effectively service and satisfy its subscriber base according to their value to the Company. CELLULAR TECHNOLOGY Cellular mobile radio technology was developed to provide high quality, high capacity mobile and portable telephone systems. In a cellular telephone system, the service area is subdivided into smaller geographic areas or "cells." Each cell has its own relatively low power transmitter and receiver that communicates by radio signal with cellular telephones located in the cell. Each cell is connected by microwave or telephone line to a MTSO, which in turn is connected to the worldwide telephone network. See "--Regulation-- Federal Communications Commission Regulation" for the interconnection arrangements with the worldwide telephone network. 37 When a cellular subscriber in a particular cell dials a number, the mobile telephone sends the call by radio to the cell's transmitter/receiver, where it is sent to the MTSO. The MTSO then completes the call through its connection with the landline telephone network. Conversely, incoming calls are received by the MTSO, which instructs the appropriate cell to complete the communications link by radio signal between the cell's transmitter/receiver and the cellular telephone. The MTSO controls communications within the cellular system, including the "hand-off" process as a cellular telephone moves from one cell to another. In this process, the system recognizes that a cell boundary has been crossed, finds an available channel in the new cell, and transfers the call to that channel--all within a fraction of a second. Cellular telephone systems have a high capacity because of the substantial frequency spectrum generally allocated for the purpose of cellular service by the FCC and because all frequencies can be reused throughout the system. Frequency reuse is possible because the transmission power of cell site equipment and mobile units is relatively low and signals on the same channel will not interfere with each other if they are transmitted in cells that are sufficiently far apart. Reuse multiplies the number of channels available to the system operator and thereby increases the telephone calling capacity. A cellular licensee may also use its cellular frequencies to provide paging, data transmission, and other services so long as the provision of these services does not impair its ability to provide cellular service, cause interference to other cellular licensees and, when required, has the appropriate regulatory approval. NETWORK AND SYSTEM CONSTRUCTION The Company designs its network in order to ensure quality service and maximum geographic coverage. The Company's network was designed specifically for the Puerto Rico market, using management's accumulated knowledge gained from developing a network of over 500 cell sites in Ohio and Michigan and using extensive geographic and engineering studies. The Company has completed a network that, as of December 31, 1996, included approximately 78 cell sites and two MTSOs covering over 90% of the population of Puerto Rico and the USVI. Engineering and system construction is carried out by approximately 85 employees. Cell sites are equipped with a digital-ready Northern Telecom Inc. analog radio system. Digital TDMA was installed in 1995. Digital technology offers many advantages over analog technology, including substantially increased capacity, lower costs and the opportunity to provide enhanced services such as improved data transmission. The Company has introduced and distributed to selected groups of subscribers, including internal users, dual mode phones using the TDMA format for digital signaling. Because existing analog cellular telephones will not be able to receive digital transmissions from the base station, the Company expects that the transition from analog to digital will be phased in over a number of years, during which time the system will maintain both analog and digital transmitting equipment and will thus be able to serve both analog and digital forms of cellular telephones and transmitting equipment. In order to hasten cell site commissioning, increase network reliability and reduce ongoing operating costs, the Company has built its own digital microwave transmission network to connect its cell sites and switches. The backbone of the network is a ring around the mountainous regions, providing substantial capacity (135 Mb/sec). The ring network provides redundant communication paths to ensure minimal network disruption in the event of a cell site outage and spurs provide at least 6 Mb/sec of capacity to each cell site. The Company resells spare capacity on this network to major telecommunications users. The Company uses a UNIX-based Computer Automated Design system to choose the proper network configuration that will provide maximum capacity and service reliability in the island's heavily populated coastal areas. The design is based on the ring network concept, which provides a good fit with Puerto Rico's topography. In addition, to test the network design, the Company uses a performance testing system to predict and measure signal levels. By utilizing proper network design and system testing techniques, the Company's completed network provides similar geographic coverage to the PRTC with fewer cell sites and with greater service reliability. 38 Cellular systems are capital intensive, requiring significant levels of investment for equipment, construction and cell site acquisition. As of December 31, 1996, the Company had operating plant and equipment and construction-in-progress with a historical cost of approximately $118,000,000. SOURCES OF REVENUE The cellular mobile telephone services available to customers and the sources of revenue available to a system operator are similar to those available with standard home and office telephones. Cellular telephone subscribers are charged separately for monthly access, air time, toll calls and custom calling features such as voice mail, call forwarding, call waiting and third party conferencing. Cellular telephone subscribers are generally responsible for purchasing or otherwise obtaining their own cellular mobile telephone. Paging subscribers are charged on a monthly basis for service and are generally responsible for purchasing their own pager. The Company also generates some revenue from the resale of its digital transmission network. When service is provided to "roamers" (i.e., registered customers of a cellular system other than the Company's cellular system that place calls on the Company's cellular system), the Company charges a daily access fee and the roamer air time rate, which is typically higher than standard usage rates. Roaming is an added service offered by the Company which allows a customer to place or receive a call in a cellular service area away from the customer's home market area. The Company has entered into "automatic roaming agreements" with operators of other cellular systems covering most of the U.S. cellular systems. These reciprocal agreements allow a subscriber of a participating system to roam (i.e., travel) into a Company market and make and receive calls on the Company's system. The charge for this service is billed by the Company to the subscriber's home system, which then bills the subscriber. Roamers from systems that do not participate in this arrangement are routed to an outside service bureau which completes the call upon the receipt of a valid credit card number. The Company receives a fee from the service bureau for each completed call. The Company provides roaming services under the NACN, which allows calls to and from roamers from systems who participate in NACN to be delivered automatically without the use of access codes. NACN also provides such roamers the ability to use their custom calling features in roaming markets. The FCC has recently asked for comment on whether it should mandate automatic roaming among all broadband wireless operators to the extent technically feasible. It is not possible to predict the outcome of this proceeding at this time. The cellular telephone industry is typically characterized by high fixed costs and low variable costs. Therefore, once revenues exceed fixed costs, incremental revenues should yield a high incremental operating profit. In addition, once initial system capacity has been reached, additional cellular system capacity can be added in increments that closely match demand and at less than the proportionate cost of the initial capacity. PATENT, COPYRIGHTS AND LICENSES The Company does not have any patents or copyrights nor does the Company believe patents or copyrights play a material role in its business. Other than the Company's FCC licenses, the Company's only license is for the use of the service mark and trademark CELLULARONE(R), which is also licensed to many of the non-wireline systems in the United States. In 1992, the owners of such mark entered into a new agreement with the Company, with an effective twenty- year term, under which the Company is required to maintain certain service quality standards. Under this agreement, the Company is required to pay licensing and other fees for the use of the service mark. The total fees paid in the year ended December 31, 1996 were $202,000, which were determined by the size of the Company's markets. COMPETITION FCC rules formerly provided that two licensees will be authorized to provide service in each market. PRTC is one of the licensees (the "Wireline Licensee") in each Puerto Rico market. VitelCellular, Inc., an affiliate of Virgin Islands Telephone Company (the provider of landline telephone service in each market in the USVI) is the Wireline Licensee in each USVI market. The second authorization in each of Puerto Rico and the USVI was available for applications by a non-telephone company carrier (the "Non-Wireline Licensees"). The Company 39 is a Non-Wireline Licensee. The FCC's regulation of cellular system licensing, construction and operation is substantially the same for both the Non-Wireline Licensee and the Wireline Licensee. Each Licensee is assigned 25 megahertz of the radio spectrum, which is further divided into 416 two-way channels. Given the cellular market duopoly, the Company faces facilities-based competition in each of its Puerto Rico markets from the PRTC and in each of its USVI markets from VitelCellular, Inc. Although the cellular services offered by the Company, the PRTC and VitelCellular, Inc. are similar in terms of price, the Company has attempted to differentiate itself from the PRTC and VitelCellular, Inc. by directing significant efforts toward customer service, technical services and calling features. The PRTC and VitelCellular, Inc. are significantly larger and better capitalized than the Company. The Company believes the PRTC currently provides service to approximately 56% of the subscribers of cellular service in Puerto Rico. In the USVI, the Company believes that VitelCellular, Inc. currently provides service to approximately 45% of the subscribers of cellular service in the USVI. In 1990, the Commonwealth of Puerto Rico attempted to sell the PRTC to an independent third party, but did not consummate such a transaction. The Commonwealth has halted this process, but there can be no assurances that it will not again attempt to sell, or otherwise alter its ownership of the PRTC. Such sale could be to another experienced cellular operator or to a telecommunications company, such as an affiliate of a Bell Operating Company ("BOCs"). Given that the FCC-defined markets and the technical standards are the same for both licensees in a market, the Company believes that its ability to make and implement decisions rapidly and its customer service oriented strategy should enable it to compete effectively with the PRTC or any other competitor. Broadband PCS will in the near future be competitive with cellular services. Broadband PCS is a digital, wireless communications service consisting of a variety of new mobile and portable services and technologies, such as small, lightweight telephone handsets that work at home, in the office, or on the streets; portable, wireless facsimile machines; wireless electronic mail services; advanced paging techniques; and other wireless communications services. Broadband PCS base stations are expected to deploy a large number of low power base stations to take advantage of the radio propagation characteristics of the 2 GHz spectrum. Accordingly, more PCS base stations than cellular base stations will be needed to cover a particular area; although PCS facilities are expected to cost less than comparable cellular facilities. The FCC has allocated 120 MHz of 2 GHz spectrum for broadband PCS and has commenced licensing the service to the public pursuant to three separate consecutive auctions. In the first broadband PCS auction, approximately 30 different companies were granted a total of 102 MTA 30 MHz licenses on June 23, 1995. On May 6, 1996, the FCC concluded its second broadband PCS auction of 493 smaller Basic Trading Area ("BTA") 30 MHz licenses. Eligibility for this auction was limited to applicants meeting certain financial qualifications. Grant of these BTA licenses created a third broadband PCS service provider in the markets served by the Company. On January 14, 1997, the FCC concluded the final broadband PCS auction for 1,479 10 MHz BTA licenses. One block of those licenses (493 authorizations) was reserved for applicants meeting certain financial qualifications. In late 1995, American Personal Communications, Inc. launched the first PCS service to the Washington, D.C. MTA, and several more broadband PCS licensees commenced service in late 1996. In total, the FCC will award six broadband PCS licenses by auction in each market, with each licensee holding either 10 MHz, 20 MHz, 30 MHz, or 40 MHz of spectrum in the service areas larger than most individual cellular markets. Eligible entities are permitted to aggregate up to 45 MHz of commercial mobile radio services spectrum in any given area. Thus, the Company, the PRTC, and VitelCellular, Inc. are eligible for 20 MHz each of PCS spectrum in their cellular markets. Like cellular licensees, PCS licensees will also be permitted to aggregate markets to create regional and national systems. In addition, the FCC recently modified its rules to permit broadband PCS licensees to disaggregate their spectrum or geographically partition their service areas. Therefore, the auction winners in Puerto Rico and the USVI may now sell blocks of their spectrum or portions of their service areas to other competitors. Cellular licensees are currently permitted to geographically partition their license areas and the FCC has proposed to allow them to disaggregate their spectrum in the same manner as PCS licensees. 40 The FCC completed the first auction process for broadband PCS in March 1995. The principal winners in the first PCS auction, which consisted of two 30 MHz licenses in each of 51 MTAs comprising the entire United States, are large telecommunications companies such as AT&T, the BOCs, major cable television companies and large independent telephone companies. The Company cannot predict the nature or extent to which PCS will actually develop as a viable competitor. In the Puerto Rico-Virgin Islands MTA, the two high bidders were AT&T and Centennial Cellular Corp. ("Centennial"). Upon construction of their PCS systems, AT&T and Centennial will each eventually be able to provide a single seamless system overlapping the Company's system. Centennial began marketing its PCS services in December 1996. In the recently-concluded D-F block PCS auction, the PRTC and VitelCom, Inc., an affiliate of VitelCellular, Inc., each purchased 10 MHz licenses that cover their respective cellular service areas. Accordingly, after the FCC completes the licensing process, each of these companies will hold 35 MHz of wireless spectrum in their regions. The remaining D, E, and F blocks PCS licenses were acquired by entities unaffiliated with existing wireless providers in Puerto Rico and the USVI. The FCC has also issued local and nationwide licenses in the 220-222 MHz band for the provision of land mobile service. These licenses are expected to provide various one-way acknowledgement, and certain two-way voice and data services. Further, the FCC has completed the licensing of "narrowband PCS" in the 900 MHz band, which includes, among other services, data messaging, advanced one-way and two-way paging, and facsimile. The messaging and paging services are expected to include electronic mail and digitized voice messages. These licenses were issued by auction on a local, regional, and national basis, including in the Company's markets. Narrowband PCS will likely be competitive with the Company's paging operations. Cellular telephone systems also face competition from, among others, SMR systems. Although the rules for SMR service permit interconnection with the landline network, the Company believes that SMR has been most effective as a two-way radio (i.e., dispatch) service. Several SMR companies have received waivers from the FCC of certain rules to permit them to overcome certain technological limitations and offer service that is more competitive with cellular service, including the use of digital technologies. This service is known as enhanced SMR ("ESMR"). The waivers issued by the FCC are specific to certain large markets, none of which are in Puerto Rico or the USVI. The FCC has recently adopted rules applicable to SMR services in the 800 and 900 MHz band to enable the creation of seamless regional or national SMR systems similar to those which it has authorized under the waiver process. With respect to the 800 MHz spectrum, on December 15, 1995, the FCC issued new rules that establish a new category of 175 license service areas covering the U.S. known as "EAs" for SMR licensees operating on three spectrum blocks comprised of a total of 200 channels at 800 MHz (10 MHz total). The FCC established three additional EA licensing regions for the five U.S. possessions. EAs will be available in three spectrum blocks: a 120-channel block, a 60-channel block and a 20-channel block. Like the rules applicable to other commercial wireless services such as cellular, 800 MHz SMR licensees will now be able to construct on any available site within the EA and add, remove, or relocate site locations within the EA during the license term without prior FCC approval. EA's will be permitted to use any spectrum within the EA service area that is recovered by the FCC from an incumbent SMR licensee in the event of termination of the incumbent's license. In addition, 525 EA licenses will be awarded for the upper 200 channels by a single simultaneous multiple round auction. With respect to the 900 MHz spectrum, the FCC adopted a licensing scheme that divides the 900 MHz SMR band into 20 ten- channel blocks in each of 51 service areas based on Major Trading Areas ("MTAs"). SMR licensees will have the flexibility to construct or modify their facilities similar to the rules applicable to cellular licensees. These rules have the potential to increase the ability of SMR to compete with cellular. In the same rulemaking proceeding the FCC also adopted rules applicable to the auctioning of the MTA licenses in the 900 MHz SMR service. A total of 1,020 MTA licenses were awarded in the 900 MHz SMR service. The FCC closed the 900 MHz spectrum auction in April 1996. Technological advances in the communications field continue to make it impossible to predict the extent of future competition for cellular services. For example, the FCC has licensed three mobile satellite systems and 41 has pending two additional systems in which transmissions from mobile units to satellites would augment or replace transmissions to cell sites. There are a number of large, well-financed entities involved in the mobile satellite business. One international investment consortium, Iridium LLC, has stated its intent to provide a cellular-type telephone service via satellite technology that will be available anywhere in the world beginning in September 1998. Iridium also plans to offer a means of roaming among the world's major ground- based cellular phone standards. A rocket launch mishap has caused Iridium to delay the launch date of the first three of 66 satellites from January 1997 to May 1997. Potential satellite competitors to Iridium include Globalstar LP, which has announced its intention to be in operation by 1999; ICO Global Communications LP; and Odyssey, a 12-satellite system developed by TRW Inc. In addition, the FCC has recently allocated additional spectrum for use by the Mobile-Satellite Service to provide mobile communications services. According to the FCC, ten companies already have expressed an interest in utilizing this spectrum. The FCC has also authorized Basic Exchange Telecommunications Radio Service, which allows telephone companies to replace the local loop portion of their facilities with a radio link, to make basic telephone service more accessible to rural households and businesses. Further, various other FCC rulemaking proceedings may affect the manner in which radio frequency spectrum will be allocated among the various potential competitors of cellular service. For example, the FCC has adopted rules allocating 25 MHz below 5 GHz for commercial fixed and mobile radio services which could eventually compete with cellular. The FCC has also adopted rules allocating a portion of the spectrum above 40 GHz for commercial radio service some of which could compete with cellular. There can be no assurance that existing cellular operators will be permitted to receive licenses for such spectrum, or that the adoption of auctions would not increase the cost to the Company of obtaining such licenses or their renewal. In addition, Congress recently allocated 30 MHz of spectrum in the 2.3 GHz band, and the FCC has proposed that virtually any wireless service be permitted on this band. Congress has mandated that the auction for these licenses be completed and all money collected by September 30, 1997. In the auction, which commenced on April 15, 1997, two types of licenses have been made available: (1) two 10-MHz blocks in each of 46 Major Economic Area Groupings ("MEAs"); and (2) two 5-MHz blocks in each of 11 Regional Economic Areas ("REAGs"). Puerto Rico and the U.S. Virgin Islands will constitute a single MEA and a single REAG for initial licensing purposes. Because the FCC has adopted restrictive out-of-band emission limits for WCS spectrum, which it believes will render WCS spectrum technologically infeasible for mobile operations, WCS licensees will probably not present significant competition to the Company's operations for the foreseeable future. Other technological advances or regulatory changes in the future may make available other alternatives to cellular service, thereby creating additional sources of competition. REGULATION Federal Communications Commission Regulation. The Communications Act of 1934 (the "Communications Act") requires cellular system, paging system and microwave station operators such as the Company to obtain authorization from the FCC prior to constructing or operating their systems. For cellular licensing purposes, the FCC divided the United States, including Puerto Rico and other areas under the FCC's jurisdiction, into separate geographic markets, known as MSAs and RSAs. Licenses have been issued in all 306 MSAs and in all 428 RSAs. There are no pre-designated microwave markets. Applicants may apply for microwave licenses anywhere they seek to provide microwave services, provided that operation of the microwave facility at that location will not cause interference to other parties. When the initial phase of a cellular system has been constructed in an authorized manner, the licensee is required to notify the FCC that construction has been completed before it is authorized to offer commercial service to the public. The licensee then is said to have "operating authority" and is issued an operating license. The Company has obtained operating authority for each of its currently operating cellular systems. Initial licenses are granted for 10-year periods and are renewable upon application to the FCC for periods of 10 years. The Company's initial operating licenses for its systems were issued in 1988 through 1993. Licenses may be revoked and license renewal applications denied for cause. Prior to the expiration of its license term, each 42 cellular licensee seeking renewal must file an application. Other parties seeking authorization to serve the licensee's market may also file competing applications. The FCC has ruled that an incumbent licensee would receive a "renewal expectancy" if, during its license term, (i) its performance has been "substantial," defined as "sound, favorable, and substantially above a level of mediocre service;" and (ii) it had substantially complied with applicable FCC rules, policies, and the Communications Act. Under rules currently in effect, in granting a license renewal, the FCC would compare competing applications at a hearing in which the incumbent's renewal expectancy is the most important factor. The FCC has also adopted rules which would award an incumbent its license renewal and not require a full comparative hearing if the incumbent qualifies for a renewal expectancy. The FCC may grant an uncontested renewal application without conducting a comparative hearing or finding a renewal expectancy. There can be no assurance that a license will be renewed. The FCC has adopted regulations regarding auctions for the award of radio spectrum licenses. Pursuant to such rules, the FCC at any time may require auctions for new or existing services prior to the award of any license. Accordingly, the Company can give no assurance with respect to its continued ability to procure additional frequencies or to expand existing services using frequencies for which the Company is licensed into new geographic areas. Under FCC rules, the authorized cellular service area for the Company in each of its markets is referred to as the "cellular geographic service area" or "CGSA." The boundaries of the CGSA are determined by a mathematical formula that is a function of transmitting station effective radiated power and antenna height. The CGSA may be coincident with, smaller than, or in some cases larger than the related MSA or RSA boundary. The right to serve areas which fall within the licensee's MSA or RSA but outside of its CGSA is exclusive to such licensee for a period of five years from the grant of its initial construction permit. As licensees serve such areas, their CGSAs will be extended to cover the additional served areas inside the MSA or RSA and, in some cases, area beyond the MSA/RSA boundary. Although overlapping service areas are common, under rules adopted by the FCC in 1993, service area extensions into the CGSA of a neighboring system on the same frequency block must be withdrawn from such CGSA at the request of the neighboring licensee. At the conclusion of the initial five-year construction period any entity, including the licensee, may file with the FCC an application to serve the "unserved areas," of that MSA or RSA which are outside of the licensee's CGSA; subject to certain restrictions. The FCC has begun accepting and granting applications for unserved areas pursuant to lottery and recently has adopted rules for auctioning other unserved areas. The Company has determined that there are no significant unserved areas within its licensed markets. There are no unserved areas in Puerto Rico currently on the FCC's slate to be auctioned. In a comprehensive rewrite of its rules applicable to cellular service, effective in 1995, the FCC revised the rules to allow cellular carriers more flexibility to operate their systems. For example, except in limited circumstances (i.e., environmental concerns), licensees will only have to notify the FCC of new or modified transmission facilities that result in an extension outside of the licensees' authorized CGSA. The Communications Act requires telecommunications common carriers to file and maintain with the FCC tariffs describing rates, terms and conditions under which their international telecommunications services are offered to the public. Accordingly, the Company must file tariffs for international telecommunications services that it proposes to offer. These tariff filings qualify for streamlined regulations. Two subsidiaries of the Company have filed tariffs for provision of international long distance resale services. The FCC's rules also prohibit common carrier licensees from imposing restrictions on the resale of service by third parties who purchase blocks of mobile telephone numbers from an operational system and then resell them to the public. The Company currently provides service to third party resellers. The FCC recently extended this nondiscriminatory resale requirement to broadband PCS and certain SMR licensees. Further, under this new policy, all resale obligations for cellular, broadband PCS and SMR operators will terminate five years after the date that the last group of initial PCS licenses are granted. On February 8, 1996, Congress enacted the Telecommunications Act of 1996 (the "1996 Act"), which effected a sweeping overhaul of the Communications Act. In particular, the 1996 Act substantially amended Title II of the Communications Act, which governs common carriers. The 1996 Act imposes a duty on all 43 telecommunications carriers including cellular to interconnect with the facilities of other telecommunications carriers. Only incumbent local exchange carriers ("LECs") are required to provide "direct" interconnection with their facilities, however. In addition, the 1996 Act requires that interconnection be the subject of good faith negotiations leading to voluntary agreements that must be filed with and approved by state commissions. Moreover, the 1996 Act establishes certain guidelines for the manner in which LECs may charge for providing interconnection services (e.g., tandem switching, transport and termination) and provides that LECs must pay wireless providers, including cellular and paging operators, for termination of landline-originated calls. Furthermore, provisions of the 1996 Act may qualify PRTC for a suspension of certain interconnection obligations. In exchange for opening their local loops to competition, the 1996 Act permits the BOCs, which previously had been prohibited from providing interLATA services (i.e., long distance services), to provide such services, including, but not limited to, the provision of interLATA services in connection with commercial mobile radio service ("CMRS"). In addition, the 1996 Act permits registered public utilities to provide cellular and other telecommunications services through separate affiliates authorized by the FCC as "exempt telecommunications companies." As directed by the 1996 Act, in August 1996, the FCC issued comprehensive rules regarding the introduction of competition into the local telephone market. These rules address most aspects of the provision of competitive local telephony services from both facilities-based and non-facilities-based competitors, including cellular and paging operators. The rules address the process by which potential competitors negotiate with incumbent telephone companies for interconnection, the facilities that must be available for interconnection, the use of components of the incumbents' networks (referred to as "unbundled access"), the resale of services of others, and the pricing of interconnection and other services and facilities used for offering competitive local telephone services. The rules also provide that incumbent LECs, such as the PRTC and the Virgin Islands Telephone Company, must begin paying the Company and other wireless providers immediately for terminating landline-originated traffic on the wireless facilities. In October 1996, after an appeal by the BOC's and other incumbent local exchange carriers, the U.S. Court of Appeals for the Eighth Circuit stayed certain aspects of the FCC's rules (primarily affecting the pricing provisions) after arguments were made that the FCC may have exceeded its jurisdiction. Two weeks later, the Eighth Circuit lifted the stay with regard to some of the FCC's rules affecting compensation for CMRS providers. In addition, numerous parties have sought reconsideration of the FCC's rules. Going forward, the manner in which the FCC changes these rules, whether due to the legal mandate of the Court or due to changes it makes on reconsideration, may affect substantially the pace and development of wireless services. Notwithstanding the Eighth Circuit's stay of some of the FCC's regulations regarding rates and terms for interconnection with incumbent LECs, the Company has continued negotiations initiated on September 20, 1996 to replace its existing interconnection agreement with the PRTC with an interconnection agreement at rates, terms and conditions consistent with the 1996 Act. The Company currently interconnects with the PRTC pursuant to an agreement that does not reflect the rates, terms, and conditions that the Company is entitled to under the 1996 Act. The current effort to negotiate a new agreement has failed to produce agreement on all material terms, and consequently, pursuant to the 1996 Act and the FCC's implementing regulations, the Company filed a Petition for Arbitration with the Puerto Rico Telecommunications Regulatory Board (the "Board") on February 27, 1997. The Board will commence arbitration hearings on May 13, 1997 and is required to act on the Company's petition by June 20, 1997. The results of any arbitration or further negotiations between the Company and the PRTC cannot be predicted at this time. Following enactment of the 1996 Act, no CMRS provider, including those owned or affiliated with BOCs, are required to provide equal access to long distance service providers. The 1996 Act, however, does permit the FCC to impose rules requiring CMRS providers to afford subscribers unblocked access to a long distance provider of their choice through the use of carrier identification codes or other mechanisms, but only if the FCC determines that cellular and other CMRS subscribers are being denied access to their chosen long distance 44 providers and that such denial is contrary to the public interest. It cannot be predicted whether the FCC will subsequently order cellular carriers and other CMRS providers to provide such unblocked access. The overall impact of the 1996 Act on the business of the Company is unclear and will likely remain so for the foreseeable future. The Company may benefit from reduced costs in acquiring required communications services, such as LEC interconnection. However, other provisions of the 1996 Act relating to interconnection, telephone number portability, equal access and resale could subject the Company to increased competition. Several of the Company Entities also hold point-to-point common carrier microwave licenses to transport the Company's traffic. These licenses have been issued by the FCC for specified terms, and the licensed facilities, as well as proposed new microwave facilities, must be authorized by the FCC and operated in accordance with the FCC regulations. FCC rules had provided for a universal expiration date every 10 years for all common carrier microwave licenses, regardless of when they had been issued, with the next expiration occurring in February 2001. Under new rules that became effective in August 1996, licensees may select either a full 10-year license term dating from the original issuance, modification or renewal of license or a term of less than 10 years to allow for consolidated renewal application filings. Microwave renewal applications are not subject to comparative proceedings. There can be no assurance that a license will be renewed. Alien Ownership. Section 310(b) of the Communications Act of 1934, as amended, places significant restrictions on alien ownership in and involvement with any companies that use electromagnetic spectrum frequencies under the FCC's broadcast or common carrier authority. Section 310(b)(3) of the Act places an absolute prohibition on aliens owning or voting more than 20 percent of the capital stock of any corporation holding such a license. Section 310(b)(4) prohibits aliens from owning or voting more than 25 percent of the capital stock of any holding company of such a corporate licensee. The FCC has statutory discretion to refrain from applying the holding company proscriptions of Section 310(b)(4) in a particular case if it determines that doing so would not adversely affect the public interest. Through examination of a recent list of the record holders of the outstanding stock, the Company is not aware of alien ownership of its outstanding stock that would cause it to be in violation of the Communications Act. However, a large percentage of the Common Stock is held in nominee name and, accordingly, the Company is not aware of the citizenship of the actual beneficial owners of such shares. The FCC has determined that it will apply an "effective competitive opportunities" test in the exercise of its statutory discretion to permit indirect alien ownership of more than a 25% interest in a common carrier licensee. If the FCC finds that U.S. investors are permitted to own an interest greater than 25% in a communications carrier offering similar services in the alien investor's home market, it will generally permit that alien to own an equivalent interest in a U.S. licensed common carrier. Other factors, such as the promotion of competition in the U.S. market and national security concerns, may affect this determination. Puerto Rico and USVI Regulation. On September 12, 1996, the Governor of Puerto Rico signed into law Puerto Rico Bill 1500, the Puerto Rico Telecommunications Act of 1996 ("P.R. Telecom Act"). The P.R. Telecom Act created the Board. The Board has primary regulatory jurisdiction in Puerto Rico over all telecommunications services, all service providers, and all persons with a direct or indirect interest in said services or providers. On October 17, 1996, the three members of the Board, having been selected by the Governor of Puerto Rico, were sworn in. Among other things, the P.R. Telecom Act provides the Board with the power to guarantee the availability of universal service, ensure the reliability of telecommunications services, guarantee services to rural areas, and promote competition. In this regard, the law requires all providers of telecommunications services, except commercial mobile radio services providers, to obtain certification to do business in Puerto Rico and directs the Board to adopt regulations specifying the form, contents, and procedures for such certification. Entities must be certified to obtain access to government-owned property or notice of proposed Board regulations. In addition, the P.R. Telecom Act provides interconnection to their facilities at any technically feasible point in their networks at cost-based rates. The P.R. Telecom Act provides detailed instructions regarding the procedures for interconnection between the PRTC and other telecommunications 45 providers. Finally, the P.R. Telecom Act requires telecommunications providers to submit fee and price lists to the Board and gives the Board jurisdiction to impose fines if rates to end users are not cost-based. The Company and two other telecommunications providers in Puerto Rico have filed petitions with the FCC alleging that the P.R. Telecom Act constitutes impermissible regulation of CMRS providers by enacting numerous statutory provisions that operate as barriers to entry and to the continued participation of CMRS providers in Puerto Rico. These companies argued that the P.R. Telecom Act violates the Omnibus Budget Reconciliation Act of 1993 ("1993 Budget Act") which prohibits states, including Puerto Rico and the USVI, from regulating rates charged for cellular service unless and until the state files with the FCC, and the FCC grants, a petition demonstrating that such rate regulation is necessary to protect subscribers adequately from unjust and unreasonable rates or rates that are unjustly or unreasonably discriminatory. The FCC is required to act on any such petition within nine months from the date it is filed. Neither Puerto Rico nor the USVI have filed any such petition. In addition, the petitions allege that the P.R. Telecom Act permits the Board to regulate the entry of CMRS providers into the Puerto Rico market, in violation of the 1993 Budget Act's prohibition on state entry regulation. Similarly, the petitions assert that the P.R. Telecom Act is contrary to the 1996 Act, which requires the FCC to preclude enforcement of state laws and regulations that prohibit or have the effect or prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service. The FCC has initiated a proceeding regarding these requests for preemption of the P.R. Telecom Act. At this time, the Company is unable to predict the outcome of this proceeding. The foregoing does not purport to be a complete summary of all the provisions of the Communications Act or the 1996 Act or the regulations and policies of the FCC promulgated thereunder or of all the provisions of the applicable Puerto Rico and USVI local laws, regulations or policies that relate to cellular telecommunications services. Other Regulation; Safety. In addition to FCC and other regulatory approvals discussed above, the siting and construction of the cellular transmitter towers and antennas are subject to certain FAA regulations. The Company has obtained FAA clearance for the construction of antenna structures where such approval is necessary. The siting and construction of cellular communications facilities requires land use and construction approval in Puerto Rico and in the USVI. In the past the Company has experienced delays in receiving the required approvals in Puerto Rico. The 1996 Act prohibits the FCC from preempting local and state regulations of the siting and construction of antenna towers for commercial mobile radio service providers except in certain limited circumstances. Media reports have suggested that certain RF emissions from portable cellular telephones might be linked to cancer. The Cellular Telecommunications Industry Association, as a result of industry concern, has asked the Federal Food and Drug Administration and the Environmental Protection Agency to appoint a panel of experts to review and revalidate the previously existing research that established the safety of cellular telephones, and which had resulted in an FCC determination in 1987 that microwave and cellular radio transmissions did not pose a material health hazard. The FCC recently adopted new standards governing the emission of electromagnetic frequencies, including those used by cellular systems, which are scheduled to become effective in September 1997. In certain respects, these standards are more stringent than existing regulations. While the rules impose more restrictive standards on radio frequency emissions from low power devices such as portable cellular telephones, the Company believes that all cellular telephones currently marketed and in use comply with those standards. CUSTOMER DEPENDENCE AND SEASONALITY The Company is not dependent upon any single customer for any significant portion of its business. The Company's business, as well as the cellular communications industry, is not generally characterized as having a material seasonal element and it is not expected to become seasonal in the foreseeable future. 46 EMPLOYEES As of December 31, 1996, the Company and its subsidiaries had an aggregate of approximately 740 employees. No employees are represented by any labor organization. The Company believes that its relationship with its employees is excellent. INTERCOMPANY ADMINISTRATION AND MANAGEMENT AGREEMENTS Under the terms of the Administration and Management Agreements, each of the Company Entities agreed to share, on an allocated basis, all the direct and indirect costs associated with the operation of the Company's Puerto Rico cellular system. Currently, Services is the principal operating subsidiary of the Company that operates and manages the Puerto Rico cellular system. The purpose of operating the Company's cellular system in this fashion is to enable a single company to efficiently manage multiple cellular systems. The Company Entities hold the various FCC and other licenses and permits necessary to operate the Company's Puerto Rico cellular system. The Administration and Management Agreements require the Company Entities to reimburse Services for their allocable share of system expenses and to make additional payments to Services based on allocable shares of revenue and capital costs pursuant to agreed formulas. Such payments include a "Capital Usage Fee" based on 3% of direct and allocated capital costs and an "Administrative Fee" equal to 2% of allocated revenues of the Operating Entity. There is no financial effect on the Company from Administration and Management Agreements because the agreements only allocate costs among Services and the Company Entities. PROPERTY Certain of the Company's subsidiaries lease office space, sales and service centers and warehouse space in Puerto Rico and in the USVI. In addition, the Company Entities and other subsidiaries either own or lease transmitter sites and lease a cellular switch site. The loss of any of these leases, either because of a failure to obtain a renewal of a lease or for any reason not known or anticipated by the Company, could have an adverse effect on the Company's cellular operations until a substitute site could be found. The Company believes that the properties that are currently under lease or owned by the Company are adequate to serve its present business operations and its goals of providing continuous coverage throughout Puerto Rico and the USVI, although the Company may require additional properties for new cell sites and sales and service centers as demand for cellular service increases. See the Notes to the Company's Consolidated Financial Statements for information concerning lease commitments. LEGAL PROCEEDINGS The Company is involved in various disputes, arising in the ordinary course of business, which may result in pending or threatened litigation. The Company's management expects no material adverse effect on the Company's financial condition to result from these matters. 47 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The directors and executive officers of the Company and their ages and positions with the Company are set forth below:
NAME AGE POSITION ---- --- -------- George S. Blumenthal.. 53 Chief Executive Officer, Treasurer and Chairman of the Board of Directors (Principal Executive Officer) J. Barclay Knapp...... 40 President and Director (Principal Operating and Financial Officer) Richard J. Lubasch.... 50 Senior Vice President--General Counsel and Secretary Leigh Costikyan Wood.. 39 Vice President--Operations Gregg Gorelick........ 38 Vice President--Controller (Principal Accounting Officer) Stephen M. Shapiro.... 50 Senior Vice President--General Manager Jose J. Davila........ 40 Vice President--Finance and Administration Sidney R. Knafel(1)... 66 Director Ted H. McCourtney(1).. 58 Director Del Mintz(1)(2)....... 69 Director Alan J. Patricof(2)... 62 Director Warren Potash(2)...... 65 Director
- --------------------- (1) Member of the Compensation and Option Committee (2) Member of the Audit Committee George S. Blumenthal has been Chairman, Treasurer and a director of the Company from and prior to the Distribution and was appointed Chief Executive Officer in March 1994. In addition, Mr. Blumenthal is Chairman, Treasurer and a director of NTL Incorporated ("NTL"), which was formerly known as International CableTel Incorporated. Mr. Blumenthal is also a director of Andover Togs, Inc. Mr. Blumenthal was Chairman, Treasurer and a director of Cellular Communications International, Inc. ("CCII") from its organization until April 1994. Mr. Blumenthal was also Chairman, Treasurer and a director of CCI, which positions he held from CCI's founding in 1981 until its merger in 1996 into a subsidiary of AirTouch Communications, Inc. (the "CCI Merger"). J. Barclay Knapp was appointed President of the Company in March 1994 and has been Executive Vice President, Chief Operating Officer, Chief Financial Officer and a director of the Company from and prior to the Distribution. He is Executive Vice President, Chief Operating Officer and a director of CCII and he is President, Chief Executive Officer, Chief Financial Officer and a director of NTL. Mr. Knapp was also Executive Vice President, Chief Operating Officer, Chief Financial Officer and a director of CCI until the CCI Merger. Richard J. Lubasch has been the Company's Senior Vice President--General Counsel and Secretary from the date of the Distribution. Mr. Lubasch is also Senior Vice President--General Counsel and Secretary of CCII and NTL, as well as Treasurer of CCII. Mr. Lubasch was Vice President, General Counsel and Secretary of CCI from July 1987 until the CCI Merger. Leigh Costikyan Wood has been the Company's Vice President--Operations from the date of the Distribution. She is also Senior Vice President of NTL and Chief Operating Officer of NTL's United Kingdom operations and Vice President--Operations at CCII. Ms. Wood was the Chief Executive Officer of CCI's Ohio and Michigan cellular telephone joint venture with AirTouch Communications, Inc. from April 1993 until the CCI Merger and Vice President-- Operations of CCI from 1984 until the CCI Merger. Ms. Wood is a certified public accountant and holds an M.B.A. from New York University. Gregg Gorelick has been the Company's Vice President--Controller from the date of the Distribution. Mr. Gorelick is also Vice President--Controller of NTL and CCII. From 1981 to 1986 he was employed by Ernst & Whinney (now known as Ernst & Young LLP). Mr. Gorelick is a certified public accountant and was Vice President--Controller of CCI from 1986 until the CCI Merger. 48 Stephen M. Shapiro is President of Services having served as its Senior Vice President-General Manager since 1993. In May 1995, Mr. Shapiro was appointed Senior Vice President--General Manager of the Company. From 1991 to 1993 he was Senior Vice President--General Manager of OCOM Corporation, NTL's predecessor. Jose J. Davila has been Vice President--Finance of Services since July 1992. In May 1995, Mr. Davila was appointed Vice President--Finance and Administration of the Company. From 1990 to 1992, he was Vice President for Financial Affairs of the Ana G. Mendez Foundation and from 1984 to 1990 held the positions of General Auditor and Vice President--Controller of Banco de Ponce, the second largest state bank in Puerto Rico at that time. From 1978 to 1984 he was employed by Peat, Marwick, Mitchell & Co. Sidney R. Knafel, a director of the Company since the Distribution, has been Managing Partner of SRK Management Company, a private investment concern, since 1981. In addition, Mr. Knafel is Chairman of Insight Communications, Inc. and BioReliance Corporation. Mr. Knafel is also a director of General American Investors Company, Inc., IGENE Biotechnology, Inc., CCII, NTL and some privately owned companies. Ted H. McCourtney, a director of the Company from the date of the Distribution, is a General Partner of Venrock Associates, a venture capital investment partnership, a position he has held since 1970. Mr. McCourtney also serves as a director of MedPartners, Inc., CCII, NTL and several privately owned companies. Del Mintz, a director of the Company from the date of the Distribution, is Chairman of the Board and Chief Executive Officer of Tele Trak, Inc. and Cleveland Mobile Radio Sales, Inc., companies providing telephone answering and radio communications services. Mr. Mintz has held similar positions with the predecessors of these companies since June 1967. Mr. Mintz is President of several other companies, and was President and a principal stockholder of Cleveland Mobile Cellular Telephone, Inc. before such company was acquired by a merger with CCI's predecessor in May 1985. Mr. Mintz is also a director of CCII, NTL and several privately owned companies. Alan J. Patricof, a director from the date of the Distribution, is Chairman of Patricof & Co. Ventures, Inc., a venture capital firm he founded in 1969. Mr. Patricof also serves as a director of CCII, NTL and other privately owned companies. Warren Potash has been a director from the date of the Distribution. Mr. Potash retired in 1991 as President and Chief Executive Officer of the Radio Advertising Bureau, a trade association, a position he held since February 1989. Prior to that time and beginning in 1986, he was President of New Age Communications, Inc., a communications consultancy firm. Until his retirement in 1986, Mr. Potash was a Vice President of Capital Cities/ABC Broadcasting, Inc., a position he held since 1970. Mr. Potash is also a director of CCII and NTL. Executive officers of the Company are elected annually by the Board of Directors and serve until their successors are duly elected and qualified. COMPENSATION AND OPTION COMMITTEE Messrs. Knafel, McCourtney and Mintz serve as members of CoreComm's board of directors' Compensation and Option Committee, which reviews and makes recommendations regarding annual compensation for Company officers. Messrs. Mintz, Patricof and Potash serve as members of CoreComm's board of directors' Audit Committee, which oversees the Company's financial reporting process on behalf of the Company's Board of Directors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of the Compensation and Option Committee of CoreComm's board of directors (Messrs. Knafel, McCourtney and Mintz) was at any time an officer or employee of CoreComm. No executive officer of CoreComm serves as a member of the board of directors or compensation committee of any entity which has one or more executive officers serving as a member of CoreComm's board of directors or Compensation and Option Committee. 49 DIRECTOR AND EXECUTIVE COMPENSATION The following table discloses, for the Company's Chief Executive Officer and the four other most highly paid executive officers in 1996, compensation for the years ended December 31, 1996, 1995 and 1994. SUMMARY COMPENSATION TABLE*
LONG-TERM COMPEN- SATION AWARDS ------------- ANNUAL OTHER COMMON COMPENSATION ANNUAL STOCK ALL OTHER ----------------------- COMPENSA- UNDERLYING COMPENSA- NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) TION($)(1) OPTIONS(#)(2) TION($)(3) ------------------ ---- --------- -------- ---------- ------------- ---------- George S. Blumenthal.... 1996 30,000 -- -- -- -- Chairman, Chief 1995 25,000 75,000 -- -- -- Executive Officer and Treasurer 1994 18,000 -- -- 250,000 -- J. Barclay Knapp........ 1996 30,000 -- -- -- -- President, Chief Operating Officer 1995 25,000 50,000 -- -- -- and Chief Financial Officer 1994 18,000 -- -- 250,000 -- Richard J. Lubasch...... 1996 20,000 -- -- 20,000 -- Senior Vice President-- General 1995 16,000 -- -- 20,000 -- Counsel and Secretary 1994 12,000 -- -- 25,000 -- Stephen M. Shapiro...... 1996 166,250 113,200 52,500(a) 50,000 2,000 Senior Vice President-- General 1995 151,250 101,500 67,900(b) 50,000 2,000 Manager 1994 138,750 84,300 44,100(c) 40,000 2,000 Jose J. Davila.......... 1996 120,000 66,000 7,600(d) 20,000 2,000 Vice President--Finance and 1995 107,000 56,800 -- 20,000 2,000 Administration 1994 103,750 49,300 -- 15,000 2,000
- --------------------- * CCI provided management, financial and legal services to the Company until the CCI Merger. Amounts charged to the Company by CCI consisted of salaries and indirect costs allocated to the Company. For the years ended December 31, 1996, 1995 and 1994, CCI charged the Company approximately $429,000, $458,000 and $456,000, respectively. In August 1996, after the CCI Merger, NTL commenced providing management, financial and legal services to the Company. In 1996, NTL charged the Company $207,000. It is not practicable to determine the amounts of these expenses that would have been incurred had the Company operated as an unaffiliated entity. However, in the opinion of management of the Company, the allocation method is reasonable. The named executives had received salaries from CCI and now receive salaries from NTL and spend portions of their time providing executive management to the Company. (1) Other annual compensation reflects perquisites as follows: (a) housing allowance of $38,400 and car allowance of $14,100. (b) housing allowance of $38,400, car allowance of $11,500 and tax equalization of $18,000. (c) housing allowance of $36,200 and car allowance of $7,900. (d) car allowance of $7,600. (2) Options and securities underlying such options are options to purchase shares and shares of CoreComm's Common Stock. (3) All other compensation reflects the Company's match to the defined contribution plan. 50 OPTION GRANTS TABLE The following table provides information on stock option grants during 1996 to the named executive officers.
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR INDIVIDUAL GRANTS OPTION TERM(2) ------------------------------------------------- ----------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO EXERCISE OR OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION 5%($) 10%($) NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE $44.39 $70.69 ---- ------------- ------------ ----------- ---------- ------- --------- George S. Blumenthal.... -- -- -- -- -- -- J. Barclay Knapp........ -- -- -- -- -- -- Richard J. Lubasch...... 20,000 7.97% 27.25 03/25/06 342,805 868,730 Stephen M. Shapiro...... 50,000 19.92 27.25 03/25/06 857,013 2,171,825 Jose J. Davila.......... 20,000 7.97 27.25 03/25/06 342,805 868,730
OPTION GRANTS IN LAST FISCAL YEAR - --------------------- (1) All options were granted on March 26, 1996 at an exercise price equal to the closing price of the Common Stock on Nasdaq on such date; 20% were exercisable upon issuance, 20% became exercisable on January 1, 1997 and an additional 20% will become exercisable on each of January 1, 1998, 1999 and 2000. Upon a change of control of the Company all unvested options become fully vested and exercisable. Options and securities underlying such options are options to purchase shares and shares of CoreComm's Common Stock. (2) The amounts shown in these columns are the potential realizable value of options granted at assumed rates of stock price appreciation (5% and 10%) specified by the Commission, and have not been discounted to reflect the present value of such amounts. The assumed rates of stock price appreciation are not intended to forecast the future appreciation of the Common Stock. OPTION EXERCISES AND YEAR-END VALUE TABLE The following table presents the value at December 31, 1996 of unexercised in-the-money options held by each of the named executive officers. None of the named executive officers exercised options during 1996. FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(1) EXERCISABLE(E)/ EXERCISABLE(E)/ NAME UNEXERCISABLE(U) UNEXERCISABLE(U) ---- ---------------------- ----------------------- George S. Blumenthal....... 245,089 (E) 2,999,699 (E) 5,000 (U) 10,625 (U) J. Barclay Knapp........... 221,478 (E) 2,538,687 (E) 5,000 (U) 10,625 (U) Richard J. Lubasch......... 78,095 (E) 781,655 (E) 1,090 (U) 3,824 (U) Stephen M. Shapiro......... 34,752 (E) 254,810 (E) 6,000 (U) 12,750 (U) Jose J. Davila............. 12,000 (E) 25,500 (E) 3,000 (U) 6,375 (U)
- --------------------- (1) Based on the closing price on Nasdaq on December 31, 1996 of $19.75. 51 SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT All of the shares of CCPR are beneficially owned by CoreComm, and all of the shares of Services are beneficially owned by CCPR. See "The Restructuring." The following table sets forth certain information regarding the beneficial ownership of CoreComm's Common Stock, as of April 10, 1997, by (i) each executive officer and director of CCPR, (ii) all of CCPR's directors and executive officers as a group and (iii) each beneficial owner of 5% or more of the Common Stock. CoreComm became a successor issuer to CCPR pursuant to a Form 8-B filed with the Commission on February 12, 1997.
BENEFICIAL OWNERSHIP ------------------------------------------ PRESENTLY EXECUTIVE OFFICERS, DIRECTORS COMMON EXERCISABLE AND PRINCIPAL STOCKHOLDERS STOCK OPTIONS(1) TOTAL PERCENT(2) ----------------------------- --------- ----------- --------- ---------- George S. Blumenthal(3)............. 24,173 450,089 474,262 3.41% J. Barclay Knapp.................... 9,298 426,478 435,776 3.14 Richard J. Lubasch(4)............... 3,282 119,185 122,467 * Stephen M. Shapiro(5)............... 3,150 92,752 95,902 * Jose J. Davila...................... 30 35,000 35,030 * Leigh Costikyan Wood................ 2,039 55,642 57,681 * Gregg Gorelick...................... 18,837 39,904 58,741 * Ted H. McCourtney(6)................ 10,355 26,623 36,978 * Del Mintz(7)........................ 212,286 26,623 238,909 1.77 Sidney R. Knafel(8)................. 199,249 26,623 225,872 1.68 Alan J. Patricof(9)................. 14,616 26,623 41,239 * Warren Potash....................... 542 24,019 24,561 * All directors and officers as a group (12 in number)............... 497,857 1,349,561 1,847,418 12.48 Baron Capital, Inc.(10)............. 1,198,500 -- -- 8.91 Ronald Baron 767 Fifth Avenue 24th Floor New York, NY 10153 The Equitable Companies Incorporated(11)................... 760,333 -- -- 5.65 787 Seventh Avenue New York, NY 10019 Lazard Freres & Co., LLC(12)........ 681,883 -- -- 5.07 30 Rockefeller Plaza New York, NY 10020
- --------------------- * Represents less than one percent. (1) Includes shares of Common Stock purchasable upon the exercise of options which are presently exercisable or become exercisable in the next 60 days ("Presently Exercisable Options"). (2) Includes Common Stock and Presently Exercisable Options. (3) Includes 1,980 shares of Common Stock held by trusts for the benefit of Mr. Blumenthal's children. (4) Includes 104 shares of Common Stock owned by Mr. Lubasch as custodian for his child, as to which shares Mr. Lubasch disclaims beneficial ownership. 52 (5) Includes 2,000 shares of Common Stock owned by Mr. Shapiro's children, as to which shares Mr. Shapiro disclaims beneficial ownership. (6) Includes 520 shares of Common Stock held by trusts for the benefit of Mr. McCourtney's children, as to which shares Mr. McCourtney disclaims beneficial ownership. (7) Includes 20,732 shares of Common Stock owned by Mr. Mintz's children or by Mr. Mintz's children as trustees for their children and 25 shares owned by Mr. Mintz's wife, as to which shares Mr. Mintz disclaims beneficial ownership. (8) Includes 100,449 shares of Common Stock owned by, or in trust accounts for the benefit of, Mr. Knafel's children, as to which shares Mr. Knafel disclaims beneficial ownership. An additional 44,617 shares are owned by an adult child of Mr. Knafel, as to which shares Mr. Knafel disclaims beneficial ownership. (9) Includes 65 shares of Common Stock owned by Mr. Patricof's wife and 1,557 shares owned by, or in a trust account for the benefit of, Mr. Patricof's children as to which shares Mr. Patricof disclaims beneficial ownership. (10) Based solely upon a Schedule 13D (Amendment No. 2), dated December 3, 1996, filed by Baron Capital, Inc. with the Commission. (11) Based solely upon a Schedule 13G (Amendment No. 4), dated February 12, 1997, filed by The Equitable Companies Incorporated with the Commission. (12) Based solely upon a Schedule 13G (Amendment No. 1), dated April 7, 1997, filed by Lazard Freres & Co., LLC with the Commission. 53 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS From August 16, 1996 to December 31, 1996, NTL has provided management, financial and legal services to the Company. Prior to August 16, 1996, such services were provided to the Company by CCI. Amounts charged to the Company include direct costs where identifiable and allocated corporate overhead based upon the amount of time incurred on Company business by the common officers and employees of NTL (or, prior to August 16, 1996, CCI) and the Company. Amounts charged to the Company included in general and administrative expenses during the years ended December 31, 1996, 1995 and 1994 were $636,000, $458,000 and $456,000, respectively. It is not practicable to determine the amount of expenses that would have been incurred had the Company operated as an unaffiliated entity. However, in the opinion of management of the Company, the allocation method is reasonable. On January 31, 1997, the date of the Restructuring, CoreComm and the Company entered into an agreement (the "Administrative Services Agreement") providing for the allocation to the Company of fixed and employee expenses of CoreComm (including those payments due to NTL under the arrangements described in the preceding paragraph) based upon time records of work performed by employees of CoreComm for the Company. In addition, on January 31, 1997, CoreComm, the Company and Services entered into a tax sharing agreement (the "Tax Sharing Agreement") which provides that the Company and Services will pay to CoreComm (or the Company, as appropriate) an amount which would equal the amount of taxes for which the Company and Services would be liable if the Company and Services were not part of the CoreComm consolidated group. 54 DESCRIPTION OF THE NOTES GENERAL The New Notes offered hereby will be issued by Services under an Indenture, dated as of January 31, 1997 (the "Indenture"), by and among Services, CCPR and The Chase Manhattan Bank, as trustee (the "Trustee"). The terms of the New Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The New Notes are subject to all such terms, and Holders of New Notes are referenced to the Indenture and the Trust Indenture Act for a statement thereof. The following summaries of certain provisions of the Indenture are summaries only, do not purport to be complete and are qualified in their entirety by reference to all of the provisions of that document, a copy of which Indenture and the form of Notes are filed as an exhibit to the Registration Statement of which this Prospectus forms a part. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Indenture. Wherever particular provisions of the Indenture are referred to in this summary, such provisions are incorporated by reference as a part of the statements made and such statements are qualified in their entirety by such reference. The Notes are general unsecured obligations of Services, subordinated in right of payment to all other existing and future Senior Debt of Services. Services' payment obligations under the Notes are fully and unconditionally guaranteed (the "Guarantee") on a senior subordinated basis by CCPR. As of April 28, 1997, neither Services nor CCPR had any Senior Debt. However, CCPR and its Subsidiaries (including Services) are considering entering into a credit agreement with one or more banks. The Indenture permits Services, CCPR and (under limited circumstances) its Subsidiaries, to incur additional Senior Debt, subject to certain limitations, and Services, CCPR and its Subsidiaries expect from time to time to incur additional indebtedness, including Senior Debt, subject to such limitations. See "--Guarantee," "--Subordination" and "--Certain Covenants--Limitation on Incurrence of Additional Indebtedness." The New Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and integral multiples thereof. The New Notes will mature on February 1, 2007. The New Notes will bear interest at the rate per annum stated on the cover page of this Prospectus from the most recent date to which interest has been paid on the Old Notes or, if no interest has been paid on the Old Notes, from January 31, 1997, payable semi-annually on August 1 and February 1 of each year, commencing August 1, 1997 to the persons in whose names such New Notes are registered at the close of business on the July 15 or January 15 preceding such Interest Payment Date. Accordingly, registered Holders of New Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from January 31, 1997. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders whose Old Notes are accepted for exchange will not receive any payment in respect of interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after the consummation of the Exchange Offer. For each Old Note accepted for exchange, the Holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. The Indenture does not contain provisions which would afford Holders of the New Notes protection in the event of a decline in Services' credit quality resulting from highly leveraged or other similar transactions involving Services. Principal, premium, if any, and interest on the New Notes will be payable, and, subject to the following provisions, the New Notes may be presented for registration of transfer or exchange, at the office or agency of Services maintained for such purpose, which office or agency shall be maintained in the Borough of Manhattan of the City of New York. At the option of Services, payment of interest may be made by check mailed to the Holders of the New Notes at the addresses set forth upon the registry books of Services. No service charge will 55 be made for any registration of transfer or exchange of New Notes, but Services may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Until otherwise designated by Services, its office or agency will be the corporate trust office of the Trustee presently located at 450 West 33rd Street, New York, New York 10001, c/o Corporate Trust Department. Old Notes and New Notes will be treated as a single class of securities under the Indenture. REDEMPTION Optional Redemption Except as provided below, Services will not have the right to redeem any Notes prior to February 1, 2002. On or after February 1, 2002, Services will have the right to redeem all or any part of the Notes in cash at the redemption prices (expressed as a percentage of the aggregate principal amount thereof) set forth below, in each case plus accrued and unpaid interest to the applicable Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an Interest Payment Date that is on or prior to the redemption date) if redeemed during the 12-month period beginning February 1, of the years indicated below:
REDEMPTION YEAR PRICE - ---- ---------- 2002................................................................. 105.000% 2003................................................................. 103.333% 2004................................................................. 101.667% 2005 and thereafter.................................................. 100.000%
In the case of a partial redemption, the Trustee shall select the Notes or portions thereof for redemption on a pro rata basis or in such other manner as it deems appropriate and fair. The Notes may be redeemed in part in multiples of $1,000 only. In addition, in the event of the first to occur prior to February 1, 2000 of (i) a public offering by Services or CCPR of Capital Stock (other than Disqualified Capital Stock) for gross proceeds of $50 million or more or (ii) a sale or series of related sales by Services or CCPR of its Common Stock to one or more Strategic Equity Investors in a transaction not involving a Change of Control for an aggregate purchase price of $35 million or more (a "Strategic Equity Investor Sale"), Services may, at its option, use all or any portion of the net proceeds thereof to redeem up to a maximum of 33 1/3% of the original aggregate principal amount at maturity of the Notes at a redemption price equal to 109% of the principal amount of the Notes plus accrued and unpaid interest (determined at the Redemption Date); provided, however, that such redemption may be effected only to the extent that not less than 66 2/3% of the original aggregate principal amount at maturity of the Notes shall remain outstanding immediately after such redemption. Any such redemption may be effected only once and must be effected upon not less than 30 nor more than 60 days' notice given within 30 days following such public equity offering or the most recent such sale to a Strategic Equity Investor, as the case may be, provided, however, that if as a result of the same transaction, Services is required to make an Asset Sale Offer, pursuant to the covenant "Limitation on Asset Sales and Sales of Restricted Subsidiary Stock," concurrently with its making of a Strategic Equity Investor Sale, Services shall make the Asset Sale Offer no later than 30 days following such Strategic Equity Investor Sale and, if such Asset Sale Offer is made, any redemption from the Strategic Equity Investor Sale must be effected upon not less than 30 nor more than 60 days' notice given within 30 days following the consummation of the Asset Sale Offer. Mandatory Redemption; Repurchase upon Change of Control Triggering Event or Certain Asset Sales Services is not required to make any mandatory redemption or sinking fund payments with respect to the Notes. However, upon the occurrence of a Change of Control Triggering Event, Services will be obligated to make an offer to purchase all outstanding Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase and as a result of an Asset Sale, Services may be obligated to make an offer to purchase all or a portion of the outstanding Notes at a price equal to 100% of the 56 principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase. See "--Change of Control" and "--Certain Covenants--Limitation on Asset Sales and Sales of Restricted Subsidiary Stock," respectively. Selection; Effect of Redemption Notice In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate; provided, however that no Note of $1,000 in principal amount at maturity or less shall be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount at maturity thereof to be redeemed. A new Note in principal amount at maturity equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. Upon giving of any redemption notice, the interest on Notes called for redemption will cease to accrue from and after the date fixed for redemption (unless Services defaults in providing the funds for such redemption) and such Notes will then cease to be outstanding. GUARANTEE Services' payment obligations under the Notes are fully and unconditionally guaranteed by CCPR. The Guarantee is subordinated to the prior payment in full of all Senior Debt of CCPR and the amounts for which CCPR are liable under the guarantee issued from time to time with respect to Senior Debt. SUBORDINATION The payment of principal of, premium, if any, and interest on the Notes is subordinated in right of payment, as set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Obligations with respect to Senior Debt of Services, whether outstanding on the date of the Indenture or thereafter incurred. The payment of all Obligations under the Guarantee is subordinated in right of payment, as set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Obligations with respect to Senior Debt of CCPR, whether outstanding on the date of the Indenture or thereafter incurred. Upon any payment or distribution to creditors of Services or CCPR in a liquidation or dissolution of Services or CCPR, as the case may be, in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to Services, CCPR or their respective properties, an assignment for the benefit of creditors or any marshalling of Services' or CCPR's assets and liabilities, the holders of Senior Debt will be entitled to receive payment in full in cash or Cash Equivalents of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt whether or not such interest is an allowed claim under applicable law) before the Holders of Notes will be entitled to receive any payment with respect to the Notes or the Guarantee, and until all Obligations with respect to Senior Debt are paid in full in cash or Cash Equivalents, any distribution to which the Holders of Notes would be entitled shall be made to the holders of Senior Debt (except that Holders of Notes may receive Permitted Junior Securities and any other Permitted Junior Securities issued in exchange for any Permitted Junior Securities and any payments made from the trust described under "--Legal Defeasance and Covenant Defeasance"). Services and CCPR also may not make any payment or distribution upon or in respect of the Notes or the Guarantee (except in such Permitted Junior Securities, Permitted Junior Securities issued in exchange for such Permitted Junior Securities or from the trust described under "--Legal Defeasance and Covenant Defeasance" and except for Capital Stock of Services or a successor entity that is not Disqualified Capital Stock of Services or such successor entity) or make any deposit to the trust described under "--Legal Defeasance and Covenant Defeasance" if (i) a default in the payment of the principal of, premium, if any, or interest on Designated Senior Debt occurs and is continuing or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits holders (or the authorized agent or representative of such holders) of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from Services, CCPR or the holders of any Designated Senior Debt. Payments 57 on the Notes or the Guarantee may and shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived and (b) in case of a nonpayment default, the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated. No new period of payment blockage may be commenced unless and until (i) 360 days have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice; provided that if any Payment Blockage Notice is delivered by the holders of Designated Senior Debt other than Senior Debt under the Credit Agreement, the holders of Senior Debt under the Credit Agreement may give another Payment Blockage Notice within such 360 day period so long as the total number of days during which a Payment Blockage Notice is in effect during such 360 day period does not exceed 179 days and (ii) all scheduled payments of principal, premium, if any, and interest on the Notes that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default has been cured or waived for a period of not less than 90 consecutive days. The Indenture further requires that Services will promptly notify holders of Senior Debt if payment of the Notes is accelerated because of an Event of Default. As a result of the subordination provisions described above, in the event of a liquidation or insolvency, Holders of Notes may recover less ratably than creditors of Services or CCPR who are holders of Senior Debt. On April 28, 1997, neither Services nor CCPR had any Senior Debt. The Indenture limits, subject to certain financial tests, the amount of additional Indebtedness, including Senior Debt, that Services, CCPR and their subsidiaries can incur. See "--Certain Covenants--Limitation on Incurrence of Additional Indebtedness." CHANGE OF CONTROL Upon the occurrence of a Change of Control Triggering Event, each Holder shall have the right to require Services to repurchase its Notes in cash pursuant to the offer described below (the "Change of Control Offer") at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase (the "Change of Control Payment"). Services is not required to make a Change of Control Offer following a Change of Control Triggering Event if a third party makes a Change of Control Offer that would be in compliance with the provisions described in this section if it were made by Services and purchases the Notes validly tendered and not withdrawn. Services' board of directors does not have the ability unilaterally to waive Services' obligation to repurchase the Notes in the event of a highly leveraged transaction. Within 30 days following the Change of Control Triggering Event, Services shall mail a notice to the Trustee and each Holder stating: (i) that a Change of Control Triggering Event has occurred, that the Change of Control Offer is being made pursuant to this "Change of Control" covenant and that all Notes validly tendered will be accepted for payment; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Change of Control Payment Date"); (iii) that any Note not tendered will continue to accrue interest pursuant to its terms; (iv) that unless Services defaults in the payment of the Change of Control Payment, any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on and after the Change of Control Payment Date: (v) that Holders electing to have any Note or portion thereof purchased pursuant to the Change of Control Offer will be required to surrender such Note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of such Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Change of Control Payment Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Change of Control Payment Date, a telegraph, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided, however, that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. 58 On the Change of Control Payment Date, Services shall, to the extent lawful: (i) accept for payment Notes or portions thereof properly tendered pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee, all Notes or portions thereof so accepted together with an Officers' Certificate specifying the Notes or portions thereof accepted for payment by Services. The Paying Agent shall promptly mail, to the Holders of Notes so accepted, payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Notes surrendered; provided, however, that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. Services will notify the Holders of the Notes of the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this "Change of Control" covenant, the Trustee shall act as Paying Agent. With respect to the sale of assets referred to in the definition of Change of Control, the phrase "all or substantially all" as used in such definition varies according to the facts and circumstances of the subject transaction, has no clearly established meaning under relevant law and is subject to judicial interpretation. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of "all or substantially all" of the assets of a person and therefore it may be unclear whether a Change of Control Triggering Event has occurred and whether the Notes are subject to a Change of Control Offer. The Change of Control purchase feature of the Notes may make more difficult or discourage a takeover of Services or CCPR, and, thus, the removal of incumbent management. The Change of Control purchase feature resulted from negotiations between Services, CCPR and the Initial Purchasers and is not the result of any intention on the part of Services or CCPR or their management to discourage the acquisition of Services or CCPR. Any Change of Control Offer will be made in compliance with all applicable laws, rules and regulations, including, if applicable, Regulation 14E under the Exchange Act and the rules thereunder and all other applicable Federal and state securities laws and Services and CCPR may modify a Change of Control Offer to the extent necessary to effect such compliance. CERTAIN COVENANTS Limitation on Incurrence of Additional Indebtedness Except as described below, the Indenture provides that after January 28, 1997, Services and CCPR will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, issue, create, incur, assume, guarantee or otherwise directly or indirectly become liable for (including as a result of an acquisition), or otherwise become responsible for, contingently or otherwise (individually or collectively, to "incur" or, as appropriate, an "incurrence"), any Indebtedness. Neither the accrual of interest (including the issuance of "pay in kind" securities or similar instruments in respect of such accrued interest) pursuant to the terms of Indebtedness incurred in compliance with this covenant, nor the accretion of original issue discount, nor the mere extension of the maturity of any Indebtedness shall be deemed to be an incurrence of Indebtedness. Notwithstanding the foregoing, if there exists no Default or Event of Default immediately prior and subsequent thereto, Services, CCPR and the Restricted Subsidiaries may incur Indebtedness if CCPR's Annualized Operating Cash Flow Ratio, after giving effect to the incurrence of such Indebtedness, would have been less than 6.5 to 1. In addition, if there exists no Default or Event of Default immediately prior and subsequent thereto, the foregoing limitations will not apply to the incurrence of (i) Senior Debt by Services, CCPR or any of the Restricted Subsidiaries pursuant to the Credit Agreement, (ii) guarantees of the Senior Debt permitted under or required by the Credit Agreement and Guarantees permitted under or required by the Indenture, (iii) Indebtedness by Services, CCPR or any of the Restricted Subsidiaries constituting Existing Indebtedness, reduced by 59 repayments of and permanent reductions in commitments in satisfaction of the Net Cash Proceeds application requirement set forth in the "Limitation on Asset Sales and Sales of Restricted Subsidiary Stock" covenant and by repayments and permanent reductions in amounts outstanding pursuant to scheduled amortizations and mandatory prepayments in accordance with the terms thereof, (iv) Indebtedness of Services evidenced by the Notes and Indebtedness of CCPR evidenced by the Guarantee, (v) Indebtedness between Services, CCPR and any Restricted Subsidiary or between Restricted Subsidiaries, (vi) Indebtedness under the Administrative Headquarters Lease, (vii) Capitalized Lease Obligations and Purchase Money Indebtedness in an aggregate amount or aggregate principal amount, as the case may be, outstanding at any time not to exceed in the aggregate $10 million, provided that in the case of Purchase Money Indebtedness, such Indebtedness shall not constitute less than 75% nor more than 100% of the cost (determined in accordance with GAAP) to Services, CCPR or such Restricted Subsidiary of the property purchased or leased with the proceeds thereof, (viii) Indebtedness of Services, CCPR or any Restricted Subsidiary arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any obligations of Services, CCPR or the Restricted Subsidiaries pursuant to such agreements, in any case incurred in connection with the acquisition or disposition of any business, assets or Restricted Subsidiary to the extent none of the foregoing results in the obligation to repay an obligation for money borrowed by any Person and are limited in aggregate amount to no greater than 10% of the fair market value of such business, assets or Restricted Subsidiary so acquired or disposed of, (ix) any guarantee by any Restricted Subsidiary of any (A) Senior Debt incurred in compliance with this covenant or (B) Indebtedness incurred pursuant to clause (xi) of this paragraph, (x) Indebtedness of Services, CCPR or any Restricted Subsidiary under standby letters of credit or reimbursement obligations with respect thereto incurred in the ordinary course of business and consistent with industry practices limited in aggregate amount to $2.5 million at any one time outstanding, (xi) Indebtedness of Services or CCPR (other than Indebtedness permitted by clauses (i) through (x) or (xii) hereof) not to exceed $10 million at any one time outstanding and (xii) Refinancing Indebtedness incurred to extend, renew, replace or refund Indebtedness permitted under clauses (i), (iii) (as so reduced in amount), (iv) and (xi) of this paragraph. Indebtedness of any Person that is not a Restricted Subsidiary, which Indebtedness is outstanding at the time such Person becomes such a Restricted Subsidiary or is merged with or into or consolidated with Services, CCPR or a Restricted Subsidiary shall be deemed to have been incurred, as the case may be, at the time such Person becomes such a Restricted Subsidiary or is merged with or into or consolidated with Services, CCPR or a Restricted Subsidiary. Limitation on Restricted Payments The Indenture provides that after January 28, 1997, Services and CCPR will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, make any Restricted Payment, if, immediately prior or after giving effect thereto (a) a Default or an Event of Default would exist, (b) CCPR could not incur at least $1.00 of additional Indebtedness pursuant to the Annualized Operating Cash Flow Ratio provision set forth in the second paragraph of the "Limitation on Incurrence of Additional Indebtedness" covenant or (c) the aggregate amount of all Restricted Payments made by Services, CCPR and the Restricted Subsidiaries, including such proposed Restricted Payment (if not made in cash, then the fair market value of any property used therefor) from and after the Issue Date and on or prior to the date of such Restricted Payment, shall exceed the sum of (i) the excess of (A) Cumulative Operating Cash Flow over (B) the product of 1.5 times Cumulative Interest Expense, plus (ii) the aggregate Net Proceeds received by Services or CCPR from the sale (other than to a Subsidiary of Services or CCPR) of its Qualified Capital Stock after January 28, 1997 and on or prior to the date of such Restricted Payment, plus (iii) the amount by which Indebtedness of Services, CCPR or any Restricted Subsidiary is reduced on CCPR's balance sheet upon the conversion or exchange (other than by a Subsidiary) subsequent to the Issue Date of any Indebtedness of Services, CCPR or any Restricted Subsidiary convertible or exchangeable for Capital Stock (other than Capital Stock that is redeemable) of Services or CCPR (less the amount of any cash or other property distributed by Services, CCPR or any Restricted Subsidiary upon conversion or exchange), plus (iv) to the extent not otherwise included in clauses (i), (ii) or (iii) above, an amount equal to the net reduction in Investments in Unrestricted Subsidiaries resulting from payments of dividends, repayment of loans or advances, 60 or other transfers of assets, in each case to Services, CCPR or any Wholly Owned Restricted Subsidiary of Services or CCPR from Unrestricted Subsidiaries, or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investments"), not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by Services, CCPR and any Restricted Subsidiary in such Unrestricted Subsidiary. Notwithstanding the foregoing, the provisions set forth in clause (b) or (c) of the immediately preceding paragraph will not prohibit (i) the use of an aggregate of up to $100 million to be used for Restricted Payments made to CoreComm not otherwise permitted by this "Limitation on Restricted Payments" covenant, (ii) the payment of any dividend within 60 days after the date of its declaration if such dividend could have been made on the date of its declaration in compliance with the foregoing provisions, (iii) the redemption, defeasance, repurchase or other acquisition or retirement of any Indebtedness or Capital Stock of Services, CCPR or the Restricted Subsidiaries either in exchange for or out of the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of Services or CCPR) of Qualified Capital Stock (in the case of any redemption, defeasance, repurchase or other acquisition or retirement of any Junior Indebtedness or Capital Stock of Services, CCPR or the Restricted Subsidiaries) or Junior Indebtedness (in the case of any redemption, defeasance, repurchase or other acquisition or retirement of any Indebtedness of Services, CCPR or the Restricted Subsidiaries) of Services or CCPR, (iv) any payments to CoreComm made pursuant to the Administrative Services Agreement and (v) any payments made pursuant to the Tax Sharing Agreement. In determining the aggregate amount expended for Restricted Payments in accordance with clause (c) of the first paragraph of this description of the "Limitation on Restricted Payments" covenant, 100% of the amounts expended under clauses (i) through (v) of the immediately preceding paragraph shall be deducted. Limitation on Restricting Subsidiary Dividends The Indenture provides that Services and CCPR will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly, create, assume or suffer to exist any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to pay dividends or make other distributions on the Capital Stock of any Restricted Subsidiary or pay or satisfy any obligation to Services, CCPR or any of the Restricted Subsidiaries or otherwise transfer assets or make or pay loans or advances to Services, CCPR or any of the Restricted Subsidiaries, except encumbrances and restrictions existing as of the date of determination under (i) the Indenture, the Guarantees and the Notes, (ii) any Existing Indebtedness, (iii) the Credit Agreement, (iv) any applicable law or any governmental or administrative regulation or order, (v) Refinancing Indebtedness permitted under the Indenture, provided that the restrictions contained in the instruments governing such Refinancing Indebtedness are no more restrictive in the aggregate than those contained in the instruments governing the Indebtedness being refinanced immediately prior to such refinancing, (vi) restrictions with respect solely to a Restricted Subsidiary imposed pursuant to a binding agreement which has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary, provided such restrictions apply solely to the Capital Stock or assets being sold of such Restricted Subsidiary, (vii) restrictions contained in any agreement relating to the financing of the acquisition of a Person or real or tangible personal property after January 28, 1997 which are not applicable to any Person or property, other than the Person or property so acquired and which were not put in place in anticipation of or in connection with such acquisition or (viii) any agreement (other than those referred to in clause (vii)) of a Person acquired by Services, CCPR or a Restricted Subsidiary, which restrictions existed at the time of acquisition. Notwithstanding the foregoing, neither (a) customary provisions restricting subletting or assignment of any lease entered into the ordinary course of business, consistent with past practices nor (b) Liens on assets securing Senior Debt, shall in and of themselves be considered a restriction on the ability of the applicable Restricted Subsidiary to transfer such agreement or assets, as the case may be. Limitation on Transactions with Related Persons The Indenture provides that, after January 28, 1997, Services and CCPR will not, and will not permit any of the Restricted Subsidiaries or Unrestricted Subsidiaries to, enter into any contract, agreement, arrangement or transaction with any Related Person (each a "Related Person Transaction"), or any series of Related Person Transactions, except for transactions made in good faith, the terms of which are (i) fair and reasonable to 61 Services, CCPR or such Subsidiary, as the case may be, and (ii) at least as favorable as the terms which could be obtained by Services, CCPR or such Subsidiary, as the case may be, in a comparable transaction made on an arm's length basis with Persons who are not Related Persons. Without limiting the foregoing, (a) any Related Person Transaction or series of Related Person Transactions with an aggregate value in excess of $1 million must first be approved by a majority of the Board of Directors of Services or CCPR, as the case may be, who are disinterested in the subject matter of the transaction pursuant to a Board Resolution, or (b) with respect to any Related Person Transaction or series of Related Person Transactions (i) where there are no members of the Board of Directors who are disinterested in the subject matter of a transaction otherwise subject to clause (a) hereof or (ii) with an aggregate value in excess of $5 million, Services or CCPR, as the case may be, must first obtain a favorable written opinion from a financial advisor of national reputation who is not an Affiliate of the Company as to the fairness from a financial point of view of such transaction to Services, CCPR or such Subsidiary, as the case may be. Notwithstanding the foregoing, the following shall not constitute Related Person Transactions: (i) reasonable and customary payments on behalf of directors, officers or employees of Services, CCPR or any of the Restricted Subsidiaries, or in reimbursement of reasonable and customary payments or reasonable and customary expenditures made or incurred by such Persons as directors, officers or employees, (ii) any contract, agreement, arrangement, or transaction solely between or among Services, CCPR and any of the Restricted Subsidiaries or between or among Restricted Subsidiaries, (iii) any Restricted Payment of the type described by clauses (i) and (ii) of the definition thereof made to all stockholders on a pro rata basis and not prohibited by the "Limitation on Restricted Payments" covenant, (iv) any payment made pursuant to the Tax Sharing Agreement, (v) any payment made pursuant to the Administrative Services Agreement and (vi) any transaction pursuant to an agreement described in or referred to under "The Restructuring" as in effect on January 28, 1997. Limitation on Asset Sales and Sales of Restricted Subsidiary Stock The Indenture provides that after January 28, 1997, Services and CCPR will not, and will not permit any of the Restricted Subsidiaries to, in one or a series of related transactions, convey, sell, transfer, assign or otherwise dispose of, directly or indirectly, any of their property, businesses or assets, including by merger or consolidation, and including any sale or other transfer or issuance of any Capital Stock of any Restricted Subsidiary, whether by Services, CCPR or a Restricted Subsidiary (an "Asset Sale"), unless: (1) (a) within 360 days after the date of such Asset Sale, an amount equal to the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied to make the Asset Sale Offer (as defined below) in accordance with the terms of the Indenture or to the redemption of other Indebtedness of Services and CCPR ranking on a parity with the Notes from time to time outstanding with similar provisions requiring Services and CCPR to make an offer to purchase or to redeem such Indebtedness with the proceeds from asset sales, pro rata in proportion to the respective principal amounts (or accreted values in the case of Indebtedness issued with an original issue discount) of the Notes and such other Indebtedness then outstanding or to the repurchase of the Notes and such other Indebtedness pursuant to an irrevocable, unconditional offer (the "Asset Sale Offer") to repurchase such Indebtedness at a purchase price (the "Asset Sale Offer Price") of 100% of the principal amount thereof in the case of the Notes or 100% of the principal amount (or accreted value in the case of Indebtedness issued with an original issue discount) plus, in each case, accrued interest to the date of payment, or (b) within 330 days of such Asset Sale, the Asset Sale Offer Amount is (i) invested (or committed, pursuant to a binding commitment subject only to reasonable, customary closing conditions, to be invested, and in fact is so invested, within an additional 120 days) in tangible assets and property (other than notes, obligations or securities), which in the good faith reasonable judgment of the Board of Directors of Services or CCPR, as the case may be, are of a type used in a Related Business, or Capital Stock of a Person (which, if such Person becomes a Subsidiary of Services or CCPR, by virtue of such Asset Sale, shall initially be designated a Restricted Subsidiary) all or substantially all of whose assets and property (in the good faith reasonable judgment of the Board of Directors of Services or CCPR, as the case may be) are of a type used in a Related Business (provided that, with respect to such Capital Stock, all of the requirements of the last proviso of clause (v) of the following paragraph shall have been satisfied) or (ii) used to retire Senior Debt; 62 (2) with respect to any transaction or related series of transactions of securities, property or assets with an aggregate fair market value in excess of $1 million, at least 75% of the value of consideration for the assets disposed of in such Asset Sale, excluding (a) Senior Debt (and any Refinancing Indebtedness issued to refinance any such Indebtedness) assumed by a transferee which assumption permanently reduces the amount of Indebtedness outstanding on January 28, 1997 and permitted to have been incurred pursuant to the covenant "Limitation on Incurrence of Additional Indebtedness" (including that in the case of a revolver or similar arrangement that makes credit available, such commitment is permanently reduced by such amount), (b) Purchase Money Indebtedness secured exclusively by the assets subject to such Asset Sale which is assumed by a transferee and (c) marketable securities that are promptly converted into cash or Cash Equivalents, consists of cash or Cash Equivalents, provided that any cash or Cash Equivalents received within 12 months following any such Asset Sale upon conversion of any property or assets (other than in the form of cash or Cash Equivalents) received in consideration of such Asset Sale shall be applied promptly in the manner required of Net Cash Proceeds of any such Asset Sale as set forth above; (3) no Default or Event of Default shall occur or be continuing after giving effect to, on a pro forma basis, such Asset Sale; and (4) the Board of Directors of Services or CCPR, as the case may be, determines in good faith that Services, CCPR or such Restricted Subsidiary, as applicable, would receive fair market value in consideration of such Asset Sale. The Indenture provides that an Asset Sale Offer may be deferred until the accumulated Net Cash Proceeds from Asset Sales not applied to the uses set forth in (1) (b) above exceeds $5 million and that each Asset Sale Offer shall remain open for 20 Business Days following its commencement and no longer, except as otherwise required by applicable law (the "Asset Sale Offer Period"). Upon expiration of the Asset Sale Offer Period, Services shall apply the Asset Sale Offer Amount, plus an amount equal to accrued interest to the purchase of all Indebtedness properly tendered (on a pro rata basis as described above if the Asset Sale Offer Amount is insufficient to purchase all Indebtedness so tendered) at the Asset Sale Offer Price (together with accrued interest). Notwithstanding the foregoing provisions: (i) Services, CCPR and the Restricted Subsidiaries may, in the ordinary course of business, convey, sell, lease, transfer, assign or otherwise dispose of assets acquired and held for resale in the ordinary course of business; (ii) Services, CCPR and the Restricted Subsidiaries may convey, sell, lease, transfer, assign or otherwise dispose of assets pursuant to and in accordance with the "Limitation on Merger, Sale or Consolidation;" (iii) Services, CCPR and the Restricted Subsidiaries may sell or dispose of damaged, worn out or other obsolete property in the ordinary course of business so long as such property is no longer necessary for the proper conduct of the business of Services, CCPR or such Restricted Subsidiary, as applicable; (iv) Services, CCPR and the Restricted Subsidiaries may convey, sell, lease, transfer, assign or otherwise dispose of assets to Services, CCPR or any of the Restricted Subsidiaries; and (v) Services, CCPR and the Restricted Subsidiaries may, in the ordinary course of business (or, if otherwise than in the ordinary course of business, upon receipt of a favorable written opinion by a financial advisor of national reputation who is not an Affiliate of the Company as to the fairness from a financial point of view to Services, CCPR or such Restricted Subsidiary of the proposed transaction), exchange all or a portion of its property, businesses or assets that are outside the Commonwealth of Puerto Rico and represent not more than 5.0% of the aggregate Net Pops of Services, CCPR and the Restricted Subsidiaries as of January 28, 1997 for property, businesses or assets which, or Capital Stock of a Person all or substantially all of whose assets, are of a type used in a wireless communications business (provided that such Person shall initially be designated a Restricted Subsidiary if such Person becomes a Subsidiary of Services or CCPR by virtue of such Asset Sale), or a combination of any such property, businesses or assets, or Capital Stock of such a Person and cash or Cash Equivalents; provided that (i) there shall not exist immediately prior or subsequent thereto a Default or an Event of Default, (ii) a majority of the independent directors of the Board of Directors of Services or CCPR, as the case may be, shall have approved a 63 resolution of the Board of Directors that such exchange is fair to Services, CCPR or such Restricted Subsidiary, as the case may be, (iii) any cash or Cash Equivalents received pursuant to any such exchange shall be applied in the manner applicable to Net Cash Proceeds from an Asset Sale as set forth pursuant to the provisions of the immediately preceding paragraph of this covenant, and (iv) the Net Pops so received in the exchange should be at least equal to the New Pops so exchanged; provided, further, that any Capital Stock of a Person received in an Asset Sale pursuant to this clause (v) shall be owned directly by Services, CCPR or a Restricted Subsidiary and, when combined with the Capital Stock of such Person already owned by Services, CCPR and the Restricted Subsidiaries, shall constitute a majority of the voting power and Capital Stock of such Person, unless Services or CCPR has received a binding commitment from such Person (or the direct or indirect parent of such Person) that such Person (or the direct or indirect parent of such Person) will distribute to Services or CCPR in cash an amount equal to CCPR's Annualized Operating Cash Flow (determined as of the date of such Asset Sale) attributable to the property, business or assets of Services, CCPR and the Restricted Subsidiaries exchanged in connection with such Asset Sale during each consecutive 12-month period subsequent to such Asset Sale (unless and until Services or CCPR shall have sold all of such Capital Stock). Restricted Payments that are made in compliance with, and are counted against amounts available to be made as Restricted Payments pursuant to clause (c) of, the "Limitation on Restricted Payments" covenant, without giving effect to clause (i) of the second paragraph thereof, shall not be deemed to be Asset Sales. Any Asset Sale Offer shall be made in compliance with all applicable laws, rules, and regulations, including, if applicable, Regulation 14E of the Exchange Act and the rules and regulations thereunder and all other applicable Federal and state securities laws. Limitations on Liens The Indenture provides that Services and CCPR will not, and will not permit any Restricted Subsidiary, directly or indirectly, to incur or suffer to exist any Lien (other than Permitted Liens) upon any of their property or assets, whether now owned or hereafter acquired. Limitation on Status as Investment Company The Indenture prohibits Services, CCPR and the Restricted Subsidiaries from becoming "investment companies" (as that term is defined in the Investment Company Act of 1940, as amended), or from otherwise becoming subject to regulation under the Investment Company Act. Limitation on Merger, Sale or Consolidation The Indenture provides that Services and CCPR will not consolidate with or merge with or into another Person, or sell, lease, convey, transfer or otherwise dispose of all or substantially all of its assets (computed on a consolidated basis), whether in a single transaction or a series of related transactions, to another Person or group of affiliated Persons, unless (i) either (a) Services or CCPR, as applicable, is the continuing entity or (b) the resulting, surviving or transferee entity is a corporation organized under the laws of the United States, any state thereof, the District of Columbia or the Commonwealth of Puerto Rico and expressly assumes by supplemental indenture all of the obligations of Services or CCPR in connection with the Notes, the Guarantee and the Indenture, as applicable; (ii) no Default or Event of Default shall exist or shall occur immediately after giving effect on a pro forma basis to such transaction; (iii) except in the case of a merger of Services or CCPR with or into one or more Wholly Owned Restricted Subsidiaries of Services or CCPR, immediately after giving effect to such transaction on a pro forma basis, the consolidated resulting surviving or transferee entity would immediately thereafter be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Annualized Operating Cash Flow Ratio provision set forth in the second paragraph of the "Limitation on Incurrence of Additional Indebtedness" covenant; and (iv) Services or CCPR shall have delivered to the Trustee an Officers' Certificate confirming compliance with the requirements of this covenant, provided, however, that this provision shall not prohibit any merger or consolidation between Services and CCPR. The term "all or substantially all" is not defined in the Indenture. Accordingly, the term would likely be interpreted by reference to applicable state law at the time, and will be dependent on the facts and circumstances existing at the time. As a result, under certain circumstances there could be uncertainty as to whether a particular transaction is prohibited by the Indenture. 64 No Senior Subordinated Indebtedness The Indenture provides that (i) Services will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinated or junior in right of payment to any Senior Debt of Services and senior in any respect in right of payment to the Notes and (ii) CCPR will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinated or junior in right of payment to its Senior Debt and senior in any respect in right of payment to its Guarantee. Limitations on Guarantees of Services' Indebtedness by Restricted Subsidiaries The Indenture provides that in the event that any Restricted Subsidiary, directly or indirectly, guarantees any Indebtedness of Services other than the Notes (the "Other Indebtedness"), Services and CCPR shall cause such Restricted Subsidiary to deliver to the Trustee a supplemental indenture pursuant to which such Restricted Subsidiary shall concurrently guarantee Services' Obligations under the Indenture and the Notes to the same extent that such Restricted Subsidiary guaranteed Services' Obligations under the Other Indebtedness (including waiver of subrogation, if any), provided that if such Other Indebtedness is Senior Debt, the Additional Guarantee shall be subordinated in right of payment to the guarantee of such Other Indebtedness, as provided by the provisions of the Indenture described under the caption "--Subordination," and such Additional Guarantee shall be on the same terms and subject to the same conditions as the initial Guarantee given by CCPR under the Indenture. Each Additional Guarantee shall by its terms provide that the Additional Guarantor making such Additional Guarantee will be automatically and unconditionally released and discharged from its obligations under such Additional Guarantee upon the release or discharge of the guarantee of the other Indebtedness that resulted in the creation of such Additional Guarantee, except a discharge or release by, or as a result of, any payment under the guarantee of such Other Indebtedness by such Additional Guarantor. Limitation on Lines of Business The Indenture provides that neither Services, CCPR nor any of the Restricted Subsidiaries shall directly or indirectly engage in any line or lines of business activity other than that which, in the reasonable, good faith judgment of the Board of Directors of Services or CCPR, is a Related Business. REPORTS The Indenture provides that whether or not Services or CCPR are subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, Services and CCPR shall deliver to the Trustee and to each Holder, within 15 days after they are or would have been required to file such with the Commission, annual and quarterly financial statements substantially equivalent to financial statements that would have been included in reports filed with the Commission, if Services or CCPR were subject to the requirements of Section 13 or 15(d) of the Exchange Act, including, with respect to annual information only, a report thereon by Services and CCPR, or Services' or CCPR's certified independent public accountants as such would be required in such reports to the Commission, and in each case, together with a management's discussion and analysis of financial condition and results of operations which would be so required. In addition, whether or not required by the rules and regulations of the Commission, Services and CCPR will file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, Services and CCPR have agreed that, for so long as any Notes remain outstanding, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. EVENTS OF DEFAULT AND REMEDIES The Indenture defines an Event of Default as (i) the failure by Services to pay any installment of interest on the Notes as and when the same becomes due and payable and the continuance of any such failure for 30 days, whether or not prohibited by the subordination provisions of the Indenture, (ii) the failure by Services to pay all or any part of the principal, or premium, if any, on the Notes when and as the same becomes due and payable at maturity, redemption, by acceleration or otherwise, including, without limitation, payment of the Change of Control Payment or the Asset Sale Offer Price, whether or not prohibited by the subordination provisions of the 65 Indenture, (iii) the failure by Services or CCPR to observe or perform any other covenant or agreement contained in the Notes, the Guarantee or the Indenture and, subject to certain exceptions, the continuance of such failure for a period of 30 days after written notice is given to Services or CCPR, as the case may be, by the Trustee or to Services or CCPR, as the case may be, and the Trustee by the Holders of at least 25% in aggregate principal amount of the Notes outstanding, (iv) certain events of bankruptcy, insolvency or reorganization in respect of Services or CCPR or, after delivery of the notice specified in the next following paragraph, any of their Significant Restricted Subsidiaries, (v) (1) a default in any Indebtedness (other than the Credit Agreement) of Services, CCPR or any of the Restricted Subsidiaries with an aggregate principal amount in excess of $5 million (a) resulting from the failure to pay principal or interest (in the case of an interest default or a default in the payment of principal other than at its stated maturity, after the expiration of the applicable grace period) when due or (b) as a result of which the maturity of such Indebtedness has been accelerated prior to its stated maturity, or (2) a default in the Credit Agreement (with an aggregate principal amount in excess of $5 million outstanding with respect thereto) (a) resulting from the failure to pay principal at maturity or (b) as a result of which the maturity of such Indebtedness has been accelerated prior to its stated maturity, (vi) final unsatisfied judgments not covered by insurance aggregating in excess of $5 million, at any one time rendered against Services, CCPR or any of the Restricted Subsidiaries and not stayed, fully bonded, discharged, paid or vacated within 60 days and (vii) except as permitted by the Indenture, the Guarantee shall be held in any final judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or CCPR, or any Person acting on behalf of CCPR, shall deny or disaffirm its obligations under its Guarantee. The Indenture provides that if a default occurs and is continuing, the Trustee must, within 90 days after the occurrence of such default, give to the Holders notice of such default. If an Event of Default occurs and is continuing (other than an Event of Default specified in clause (iv) above) relating to Services, CCPR or any Restricted Subsidiary, then in every such case, unless the principal of all of the Notes shall have already become due and payable, either the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding, by notice in writing to Services (and to the Trustee if given by Holders) specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Credit Agreement, shall become immediately due and payable upon the first to occur of an acceleration under the Credit Agreement or five Business Days after receipt by Services and the Representative under the Credit Agreement of such Acceleration Notice but only if such Event of Default is then continuing. If an Event of Default specified in clause (iv) above, relating to Services, CCPR or any Significant Restricted Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Restricted Subsidiary occurs, all principal and accrued interest thereon will be immediately due and payable on all outstanding Notes without any declaration or other act on the part of Trustee or the Holders. In the event of a declaration of acceleration of the Notes because an Event of Default has occurred and is continuing as a result of the acceleration of any Indebtedness described in clause (v) of the preceding paragraph, the declaration of acceleration of the Notes shall be automatically annulled if the holders of any Indebtedness described in clause (v) have rescinded the declaration of acceleration in respect of such Indebtedness within 30 days of the date of such declaration and if (i) the annulment of the acceleration of the Notes would not conflict with any judgment or decree of a court of competent jurisdiction, and (ii) all existing Events of Default, except nonpayment of principal or interest on the Notes that became due solely because of the acceleration of the Notes, have been cured or waived. The Holders of a majority in aggregate principal amount of Notes generally are authorized to rescind such acceleration if all existing Events of Default, other than the non-payment of the principal of, premium, if any, and interest on the Notes which have become due solely by such acceleration, have been cured or waived. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of Services with the intention of avoiding payment of the premium that Services would have had to pay if Services then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to February 1, 2002, by reason of any willful action (or inaction) taken (or not taken) by or on behalf of Services with the intention of 66 avoiding the prohibition on redemption of the Notes prior to February 1, 2002, then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. The Holders of a majority in aggregate principal amount of the Notes at the time outstanding may waive on behalf of all the Holders any default, except a default in the payment of principal of, premium, if any, or interest on any Note not yet cured, or a default with respect to any covenant or provision which cannot be modified or amended without the consent of the Holder of each outstanding Note affected. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable security or indemnity. Subject to all provisions of the Indenture and applicable law, the Holders of a majority in aggregate principal amount of the Notes at the time outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee. Services is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and Services is required upon becoming aware of any Default or Event of Default to deliver to the Trustee a statement specifying such Default or Event of Default. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Indenture provides that Services may, at its option and at any time. elect to have its obligations discharged with respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that Services shall be deemed to have paid and discharged the entire indebtedness represented, and the Indenture shall cease to be of further effect as to all outstanding Notes, except as to (i) rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due from the trust funds referred to below; (ii) Services' obligations with respect to such Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and the maintenance of an office or agency for payment and money for security payments held in trust; (iii) the rights, powers, trust, duties, and immunities of the Trustee, and Services' obligations in connection therewith; and (iv) the Legal Defeasance provisions of the Indenture. In addition, Services may, at its option and at any time, elect to have the obligations of Services released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default and Remedies" will no longer constitute an Event of Default with respect to the Notes. In order to exercise either a Legal Defeasance or Covenant Defeasance, (i) Services must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in United States dollars, non-callable government securities or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on such Notes on the stated date for payment thereof or on the redemption date of such principal or installment of principal of, premium, if any, or interest on such Notes on the stated maturity or on the applicable redemption date, as the case may be, and Services must specify whether the Notes are being defeased to maturity or to a particular redemption date, and the Holders of Notes must have a valid, perfected, exclusive security interest in such trust; (ii) in the case of Legal Defeasance, Services shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) Services has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in each case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of such Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance, and will be subject to federal income tax in the same amount, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, Services shall have delivered to the 67 Trustee an opinion of counsel in the United States reasonably acceptable to such Trustee confirming that the Holders of such Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the Indenture or any other material agreement or instrument to which Services, CCPR or any of the Subsidiaries is a party or by which Services, CCPR or any of the Subsidiaries is bound; (vi) Services must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) Services shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by Services with the intent of preferring the Holders of such Notes over any other creditors of Services or with the intent of defeating, hindering, delaying or defrauding any other creditors of Services or others; and (viii) Services shall have delivered to the Trustee an Officers' Certificate stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. AMENDMENTS AND SUPPLEMENTS The Indenture contains provisions permitting Services, CCPR and the Trustee to enter into a supplemental indenture for certain limited purposes without the consent of all of the Holders. With the consent of the Holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding Services, CCPR and the Trustee are permitted to amend or supplement the Indenture or any supplemental indenture or modify the rights of the Holders; provided, that no such modification may, without the consent of each Holder affected thereby: (i) change the Stated Maturity of or the Change of Control Purchase Date or the Asset Sale Offer Period on any Note, or reduce the principal amount thereof or the rate (or extend the time for payment) of interest thereon or any premium payable upon the redemption thereof, or change the place of payment where, or the coin or currency in which, any Note or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or reduce the Change of Control Payment or the Asset Sale Offer Price or alter the redemption provisions or the provisions of the "Change of Control" covenant in a manner adverse to the Holders, or (ii) reduce the percentage in principal amount of the outstanding Notes, the consent of whose Holders is required for any such amendment, supplemental indenture or waiver provided for in the Indenture, or (iii) modify any of the waiver provisions, except to increase any required percentage or to provide that certain other provisions of the Indenture cannot be modified or waived without the consent of the Holder of each outstanding Note affected thereby. In addition, any amendment to the provisions of Article 10 and Section 11.04 of the Indenture (which relate to subordination) will require the consent of the Holders of at least 75% in aggregate principal amount of the Notes then outstanding if such amendment would adversely affect the rights of Holders of Notes. NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS OR DIRECTORS The Indenture provides that no direct or indirect stockholder, employee, officer or director, as such, past, present or future of Services or CCPR or any successor entity shall have any personal liability in respect of the obligations of Services or CCPR under the Indenture, the Notes or the Guarantee by reason of his or its status as such stockholder, employee, officer or director. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of 68 any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. ADDITIONAL INFORMATION Anyone who receives this Prospectus may obtain a copy of the Indenture and Registration Rights Agreement without charge by writing to CCPR Services, Inc., 110 East 59th Street, New York, NY 10022, Attention: Secretary. BOOK-ENTRY, DELIVERY AND FORM New Notes exchanged for Old Notes through the Book-Entry Transfer Facility may be represented by one or more Global Notes (the "New Global Notes"). One New Global Note shall be issued with respect to each $200 million aggregate principal amount at maturity of the New Notes. The New Global Notes will be deposited on the date of the closing of the Exchange Offer with the Trustee, as custodian of The Depository Trust Company (the "Depositary"), pursuant to a FAST Balance Certificate Agreement between the Trustee and the Depositary and registered in the name of Cede & Co., as nominee of the Depositary (such nominee being referred to herein as the "Global Note Holder"). New Notes exchanged for Old Notes which are in the form of registered definitive certificates (the "Certificated Notes") will be issued in the form of Certificated Notes. Such Certificated Notes may, unless the New Global Note has previously been exchanged for Certificated Notes, be exchanged for an interest in the New Global Note representing the principal amount of New Notes being transferred. The Depositary is a limited-purpose trust company that was created to hold securities for its participating organizations (collectively, the "Participants" or the "Depositary's Participants") and to facilitate the clearance and settlement of transactions in such securities between Participants through electronic book-entry changes in accounts of its Participants. The Depositary's direct Participants (the "Direct Participants") include securities brokers and dealers (including the Initial Purchasers), banks and trust companies, clearing corporations and certain other organizations. Access to the Depositary's system is also available to other entities such as banks, brokers, dealers, and trust companies (collectively, the "Indirect Participants" or the "Depositary's Indirect Participants") that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly. Persons who are not Participants may beneficially own securities held by or on behalf of the Depositary only through the Depositary's Participants or the Depositary's Indirect Participants. Services expects that pursuant to procedures established by the Depositary (i) upon deposit of the New Global Note(s), the Depositary or its custodian will credit the accounts of Participants with portions of the principal amount of the New Global Note(s) and (ii) ownership of the New Notes evidenced by the New Global Note(s) will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by the Depositary (with respect to the interests of the Depositary's Participants), the Depositary's Participants and the Depositary's Indirect Participants. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer New Notes evidenced by the New Global Note(s) will be limited to such extent. 69 So long as the Global Note Holder is the registered owner of any New Notes, the Global Note Holder will be considered the sole holder under the Indenture of any Notes evidenced by the New Global Note(s). Beneficial owners of interest in New Notes evidenced by the New Global Note(s) will not be considered the owners or holders thereof under the Indenture for any purpose, including with respect to the giving of any directions, instructions or approvals to the Trustee thereunder. Neither Services nor the Trustee will have any responsibility or liability for any aspect of the records of the Depositary or for maintaining, supervising or reviewing any records of the Depositary relating to the New Notes (including, without limitation, the beneficial ownership of interest in the New Notes). Payments in respect of the principal and interest on any New Notes registered in the name of the Global Note Holder on the applicable record date will be payable by the Trustee to or at the direction of the Global Note Holder in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, Services and the Trustee may treat the persons in whose names New Notes, including the New Global Note(s), are registered as the owners thereof for the purpose of receiving such payments. Consequently, neither Services nor the Trustee has or will have any responsibility or liability for the payment of such amounts to beneficial owners of New Notes. Services believes, however, that it is the policy of the Depositary to immediately credit the accounts of the relevant Participants with such payments, in accordance with their respective holdings shown on the records of the Depositary. Payments by the Depositary's Participants to be beneficial owners of New Notes will be governed by standing instructions and customary practice and will be the responsibility of the Depositary's Participants or the Depositary's Indirect Participants and not the responsibility of the Depositary, the Trustee or Services. Subject to certain conditions, any person having a beneficial interest in the New Global Note(s) may, upon request to the Trustee, exchange such beneficial interest for Notes in the form of Certificated Notes. Upon any such issuance, the Trustee is required to register such Certificated Notes in the name of, and cause the same to be delivered to, such person or persons (or the nominee of any thereof). In addition, if (i) Services notifies the Trustee in writing that the Depositary is no longer willing or able to act as a depositary and Services is unable to locate a qualified successor within 90 days, (ii) Services, at its option, notifies the Trustee in writing that it elects to cause the issuance of Notes in the form of Certificated Notes under the Indenture, or (iii) the liquidation or bankruptcy of Services, then, upon surrender by the New Global Note Holder of its New Global Note(s), Notes in such form will be issued to each person that the New Global Note Holder and the Depositary identify as being the beneficial owner of the related Notes. Neither Services nor the Trustee will be liable for any delay by the New Global Note Holder or the Depositary in identifying the beneficial owners of Notes and Services and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the New Global Note Holder or the Depositary for all purposes. Although Services expects that DTC will agree to the foregoing procedures in order to facilitate transfers of interest in a New Global Certificate among participants of DTC, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither Services nor the Trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. TRANSFER EXCHANGE A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and Services may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. Services is not required to transfer or exchange any Note selected for redemption. Also, Services is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered Holder of a Note will be treated as the owner of it for all purposes. 70 EXCHANGE OFFER; REGISTRATION RIGHTS Services, CCPR and the Initial Purchasers entered into the Registration Rights Agreement on January 31, 1997. Pursuant to the Registration Rights Agreement, Services and CCPR agreed to file within 120 days after January 28, 1997 with the Commission a registration statement on Form S-1, Form S-3 or Form S-4, if the use of such form is then available (the "Exchange Offer Registration Statement") relating to a registered exchange offer (the "Exchange Offer") for the Notes under the Securities Act. As soon as practicable after the effectiveness of the Exchange Offer Registration Statement, Services and CCPR will offer to the holders of Transfer Restricted Securities (as defined below) who are not prohibited by any law or policy of the Commission from participating in the Exchange Offer the opportunity to exchange their Transfer Restricted Securities for an issue of notes (the "Exchange Notes") that are identical in all material respects to the Notes. In the event that applicable interpretations of the staff of the Commission do not permit Services and CCPR to effect the Exchange Offer ("Commission Blockage") or do not permit any holder of Notes, subject to certain limitations, to participate in the Exchange Offer, Services and CCPR will file with the Commission a shelf registration statement (the "Shelf Registration Statement") to cover resales of Transfer Restricted Securities by such holders who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. Services and CCPR will use their reasonable best efforts to cause the applicable registration statement to be declared effective by the Commission within 160 days after January 28, 1997. For purposes of the foregoing, "Transfer Restricted Securities" means each Note until (i) the date on which such Note has been exchanged for an Exchange Note in the Exchange Offer, (ii) the date on which the offer and sale of such Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) the date on which such Note is distributed to the public pursuant to Rule 144 under the Securities Act or is salable pursuant to Rule 144(k) under the Securities Act. The Registration Rights Agreement provides that (i) Services and CCPR will use their reasonable best efforts to have a Registration Statement (and, if applicable, a Shelf Registration Statement) declared effective by the Commission on or prior to 160 days after January 31, 1997, and (ii) unless the Exchange Offer would not be permitted by a policy of the Commission, Services and CCPR shall have commenced the Exchange Offer and shall use their reasonable best efforts to issue on or prior to 30 days after the date on which the Exchange Offer Registration Statement was declared effective by the Commission (the "Effectiveness Date") the Exchange Notes in exchange for all Notes properly tendered and not withdrawn prior thereto in the Exchange Offer. If (i) the applicable Registration Statement has not been declared effective by the Commission within 160 days after January 31, 1997, (ii) the Registered Exchange Offer has not been consummated within 30 days after the Effectiveness Date or (iii) the Shelf Registration Statement is filed and declared effective but shall thereafter cease to be effective without being succeeded by any additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iii), a "Registration Default"), Services and CCPR will pay Liquidated Damages to each holder of Transfer Restricted Securities, during the first 90-day period immediately following the occurrence of such Registration Default in an amount equal to $0.05 per week per $1,000 principal amount of Notes ("Liquidated Damages") constituting Transfer Restricted Securities held by such holder. The amount of the Liquidated Damages will increase by an additional $0.05 per week per $1,000 principal amount of Notes constituting Transfer Restricted Securities for each subsequent 90-day period until the applicable Registration Statement is declared effective, the Exchange Offer is consummated or the Shelf Registration Statement again becomes effective, as the case may be, up to a maximum amount of Liquidated Damages of $0.25 per week per $1,000 principal amount of Notes constituting Transfer Restricted Securities. All accrued Liquidated Damages shall be paid to Holders in the same manner as interest payments on the Notes on semi-annual Damages Payment Dates which correspond to interest payment dates for the Notes. Following the cure of all Registration Defaults, the payment of Liquidated Damages will cease. The Registration Rights Agreement also provides that Services and CCPR (i) shall make available for a period of 90 days after the consummation of the Exchange Offer a prospectus meeting the requirements of the Securities Act to any broker-dealer for use in connection with any resale of any such Exchange Notes and (ii) shall pay all expenses incident to the Exchange Offer (including the expenses of one counsel to the Holders of 71 the Notes) and will indemnify certain Holders of the Notes (including any broker-dealer) against certain liabilities, including liabilities under the Securities Act. Holders of Notes will be required to make certain representations to Services and CCPR (as described in the Registration Rights Agreement) in order to participate in the Exchange Offer and will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Notes included in the Shelf Registration Statement and benefit from the provisions regarding Liquidated Damages set forth in the preceding paragraph. CERTAIN DEFINITIONS Set forth below is a summary of certain defined terms to be contained in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided. "Administrative Headquarters Lease" means the lease and leasehold improvement for the Company's administrative headquarters that are being constructed in Guaynabo, Puerto Rico. "Administrative Services Agreement" means that certain Administrative Services Agreement by and among Services, CCPR and CoreComm as in effect on January 28, 1997. "Affiliate" means, with respect to any specified Person, (i) any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified Person or (ii) any officer, director, or controlling stockholder of such other Person. For purposes of this definition, the term "control" means (a) the power to direct the management and policies of a Person, directly or through one or more intermediaries, whether through the ownership of voting securities, by contract, or otherwise, or (b) without limiting the foregoing, the beneficial ownership of 10% or more of the voting power of the voting common equity of such Person (on a fully diluted basis) or of warrants or other rights to acquire such equity (whether or not presently exercisable). "Annualized Operating Cash Flow" on any date, means with respect to any Person the Operating Cash Flow for the Reference Period multiplied by four. "Annualized Operating Cash Flow Ratio" on any date (the "Transaction Date") means, with respect to any Person and its Subsidiaries, the ratio of (i) consolidated Indebtedness of such Person and its Subsidiaries on the Transaction Date (after giving pro forma effect to the incurrence of such Indebtedness) divided by (ii) the aggregate amount of Annualized Operating Cash Flow of such Person (determined on a pro forma basis after giving effect to all acquisitions or dispositions of businesses made by such Person and its Subsidiaries from the beginning of the Reference Period through the Transaction Date as if such acquisition or disposition had occurred at the beginning of such Reference Period); provided, that for purposes of such computation, in calculating Annualized Operating Cash Flow and consolidated Indebtedness, (a) the transaction giving rise to the need to calculate the Annualized Operating Cash Flow Ratio will be assumed to have occurred (on a pro forma basis) on the first day of the Reference Period; (b) the incurrence of any Indebtedness during the Reference Period or subsequent thereto and on or prior to the Transaction Date (and the application of the proceeds therefrom to the extent used to retire Indebtedness or to acquire businesses) will be assumed to have occurred (on a pro forma basis) on the first day of such Reference Period; (c) Consolidated Interest Expense attributable to any Indebtedness (whether existing or being incurred) bearing a floating interest rate shall be computed as if the rate in effect on the Transaction Date had been the applicable rate for the entire period; and (d) all members of the consolidated group of such Person on the Transaction Date that were acquired during the Reference Period shall be deemed to be members of the consolidated group of such Person for the entire Reference Period. When the foregoing definition is used in connection with Services, CCPR and the Restricted Subsidiaries, references to a 72 Person in the foregoing definition shall be deemed to refer to CCPR and references to Subsidiaries in the foregoing definition shall be deemed to refer to Services and the Restricted Subsidiaries. "Business Day" means any day other than a Legal Holiday. "Capitalized Lease Obligations" means obligations under a lease that are required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligations shall be the capitalized amount of such obligations, as determined in accordance with GAAP. "Capital Stock" means, with respect to any Person, any capital stock of such Person and shares, interests, participations or other ownership interests (however designated) of any Person and any rights (other than debt securities convertible into capital stock), warrants and options to purchase any of the foregoing, including (without limitation) each class of common stock and preferred stock of such Person if such Person is a corporation and each general and limited partnership interest of such Person if such Person is a partnership. "Cash Equivalents" means (i) Securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) in each case maturing within one year after the date of acquisition, (ii) time deposits and certificates of deposit and commercial paper issued by the parent corporation of any domestic commercial bank of recognized standing having capital and surplus in excess of $500 million and commercial paper issued by others rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's and in each case maturing within one year after the date of acquisition and (iii) investments in money market funds substantially all of whose assets comprise securities of the types described in clauses (i) and (ii) above. "Change of Control" means (i) any sale, transfer or other conveyance, whether direct or indirect, of a majority of the fair market value of the assets of Services or CCPR, on a consolidated basis, in one transaction or a series of related transactions, if, immediately after giving effect to such transaction, any "person" or "group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), other than an Excluded Person or Excluded Group, is or becomes the "beneficial owner" (as such term is used in Rule 13d-3 promulgated pursuant to the Exchange Act), directly or indirectly, of more than 50% of the equity of the transferee, (ii) any "person" or "group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), other than an Excluded Person or Excluded Group, is or becomes the "beneficial owner" (as such term is used in Rule 13d-3 promulgated pursuant to the Exchange Act), directly or indirectly, of more than 50% of the equity of Services or CCPR then outstanding normally entitled to vote in elections of directors, or (iii) during any period of 12 consecutive months after January 28, 1997, individuals who at the beginning of any such 12-month period constituted the Board of Directors of Services or CCPR (together with any new directors whose election by such Board or whose nomination for election by the shareholders of Services or CCPR was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason, other than as a result of an authorized reduction in the number of directors that constitute the Board of Directors, to constitute a majority of the Board of Directors of Services or CCPR then in office at the time of such determination. "Change of Control Triggering Event" shall mean the occurrence of both a Change of Control and a Rating Decline. "Consolidated Interest Expense" of any Person means, for any period, the aggregate amount (without duplication and determined in each case in accordance with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled to be paid or accrued (including, in accordance with the following sentence, interest attributable to the Capitalized Lease Obligations) of such Person and its consolidated Subsidiaries during such period, including (i) original issue discount and non-cash interest payments or accruals on any Indebtedness, (ii) the interest portion of all deferred payment obligations, and (iii) all commissions, discounts and other fees 73 and charges owed with respect to bankers' acceptances and letters of credit financings and currency and Interest Swap and Hedging Obligations, in each case to the extent attributable to such period, and (b) the amount of dividends accrued or payable by such Person or any of its consolidated Subsidiaries in respect of Preferred Stock (other than by Restricted Subsidiaries of such Person to such Person or such Person's Wholly Owned Subsidiaries). For purposes of this definition, (x) interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by Services or CCPR, as the case may be, to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP and (y) interest expense attributable to any Indebtedness represented by the guaranty by such Person or a Subsidiary of such Person of an obligation of another Person shall be deemed to be the interest expense attributable to the Indebtedness guaranteed. When the foregoing definition is used in connection with Services, CCPR and the Restricted Subsidiaries, references to a Person in the foregoing definition shall be deemed to refer to CCPR and references to Subsidiaries in the foregoing definition shall be deemed to refer to Services and the Restricted Subsidiaries. "Consolidated Net Income" of any Person for any period means the net income (or loss) of such Person and its consolidated Subsidiaries for such period determined (on a consolidated basis) in accordance with GAAP, adjusted to exclude (only to the extent included in computing such net income (or loss) and without duplication) (i) all extraordinary gains and losses and gains and losses that are nonrecurring (including as a result of Asset Sales outside the ordinary course of business), (ii) the net income, if positive, of any Person, that is not a Subsidiary in which such Person or any of its Subsidiaries has an interest, except to the extent of the amount of dividends or distributions actually paid to such Person or a Subsidiary of such Person that both (x) are actually paid in cash to such Person or a Subsidiary of such Person during such period and (y) when taken together with all other dividends and distributions paid during such period in cash to such Person or a Subsidiary of such Person, are not in excess of such Person's pro rata share of such other Person's aggregate net income earned during such period, (iii), except as provided in the definition of "Annualized Operating Cash Flow Ratio," the net income (or loss) of any Subsidiary acquired in a pooling of interests transaction for any period prior to the date of such acquisition and (iv) the net income, if positive, of any Subsidiary of such Person to the extent that the declaration or payment of dividends or similar distributions is not at the time permitted by operation of the terms of its charter or any agreement or instrument applicable to such Subsidiary. When the foregoing definition is used in connection with Services, CCPR and the Restricted Subsidiaries, references to a Person in the foregoing definition shall be deemed to refer to CCPR and references to Subsidiaries in the foregoing definition shall be deemed to refer to Services and the Restricted Subsidiaries. "Credit Agreement" means, at any time of determination, the credit facility or loan agreement designated by Services to be the "Credit Agreement," as amended, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time, which at no time will exceed $75 million. There can only be one such credit facility or loan agreement designated to be the "Credit Agreement" at any one time. "Cumulative Operating Cash Flow" means Operating Cash Flow of the Company for the period beginning on February 1, 1997, through and including the end of the last fiscal quarter preceding the date of any proposed Restricted Payment. "Default" means any event or condition that is, or after notice or passage of time or both would be, an Event of Default. "Designated Senior Debt" means (i) any Indebtedness outstanding under the Credit Agreement and (ii) any other Senior Debt permitted under the Indenture the principal amount of which is $5 million or more and that has been designated by Services as "Designated Senior Debt." "Disqualified Capital Stock" means, with respect to any Person, Capital Stock of such Person that, by its terms or by the terms of any security into which it is convertible, exercisable or exchangeable, is, or upon the happening of any event or the passage of time would be, required to be redeemed or repurchased (including at the option of the holder thereof) by such Person or any of its Subsidiaries, in whole or in part, on or prior to the date that is 91 days after the Stated Maturity of the Notes; provided that Capital Stock will not be deemed to be 74 Disqualified Capital Stock if it may only be so redeemed or repurchased solely in consideration of Qualified Capital Stock of Services or CCPR. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Excluded Group" means a "group" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) that includes one or more Excluded Persons; provided that the voting power of the Capital Stock of Services or CCPR "beneficially owned" (as such term is used in Rule 13d-3 promulgated under the Exchange Act) by such Excluded Persons (without attribution to such Excluded Persons of the ownership by other members of the "group") represents a majority of the voting power of the Capital Stock "beneficially owned" (as such term is used in Rule 13d-3 promulgated under the Exchange Act) by such group. "Excluded Person" means (i) George S. Blumenthal, (ii) J. Barclay Knapp, (iii) a Permitted Designee of Mr. Blumenthal or Mr. Knapp, and (iv) CoreComm and any Subsidiary or successor thereto. "Existing Indebtedness" means Indebtedness of Services, CCPR or the Restricted Subsidiaries in existence and outstanding on January 28, 1997. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board ("FASB") or, if FASB ceases to exist, any successor thereto; provided, however, that for purposes of determining compliance with covenants in the Indenture, "GAAP" means such generally accepted accounting principles as in effect as of January 28, 1997. "Holder" means a Person in whose name a Note is registered. The Holder of a Note will be treated as the owner of such Note for all purposes. "Indebtedness" of any Person means, without duplication, (a) all liabilities and obligations, contingent or otherwise, of such Person, (i) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (ii) evidenced by bonds, notes, debentures or similar instruments, (iii) representing the balance deferred and unpaid of the purchase price of any property or services, except (other than accounts payable or other obligations to trade creditors which have remained unpaid for greater than 90 days past their original due date or to financial institutions, which obligations are not being contested in good faith and for which appropriate reserves have been established) those incurred in the ordinary course of its business that would constitute ordinarily a trade payable to trade creditors, (iv) evidenced by bankers' acceptances or similar instruments issued or accepted by banks, (v) for the payment of money relating to a Capitalized Lease Obligation, or (vi) evidenced by a letter of credit or a reimbursement obligation of such Person with respect to any letter of credit; (b) all obligations of such Person under Interest Swap and Hedging Obligations; (c) all liabilities of others of the kind described in the preceding clauses (a) or (b) that such Person has guaranteed or that is otherwise its legal liability or which are secured by any assets or property of such Person and all obligations to purchase, redeem or acquire any Capital Stock; (d) all Disqualified Capital Stock of such Person and all Preferred Stock of such Person's Subsidiaries; and (e) any and all deferrals, renewals, extensions, refinancing and refundings (whether direct or indirect) of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (a), (b), (c), or (d) or this clause (e), whether or not between or among the same parties; provided that the outstanding principal amount at any date of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such date. "Interest Swap and Hedging Obligations" means any obligations of any Person pursuant to any interest rate swaps, caps, collars and similar arrangements providing protection against fluctuations in interest rates. For purposes of the Indenture, the amount of such obligations shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such 75 obligation had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such obligation provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligations shall be the net amount so determined, plus any premium due upon default by such Person. "Investment" by any Person in any other Person means (without duplication) (a) the acquisition (whether by purchase, merger, consolidation or otherwise) by such Person (whether for cash, property, services, securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of such other Person or any agreement to make any such acquisition; (b) the making by such Person of any deposit with, or advance, loan or other extension of credit to, such other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such other Person) or any commitment to make any such advance, loan or extension; (c) the entering into by such Person of any guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of such other Person; (d) the making of any capital contribution by such Person to such other Person; and (e) the designation by the Board of Directors of Services or CCPR of any Person to be an Unrestricted Subsidiary. For purposes of the "Limitation on Restricted Payments" covenant, (i) "Investment" shall include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair market value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any Investment shall be the fair market value of such Investment plus the fair market value of all additional Investments by Services, CCPR or any of the Restricted Subsidiaries at the time any such Investment is made; provided that, for purposes of this sentence, the fair market value of net assets in excess of $5,000,000 shall be as determined by an independent appraiser of national reputation. "Investment Grade" means BBB or higher by S&P or Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's. In the event that Services shall be permitted to select any other Rating Agency, the equivalent of such ratings by such Rating Agency shall be used. "Junior Indebtedness" means Indebtedness of Services that (i) requires no payment of principal prior to or on the date on which all principal of and interest on the Notes is paid in full and (ii) is subordinate and junior in right of payment to the Notes in all respects. "Legal Holiday" means a Saturday, a Sunday or a day on which commercial banks in the City of New York, or at a place of payment are authorized or required by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Lien" means any mortgage, lien, pledge, charge, security interest, or other encumbrance of any kind, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement and any lease deemed to constitute a security interest and any option or other agreement to give any security interest). "Maturity Date" means, when used with respect to any Note, the date specified on such Note as the fixed date on which the final installment of principal of such Note is due and payable (in the absence of any acceleration thereof pursuant to the provisions of the Indenture regarding acceleration of Indebtedness or any Change of Control Offer or Asset Sale Offer). "Moody's" means Moody's Investors Service, Inc. "Net Cash Proceeds" means the aggregate amount of cash and Cash Equivalents received by Services, CCPR and the Restricted Subsidiaries in respect of an Asset Sale (including upon the conversion to cash and Cash Equivalents of (A) any note or installment receivable at any time, or (B) any other property as and when 76 any cash and Cash Equivalents are received in respect of any property received in an Asset Sale but only to the extent such cash and Cash Equivalents are received within one year after such Asset Sale), less the sum of (i) all reasonable out-of-pocket fees, commissions and other expenses incurred in connection with such Asset Sale, including the amount (estimated in good faith by the Board of Directors of Services or CCPR, as the case may be) of income, franchise, sales and other applicable taxes required to be paid by Services, CCPR or any Restricted Subsidiary in connection with such Asset Sale and (ii) the aggregate amount of cash so received which is used to retire any existing Senior Debt of Services or CCPR or Indebtedness of the Restricted Subsidiaries, as the case may be, which is required to be repaid in connection with such Asset Sale or is secured by a Lien on the property or assets of Services, CCPR or any of the Restricted Subsidiaries, as the case may be. "Net Pops" of any Person with respect to any System means the Pops of the area served by such System multiplied by the direct and/or indirect percentage interest of such Person in the entity licensed or designated to receive an authorization by the FCC or another appropriate governmental regulatory authority to construct or operate a System in that area. "Net Proceeds" means the aggregate net proceeds (including the fair market value of non-cash proceeds constituting equipment or other assets of a type generally used in a Related Business an amount reasonably determined by the Board of Directors of Services or CCPR for amounts under $5,000,000 and by a financial advisor or appraiser of national reputation for equal or greater amounts) received by a Person from the sale of Qualified Capital Stock (other than to a Subsidiary of such Person) after payment of out-of-pocket expenses, commissions and discounts incurred in connection therewith. "Obligation" means any principal, premium, interest (including interest accruing subsequent to a bankruptcy or other similar proceeding whether or not such interest is an allowed claim enforceable against Services in a bankruptcy case under Federal bankruptcy law), penalties, fees, indemnifications, reimbursements, damages and other liabilities payable pursuant to the terms of the documentation governing any Indebtedness. "Operating Cash Flow" of any Person means (a), with respect to any period, the Consolidated Net Income of such Person for such period, plus (b) the sum, without duplication (and only to the extent such amounts are deducted from net revenues in determining such Consolidated Net Income), of (i) the provisions for income taxes for such period for such Person and its consolidated Subsidiaries, (ii) depreciation, amortization and other non-cash charges of such Person and its consolidated Subsidiaries and (iii) Consolidated Interest Expense of such Person for such period, determined, in each case, on a consolidated basis for such Person and its consolidated Subsidiaries in accordance with GAAP, less (c) the amount of all cash payments made during such period by such Person and its Subsidiaries to the extent such payments relate to non-cash charges that were added back in determining Operating Cash Flow for such period or for any prior period. When the foregoing definition is used in connection with Services, CCPR and the Restricted Subsidiaries, references to a Person in the foregoing definition shall be deemed to refer to CCPR and references to Subsidiaries in the foregoing definition shall be deemed to refer to Services and the Restricted Subsidiaries. "Permitted Designee" means (i) a spouse or a child of a Permitted Holder, (ii) trusts for the benefit of a Permitted Holder or a spouse or child of a Permitted Holder, (iii) in the event of the death or incompetence of a Permitted Holder, his estate, heirs, executor, administrator, committee or other personal representative or (iv) any person so long as a Permitted Holder owns at least 50% of the voting power of all classes of the Voting Stock of such person. "Permitted Holders" means George S. Blumenthal, J. Barclay Knapp and their Permitted Designees. "Permitted Investment" means (i) Investments in Cash Equivalents; (ii) Investments in Services, CCPR or a Restricted Subsidiary (other than a Non- Recourse Restricted Subsidiary); (iii) Investments in a Person substantially all of whose assets are of a type generally used in a Related Business (an "Acquired Person") if, as a result of such Investments, (A) the Acquired Person immediately thereupon becomes a Restricted Subsidiary (other than a Non-Recourse Restricted Subsidiary) or (B) the Acquired Person immediately thereupon either (1) is merged or consolidated with or into Services, CCPR or any of the Restricted Subsidiaries (other than a 77 Non-Recourse Restricted Subsidiary) and the surviving Person is Services, CCPR or a Restricted Subsidiary (other than a Non-Recourse Restricted Subsidiary) or (2) transfers or conveys all or substantially all of its assets to, or is liquidated into, Services, CCPR or any of the Restricted Subsidiaries (other than a Non-Recourse Restricted Subsidiary); (iv) Investments in accounts and notes receivable acquired in the ordinary course of business; (v) any securities received in connection with an Asset Sale (other than those of a Non-Recourse Restricted Subsidiary) and any investment with the Net Cash Proceeds from any Asset Sale in Capital Stock of a Person, all or substantially all of whose assets are of a type used in a Related Business, that complies with the "Limitation on Asset Sales and Sales of Restricted Subsidiary Stock" covenant; (vi) any Investment pursuant to the terms of the agreements described in or referred to under the caption "The Restructuring" or "Certain Relationships and Related Transactions," as such agreements were in effect on January 28, 1997; (vii) any guarantee issued by a Restricted Subsidiary in respect of Senior Debt, or in respect of Indebtedness described by clause (ix) of the third paragraph of the "Limitation on Incurrence of Additional Indebtedness" covenant, in each case incurred in compliance with the Indenture; (viii) advances and prepayments for asset purchases in the ordinary course of business in a Related Business of Services, CCPR or a Restricted Subsidiary; (ix) Investments in Non-Recourse Restricted Subsidiaries with the proceeds of contributions irrevocably and unconditionally received without restriction by Services from CCPR; and (x) customary loans or advances made in the ordinary course of business to officers, directors or employees of Services, CCPR or any of the Restricted Subsidiaries for travel, entertainment, and moving and other relocation expenses. "Permitted Junior Securities" means Equity Interests in Services or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to the Indenture. "Permitted Lien" means (a) Liens existing on the Issue Date; (b) Liens imposed by governmental authorities for taxes, assessments or other charges not yet subject to penalty or which are being contested in good faith and by appropriate proceedings, if adequate reserves with respect thereto are maintained on the books of Services or CCPR in accordance with GAAP; (c) statutory liens of carriers, warehousemen, mechanics, materialmen, landlords, repairmen or other like Liens arising by operation of law in the ordinary course of business provided that (i) the underlying obligations are not overdue for a period of more than 30 days, and (ii) such Liens are being contested in good faith and by appropriate proceedings and adequate reserves with respect thereto are maintained on the books of Services or CCPR in accordance with GAAP; (d) Liens securing the performance of bids, trade contracts (other than borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, zoning, similar restrictions and other similar encumbrances or title defects which, singly or in the aggregate, do not in any case materially detract from the value of the property, subject thereto (as such property is used by Services, CCPR or any of the Restricted Subsidiaries) or interfere with the ordinary conduct of the business of Services, CCPR or any of the Restricted Subsidiaries; (f) Liens arising by operation of law in connection with judgments, only to the extent, for an amount and for a period not resulting in an Event of Default with respect thereto; (g) pledges or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance and other types of social security legislation; (h) Liens in favor of the Trustee arising under the Indenture; (i) Liens securing Senior Debt that was incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant; (j) Liens securing Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary or is merged with or into Services, CCPR or a Restricted Subsidiary, provided that such Liens were in existence prior to the date of such acquisition, merger or consolidation, were not incurred in anticipation thereof, and do not extend to any other assets; (k) Liens arising from Purchase Money Indebtedness permitted under the Indenture; (l) Liens securing Refinancing Indebtedness incurred to refinance any Indebtedness that was previously so secured in a manner no more adverse to the Holders of the Notes than the terms of the Liens securing such refinanced Indebtedness; and (m) Liens in favor of Services, CCPR or a Wholly Owned Restricted Subsidiary. "Person" means any corporation, individual, joint stock company, joint venture, partnership, unincorporated association, governmental regulatory entity, country, state or political subdivision thereof, trust, municipality or other entity. 78 "Pops" means the estimate of the population of an area as derived from the most recent Rand McNally Commercial Atlas or if such statistics are not printed in the Rand McNally Commercial Atlas or the Rand McNally Commercial Atlas is no longer published, such other recognized source of such information. "Purchase Money Indebtedness" means Indebtedness of Services, CCPR or the Restricted Subsidiaries incurred in connection with the purchase of property or assets for the business of Services, CCPR or the Restricted Subsidiaries, provided, that the recourse of the lenders with respect to such Indebtedness is limited solely to the property or assets so purchased without further recourse to either Services, CCPR or any of the Restricted Subsidiaries. "Qualified Capital Stock" means any Capital Stock of a Person that is not Disqualified Capital Stock. "Rating Agencies" means (i) S&P and (ii) Moody's and (iii) if S&P or Moody's or both shall not make a rating of the Notes publicly available, a nationally recognized securities rating agency or agencies, as the case may be, selected by Services, which shall be substituted for S&P or Moody's or both, as the case may be. "Rating Category" means (i) with respect to S&P, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii) with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (iii) the equivalent of any such category of S&P or Moody's used by another Rating Agency. In determining whether the rating of the Notes has decreased by one or more gradations, gradations within Rating Categories (+ and - for S&P; 1, 2 and 3 for Moody's; or the equivalent gradations for another Rating Agency) shall be taken into account (e.g. with respect to S&P, a decline in a rating from BB to BB- as well as from BB- to B+, will constitute a decrease of one gradation). "Rating Date" means that date which is 90 days prior to the earlier of (x) a Change of Control and (y) public notice of the occurrence of a Change of Control or the intention by Services or CCPR to effect a Change of Control. "Rating Decline" shall mean the occurrence on, or within six months after, the date of public notice of the occurrence of a Change of Control or the intention by Services to effect a Change of Control (which period shall be extended so long as the rating of the Notes is under publicly announced consideration for possible downgrade by any of the Rating Agencies) of any of the following events: (a) in the event the Notes are rated by both Moody's and S&P on the Rating Date as Investment Grade, the rating of the Notes by either Rating Agency shall be below Investment Grade, (b) in the event the Notes are rated by either, but not both, of the Rating Agencies on the Rating Date as Investment Grade, the rating of the Notes by such Rating Agency shall be below Investment Grade, or (c) in the event the Notes are rated below Investment Grade by both Rating Agencies on the Rating Date, the rating of the Notes by either Rating Agency shall be decreased by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). "Reference Period" with regard to any Person means the last full fiscal quarter of such Person for which financial information (which Services and CCPR, as the case may be, shall use their best efforts to compile in a timely manner) in respect thereof is available ended on or immediately preceding any date upon which any determination is to be made pursuant to the terms of the Notes or the Indenture. "Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock (a) issued in exchange for, or the proceeds from the issuance and sale of which are used substantially concurrently to repay, redeem, defease, refund, refinance, discharge or otherwise retire for value, in whole or in part, or (b) constituting an amendment, modification or supplement to, or a deferral or renewal of ((a) and (b) above are, collectively, a "Refinancing"), any Indebtedness or Disqualified Capital Stock in a principal amount or, in the case of Disqualified Capital Stock, liquidation preference (or if such Indebtedness or Disqualified Capital Stock does not require cash payments prior to maturity or is otherwise issued at a discount, the original issue price of such Indebtedness or Disqualified Capital Stock), not to exceed the sum of (x) the lesser of (i) the principal amount or, in the case of Disqualified Capital Stock, liquidation preference, of the Indebtedness or Disqualified Capital Stock so refinanced and (ii) if 79 such Indebtedness being refinanced was issued with an original issue discount, the accreted value thereof (as determined in accordance with GAAP) at the time of such Refinancing, (y) the amount of any premium required to be paid in connection with such Refinancing pursuant to the terms of such Indebtedness and (z) all other customary fees and expenses of Services, CCPR or such Restricted Subsidiary reasonably incurred in connection with such refinancing; provided, that (A) Refinancing Indebtedness issued by any Restricted Subsidiary shall only be used to refinance outstanding Indebtedness or Disqualified Capital Stock of such Restricted Subsidiary, (B) Refinancing Indebtedness shall (x) not have a Weighted Average Life shorter than the Indebtedness or Disqualified Capital Stock to be so refinanced at the time of such Refinancing and (y) in all respects, be no less subordinated or junior, if applicable, to the rights of Holders of the Notes than was the Indebtedness or Disqualified Capital Stock to be refinanced and (C) such Refinancing Indebtedness shall have no installments of principal (or redemption payment) scheduled to come due earlier than the scheduled maturity of any installment of principal (or redemption payment) of the Indebtedness or Disqualified Capital Stock to be so refinanced which was scheduled to come due prior to the Stated Maturity of the Notes. "Related Business" means any business directly related to the ownership, development, operation or acquisition of communications or media systems or services. "Related Person" means, with respect to any Person, (i) any Affiliate of such Person or any spouse, immediate family member, or other relative who has the same principal residence of any Affiliate of such Person and (ii) any trust in which any Person described in clause (i) above, have a beneficial interest. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. "Restricted Payment" means, with respect to any Person, (i) any dividend or other distribution on shares of Capital Stock of such Person or any Subsidiary of such Person, (ii) any payment on account of the purchase, redemption or other acquisition or retirement for value, or any payment in respect of any amendment (in anticipation of or in connection with any such retirement, acquisition or defeasance) in whole or in part, of any shares of Capital Stock of such Person or any Subsidiary of such Person held by Persons other than such Person or any of its Restricted Subsidiaries, (iii) any defeasance, redemption, repurchase or other acquisition or retirement for value, or any payment in respect of any amendment (in anticipation of or in connection with any such retirement, acquisition or defeasance) in whole or in part, of any Indebtedness of Services or CCPR (other than the scheduled repayment thereof at maturity and any mandatory redemption or mandatory repurchase thereof pursuant to the terms thereof) by such Person or a Subsidiary of such Person that is subordinate in right of payment to the Notes (other than in exchange for Refinancing Indebtedness permitted to be incurred under the Indenture and except for any such defeasance, redemption, repurchase, other acquisition or payment in respect of Indebtedness held by any Restricted Subsidiary) and (iv) any Investment (other than a Permitted Investment); provided, however, that the term "Restricted Payment" does not include (i) any dividend, distribution or other payment on shares of Capital Stock of Services, CCPR or any Restricted Subsidiary solely in shares of Qualified Capital Stock, (ii) any dividend, distribution or other payment to Services, CCPR, or any dividend to any of the Restricted Subsidiaries by any of the Subsidiaries, (iii) any dividend, distribution or other payment by any Restricted Subsidiary on shares of its Capital Stock that is paid pro rata to all holders of such Capital Stock and (iv) the purchase, redemption or other acquisition or retirement for value of shares of Capital Stock of any Restricted Subsidiary (other than Non- Recourse Restricted Subsidiaries) held by Persons other than Services, CCPR or any of the Restricted Subsidiaries. "Restricted Subsidiary" means any Subsidiary of CCPR or any future subsidiary of Services which at the time of determination is not an Unrestricted Subsidiary. The Board of Directors of CCPR or Services, as the case may be, may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if, immediately before and after giving effect to such designation, there would exist no Default or Event of Default and CCPR or Services, as the case may be, could incur at least $1.00 of Indebtedness pursuant to the Annualized Operating Cash Flow Ratio test of the "Limitation on Incurrence of Additional Indebtedness" covenant, on a pro forma basis taking into account such designation. 80 "S&P" means Standard & Poor's Rating Group and its successors. "Senior Debt" means all Indebtedness of Services or CCPR (including, with respect to the Credit Agreement, all Obligations thereunder), including interest thereon, whether outstanding on January 28, 1997 or thereafter incurred, other than (a) Indebtedness that is expressly subordinated or junior in right of payment to any Indebtedness of Services or CCPR, (b) Indebtedness represented by Disqualified Capital Stock, (c) any liability for federal, state, local or other taxes owed or owing by Services or CCPR, (d) Indebtedness of Services or CCPR to any Subsidiary of Services or CCPR or any Affiliate of Services or CCPR (other than Purchase Money Indebtedness constituting at least 75% but not more than 100% of the cost of wireless cellular communication system equipment and other related fixed assets, incurred in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant), (e) trade payables and (f) Indebtedness incurred in violation of the Indenture. "Significant Restricted Subsidiary" means one or more Restricted Subsidiaries having an aggregate net book value of assets in excess of 5% of the net book value of the assets of CCPR, Services and the Restricted Subsidiaries on a consolidated basis. "Stated Maturity" means the date fixed for the payment of any principal or premium pursuant to the Indenture and the Notes, including the Maturity Date, upon redemption, acceleration, Asset Sale Offer, Change of Control Offer or otherwise. "Strategic Equity Investor" means any company, or a controlled Affiliate of any company, which is substantially engaged in a cable or telecommunications business; provided, however, that a Strategic Equity Investor shall not include (x) any Subsidiary of CCPR or Services or (y) any Person that is an Affiliate of CCPR or Services. "Subsidiary" with respect to any Person, means (i) a corporation at least fifty percent of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by such Person, by such Person and one or more Subsidiaries of such Person or by one or more Subsidiaries of such Person, or (ii) a partnership in which such Person or a Subsidiary of such Person is, at the time, a general partner of such partnership, or (iii) any person in which such Person, one or more Subsidiaries of such Person, or such Person and one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof has (x) at least a fifty percent ownership interest or (y) the power to elect or direct the election of the directors or other governing body of such Person. "Tax Sharing Agreement" means that certain Tax Sharing Agreement by and among Services, CCPR and the Restricted Subsidiaries as in effect on January 28, 1997. "Unrestricted Subsidiary" shall mean any Subsidiary of CCPR or any future Subsidiary of Services that, at the time of determination, shall be an Unrestricted Subsidiary (as designated by the Board of Directors of CCPR or Services, as the case may be, as provided below). The Board of Directors of CCPR or Services, as the case may be, may designate any Subsidiary of CCPR or Services, as the case may be (including any newly acquired or newly formed Subsidiary at or prior to the time it is so formed or acquired) to be an Unrestricted Subsidiary if (a) no Default or Event of Default is existing or will occur as a consequence thereof, (b) such Subsidiary does not own any Capital Stock of, or own or hold any Lien on any property or asset of, Services, CCPR or any Restricted Subsidiary that is not a Subsidiary of the Subsidiary to be so designated and (c) such Subsidiary and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee, or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any property or assets of Services, CCPR or any of the Restricted Subsidiaries (except that such Subsidiary and its Subsidiaries may guarantee the Notes); provided that either (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, that such designation would be permitted under the "Limitation on Restricted Payments" covenant. Each such designation 81 shall be evidenced by filing with the Trustee a certified copy of the resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. "Weighted Average Life" means, as of the date of determination, with respect to any debt instrument, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such debt instrument multiplied by the amount of each such respective principal payment by (ii) the sum of all such principal payments. "Wholly Owned" means, with respect to a Subsidiary of Services or CCPR, (i) a Subsidiary that is a corporation, of which not less than 99% of the Capital Stock (except for directors' qualifying shares or certain minority interests owned by other Persons solely due to local law requirements that there be more than one stockholder, but which interest is not in excess of what is required for such purpose) is owned directly by such Person or through one or more other Wholly Owned Subsidiaries of such Person, or (ii) any entity other than a corporation in which such Person, directly or indirectly, owns not less than 99% of the Capital Stock of such entity. 82 PLAN OF DISTRIBUTION Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. Services has agreed that, for a period of 90 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 1997, all dealers effecting transactions in the New Notes may be required to deliver a prospectus. Services will not receive any proceeds from any sale of New Notes by broker- dealers. New Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such New Notes. Any broker- dealer that resells New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 90 days after the Expiration Date, Services will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. Services has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Notes) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Notes (including any broker-dealer) against certain liabilities, including liabilities under the Securities Act. 83 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a general summary of certain U.S. Federal income tax consequences associated with the exchange of the Old Notes for the New Notes pursuant to the Exchange Offer. The summary is based upon current laws, regulations, rulings and judicial decisions all of which are subject to change, possibly with retroactive effect. The discussion below does not address all aspects of U.S. Federal income taxation that may be relevant to particular Holders of Old Notes or New Notes. In addition, the discussion does not address any aspect of state, local or foreign taxation. The exchange of the Old Notes for the New Notes pursuant to the Exchange Offer should not be treated as an "exchange" for U.S. Federal income tax purposes because the New Notes should not be considered to differ materially in kind or extent from the Old Notes. Rather, the New Notes received by a Holder should be treated as a continuation of the Old Notes in the hands of such Holder. As a result there should be no U.S. Federal income tax consequences to Holders exchanging the Old Notes for the New Notes pursuant to the Exchange Offer, and any exchanging Holder of Old Notes should have the same tax basis and holding period in the New Notes as such Holder had in the Old Notes immediately prior to the exchange. PROSPECTIVE HOLDERS OF THE NEW NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING SUCH HOLDERS' OLD NOTES FOR THE NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS. LEGAL MATTERS The validity of the New Notes and the Guarantee offered hereby will be passed upon for Services and CCPR by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. EXPERTS The audited consolidated financial statements of Cellular Communications of Puerto Rico, Inc., the audited financial statements of CCPR Services, Inc. and the audited financial statements of San Juan Cellular Telephone Company (a Partnership) included in this Prospectus have been audited by Ernst & Young LLP, independent auditors, as stated in their reports appearing herein. Such financial statements and schedules are included herein in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. 84 INDEX TO FINANCIAL STATEMENTS CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
PAGE Report of Independent Auditors........................................... F-2 Consolidated Balance Sheets--December 31, 1996 and 1995.................. F-3 Consolidated Statements of Operations--Years ended December 31, 1996, 1995 and 1994........................................................... F-4 Consolidated Statement of Shareholders' Equity--Years ended December 31, 1996, 1995 and 1994..................................................... F-5 Consolidated Statements of Cash Flows--Years ended December 31, 1996, 1995 and 1994........................................................... F-6 Notes to Consolidated Financial Statements............................... F-8 Schedule II--Valuation and Qualifying Accounts........................... F-17 CCPR SERVICES, INC. Report of Independent Auditors........................................... F-18 Balance Sheets--December 31, 1996 and 1995............................... F-19 Statements of Operations--Years ended December 31, 1996, 1995 and 1994... F-20 Statement of Shareholder's Equity--Years ended December 31, 1996, 1995 and 1994................................................................ F-21 Statements of Cash Flows--Years ended December 31, 1996, 1995 and 1994... F-22 Notes to Financial Statements............................................ F-24 Schedule II--Valuation and Qualifying Accounts........................... F-29 Pro forma Condensed Financial Statements (unaudited)..................... F-30 Pro forma Condensed Balance Sheet--December 31, 1996 (unaudited)......... F-31 Pro forma Condensed Statement of Operations--Year ended December 31, 1996 (unaudited)............................................................. F-32 Notes to Pro forma Condensed Financial Statements (unaudited)............ F-33 SAN JUAN CELLULAR TELEPHONE COMPANY Report of Independent Auditors........................................... F-34 Balance Sheets--December 31, 1996 and 1995............................... F-35 Statements of Operations--Years ended December 31, 1996, 1995 and 1994... F-36 Statement of Changes in Partners' Capital--Years ended December 31, 1996, 1995 and 1994........................................................... F-37 Statements of Cash Flows--Years ended December 31, 1996, 1995 and 1994... F-38 Notes to Financial Statements............................................ F-39
F-1 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors Cellular Communications of Puerto Rico, Inc. We have audited the accompanying consolidated balance sheets of Cellular Communications of Puerto Rico, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cellular Communications of Puerto Rico, Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP San Juan, Puerto Rico February 23, 1997 F-2 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------------- 1996 1995 ASSETS Current assets: Cash and cash equivalents........................ $ 2,307,000 $ 8,050,000 Marketable securities............................ 5,917,000 -- Accounts receivable--trade, less allowance for doubtful accounts of $3,767,000 (1996) and $3,233,000 (1995)............................... 20,034,000 17,929,000 Equipment inventory.............................. 2,912,000 6,388,000 Prepaid expenses and other current assets........ 3,022,000 2,600,000 ------------ ------------ Total current assets........................... 34,192,000 34,967,000 Property, plant and equipment, net................. 97,945,000 75,769,000 Unamortized license acquisition costs.............. 162,822,000 139,952,000 Deferred financing costs, less accumulated amortization of $1,065,000 (1996) and $455,000 (1995).......... 4,118,000 4,706,000 Other assets, less accumulated amortization of $723,000 (1996) and $1,471,000 (1995).......... 1,645,000 1,603,000 ------------ ------------ $300,722,000 $256,997,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable................................. $ 7,364,000 $ 5,874,000 Accrued expenses................................. 10,889,000 10,895,000 Due to NTL Incorporated.......................... 102,000 -- Due to Cellular Communications, Inc.............. -- 310,000 Interest payable................................. 1,678,000 615,000 Deferred revenue................................. 3,081,000 2,854,000 Current portion of long-term debt................ -- 1,975,000 ------------ ------------ Total current liabilities...................... 23,114,000 22,523,000 Long-term debt..................................... 115,000,000 90,000,000 Commitments and contingent liabilities............. Minority interests................................. -- 322,000 Shareholders' equity: Series preferred stock--$.01 par value; authorized 2,500,000 shares; issued and outstanding none....................... -- -- Common stock--$.01 par value; authorized 30,000,000 shares; issued 13,432,000 (1996) and 12,803,000 (1995) shares............................................ 134,000 128,000 Additional paid-in capital......................... 226,160,000 210,646,000 (Deficit).......................................... (55,363,000) (60,477,000) ------------ ------------ 170,931,000 150,297,000 Treasury stock--at cost, 343,000 (1996) and 207,000 (1995) shares..................................... (8,323,000) (6,145,000) ------------ ------------ 162,608,000 144,152,000 ------------ ------------ $300,722,000 $256,997,000 ============ ============
See accompanying notes. F-3 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 Revenues: Service revenue..................... $119,839,000 $94,409,000 $55,900,000 Equipment revenue................... 13,979,000 14,259,000 11,241,000 ------------ ----------- ----------- 133,818,000 108,668,000 67,141,000 ------------ ----------- ----------- Costs and expenses: Cost of equipment sold.............. 17,962,000 20,635,000 13,818,000 Operating expenses.................. 15,214,000 10,207,000 8,501,000 Selling, general and administrative expenses........................... 63,223,000 51,148,000 30,944,000 Depreciation of rental equipment.... 521,000 225,000 312,000 Depreciation expense................ 12,710,000 9,638,000 6,400,000 Amortization expense................ 6,187,000 5,794,000 5,212,000 ------------ ----------- ----------- 115,817,000 97,647,000 65,187,000 ------------ ----------- ----------- Operating income...................... 18,001,000 11,021,000 1,954,000 Other income (expense): Interest income and other, net...... 646,000 358,000 867,000 Interest expense.................... (8,181,000) (8,501,000) (7,305,000) ------------ ----------- ----------- Income (loss) before income tax provision and minority interests..... 10,466,000 2,878,000 (4,484,000) Income tax provision.................. (5,352,000) (4,007,000) (328,000) ------------ ----------- ----------- Income (loss) before minority interests............................ 5,114,000 (1,129,000) (4,812,000) Minority interests.................... -- (322,000) -- ------------ ----------- ----------- Net income (loss)..................... $ 5,114,000 $(1,451,000) $(4,812,000) ============ =========== =========== Net income (loss) per common share.... $ .36 $ (.13) $ (.49) ============ =========== =========== Weighted average number of common shares used in computation of net income (loss) per share including common stock equivalents............. 14,027,000 11,070,000 9,867,000 ============ =========== ===========
See accompanying notes. F-4 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
ADDITIONAL COMMON STOCK TREASURY STOCK -------------------- PAID-IN --------------------- SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT ---------- -------- ------------ ------------ -------- ----------- Balance, December 31, 1993................... 9,760,000 $ 98,000 $165,737,000 $(54,214,000) Shares issued for acquisition............ 201,000 2,000 5,582,000 Exercise of stock options................ 39,000 391,000 Net loss for the year ended December 31, 1994...... (4,812,000) ---------- -------- ------------ ------------ Balance, December 31, 1994................... 10,000,000 100,000 171,710,000 (59,026,000) Exercise of stock options................ 25,000 385,000 Conversion of Senior Subordinated Notes..... 2,778,000 28,000 38,551,000 Common stock repurchased, at cost... (207,000) $(6,145,000) Net loss for the year ended December 31, 1995...... (1,451,000) ---------- -------- ------------ ------------ -------- ----------- Balance, December 31, 1995................... 12,803,000 128,000 210,646,000 (60,477,000) (207,000) (6,145,000) Shares issued for interests in cellular license....... 820,000 8,000 21,528,000 Exercise of stock options................ 16,000 129,000 Common stock repurchased, at cost... (343,000) (8,323,000) Retirement of Treasury Stock.................. (207,000) (2,000) (6,143,000) 207,000 6,145,000 Net income for the year ended December 31, 1996................... 5,114,000 ---------- -------- ------------ ------------ -------- ----------- Balance, December 31, 1996................... 13,432,000 $134,000 $226,160,000 $(55,363,000) (343,000) $(8,323,000) ========== ======== ============ ============ ======== ===========
See accompanying notes. F-5 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------------------- 1996 1995 1994 OPERATING ACTIVITIES Net income (loss).................... $ 5,114,000 $ (1,451,000) $ (4,812,000) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization...... 19,418,000 15,657,000 11,924,000 Provision for losses on accounts receivable........................ 7,520,000 6,603,000 2,579,000 Loss on sale of property, plant and equipment......................... 371,000 416,000 34,000 Minority interests................. -- 322,000 -- Interest paid to Cellular Communications of Ohio, Inc....... -- (12,978,000) -- Changes in operating assets and liabilities net of effects from business acquisitions: Accounts receivable.............. (9,625,000) (15,000,000) (6,848,000) Equipment inventory.............. 3,476,000 (4,163,000) (68,000) Prepaid expenses................. (422,000) (1,484,000) (304,000) Other assets..................... (292,000) (461,000) (172,000) Accounts payable................. 2,497,000 (2,400,000) 1,214,000 Accrued expenses................. (227,000) 5,004,000 2,534,000 Interest payable................. 1,063,000 (760,000) -- Deferred revenue................. 227,000 1,237,000 457,000 Due to Cellular Communications of Ohio, Inc....................... -- 1,683,000 3,956,000 Due to Cellular Communications, Inc............................. (310,000) (4,000) 83,000 Due to NTL Incorporated.......... 102,000 -- -- ------------ ------------ ------------ Net cash provided by (used in) operating activities................ 28,912,000 (7,779,000) 10,577,000 INVESTING ACTIVITIES Purchase of marketable securities.... (18,653,000) (2,058,000) (10,989,000) Proceeds from maturities of marketable securities............... 12,736,000 11,057,000 11,913,000 Purchase of property, plant and equipment........................... (36,564,000) (30,725,000) (17,097,000) Acquisition of subsidiary, net of cash acquired....................... -- -- (370,000) Purchase of cellular license interests........................... (5,811,000) -- (8,000) Purchase of other assets............. -- -- (251,000) ------------ ------------ ------------ Net cash (used in) investing activities.......................... (48,292,000) (21,726,000) (16,802,000) FINANCING ACTIVITIES Proceeds from borrowings, net of financing costs..................... 52,000,000 121,946,000 -- Principal payments................... (28,975,000) (37,000,000) -- Additional deferred financing costs.. (22,000) -- (107,000) Repayment of amount due to Cellular Communications of Ohio, Inc........................... -- (47,942,000) -- Proceeds from exercise of stock options............................. 129,000 385,000 391,000 Purchase of treasury stock........... (8,323,000) (6,145,000) -- Distribution to minority interests holders............................. (1,172,000) -- -- ------------ ------------ ------------ Net cash provided by financing activities.......................... 13,637,000 31,244,000 284,000 ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents......................... (5,743,000) 1,739,000 (5,941,000) Cash and cash equivalents at beginning of year................... 8,050,000 6,311,000 12,252,000 ------------ ------------ ------------ Cash and cash equivalents at end of year................................ $ 2,307,000 $ 8,050,000 $ 6,311,000 ============ ============ ============
F-6 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31, --------------------------------- 1996 1995 1994 Supplemental disclosure of cash flow information: Cash paid during the period for interest exclusive of amounts capitalized.................... $7,118,000 $20,556,000 $3,350,000 Income taxes paid.......................... 7,239,000 620,000 -- Supplemental schedule of noncash investing activities: Liabilities incurred to acquire property, plant and equipment....................... 1,595,000 2,381,000 2,135,000 Common stock issued for acquisition of subsidiary................................ -- -- 3,675,000 Debt assumed for acquisition of subsidiary................................ -- -- 1,750,000 Common stock issued to acquire cellular license interests......................... 21,536,000 -- 1,909,000 Supplemental schedule of noncash financing activities: Conversion of Senior Subordinated Notes, net of unamortized deferred financing costs of $1,421,000....................... -- 38,579,000 --
See accompanying notes. F-7 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND NATURE OF OPERATIONS Cellular Communications of Puerto Rico, Inc. (the "Company") was incorporated on May 18, 1988 as a wholly-owned subsidiary of Cellular Communications, Inc. ("CCI") to own and operate cellular telephone systems. On July 25, 1990, CCI and AirTouch Communications, Inc. entered into a Merger and Joint Venture Agreement, as amended, pursuant to which, on February 28, 1992, CCI distributed to its stockholders all of the outstanding common stock of the Company. In January 1997, the Company completed a corporate restructuring. A new entity named CoreComm Incorporated ("CoreComm") was formed, and a subsidiary of CoreComm was merged with and into the Company. Upon the merger, the Company became a wholly-owned subsidiary of CoreComm and shareholders of the Company became shareholders of CoreComm on a one for one basis. The Company, through its subsidiaries, owns licenses to operate cellular telephone and paging systems in Puerto Rico and in the U.S. Virgin Islands. Based on service revenues, the predominant line of business is cellular telephone services. The Company's business is currently dependent on the trends in the use of cellular telephone and paging services and is subject to economic, social, political and governmental conditions in Puerto Rico and the U.S. Virgin Islands. The sale of cellular and paging services in each of the Company's markets is becoming increasingly competitive. The Company previously had one cellular competitor in each market, but in the near future it may face many wireless competitors due to the introduction of broadband personal communications services ("PCS") on frequencies recently auctioned by the Federal Communications Commission ("FCC") and specialized mobile radio ("SMR") services on existing SMR frequencies. At least one competitor is offering PCS services in several of the Company's markets. Increased competition could result in pricing pressure, which could contribute to lower revenues per customer and higher customer acquisition costs. 2. SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and those entities where the Company's interest is greater than 50%. Significant intercompany accounts and transactions have been eliminated in consolidation. RECLASSIFICATIONS Certain of the 1994 amounts have been reclassified to conform to the current presentation. LICENSE ACQUISITION COSTS The FCC grants the license to operate a cellular telephone system in a Metropolitan Service Area or a Rural Service Area. Costs incurred to obtain FCC licenses have been deferred and are being amortized by the straight-line method over ten years. In connection with the purchase of license interests, the excess of purchase price paid over the fair value of tangible assets acquired has been classified as license acquisition costs which are amortized through charges to operations by the straight-line method over 40 years. F-8 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NET INCOME (LOSS) PER SHARE Net income (loss) per share is computed based upon the weighted average number of common shares outstanding during the periods, including common stock equivalents in the net income per share computation. Common stock equivalents and the shares issuable upon the conversion of the Convertible Senior Subordinated Notes prior to conversion are excluded from the calculation of net loss per share as their effect would be antidilutive. REVENUE RECOGNITION Service revenue is recognized at the time services are rendered. Equipment sales are recorded when the equipment is shipped to the customer. Rental revenue is billed and recognized on a monthly basis. CASH EQUIVALENTS Cash equivalents are short-term highly liquid investments purchased with a maturity of three months or less. Cash equivalents were $288,000 and $6,881,000 at December 31, 1996 and 1995, respectively. At December 31, 1996 and 1995, cash equivalents consisted primarily of money market instruments. MARKETABLE SECURITIES Marketable securities are classified as available-for-sale, which are carried at fair value. Unrealized holding gains and losses on securities, net of tax, are carried as a separate component of shareholders' equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest and other income. Realized gains and losses and declines in value judged to be other than temporary will be included in interest and other income. The cost of securities sold or matured is based on the specific identification method. Interest on securities is included in interest and other income. Marketable securities at December 31, 1996 consist of U.S. Treasury securities and obligations of U.S. government agencies. During the years ended December 31, 1996 and 1995, there were no realized gains or losses on sales of securities. As of December 31, 1996, there were no unrealized gains or losses on securities. All of the marketable securities as of December 31, 1996 had a contractual maturity of less than one year. EQUIPMENT INVENTORY Equipment inventory is stated at the lower of cost (first-in, first-out method) or market. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows: operating equipment--7 to 25 years, office furniture and other equipment 1 to 5 years, and rental equipment--2 years. DEFERRED FINANCING COSTS Deferred financing costs represent costs incurred relating to the issuance of debt and are amortized over the term of the related debt. F-9 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ADVERTISING The Company expenses the cost of advertising as incurred. Advertising expense for the years ended December 31, 1996, 1995 and 1994 was $3,025,000, $2,808,000 and $1,690,000, respectively. LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company adopted SFAS No. 121 in 1995, which had no material effect on the Company's financial statements. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. STOCK-BASED COMPENSATION The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its plans. 3. UNAMORTIZED LICENSE ACQUISITION COSTS Unamortized license acquisition costs consist of:
DECEMBER 31, ------------------------- 1996 1995 Deferred cellular license costs................... $ 5,935,000 $ 5,935,000 Excess of purchase price paid over the fair market value of tangible assets acquired......................... 189,320,000 161,123,000 ------------ ------------ 195,255,000 167,058,000 Accumulated amortization.......................... 32,433,000 27,106,000 ------------ ------------ $162,822,000 $139,952,000 ============ ============
In July 1994, the Company acquired 100% of USVI Cellular Telephone Corporation ("USVI"), the owner of the non-wireline cellular system serving St. Thomas and St. John in the U.S. Virgin Islands. The acquisition was in exchange for 150,000 shares of freely transferable Company common stock and cash of $335,000. The shares were valued at $3,675,000, based on the fair market value of the Company's common stock on the date of issuance. The Company also incurred $202,000 in expenses. This acquisition has been accounted for as a purchase and, accordingly, the net assets and results of operations of USVI have been included in the consolidated financial statements from the date of acquisition. The Company assumed USVI liabilities aggregating $1,997,000 which exceeded the fair value of the tangible assets acquired by $586,000. The $586,000 plus the aggregate purchase price of $4,212,000 have been classified as license acquisition costs. USVI intangible assets acquired of $1,779,000 are included in the deferred cellular license costs component of license acquisition costs. In October 1994, the Company acquired all of the assets of the non-wireline cellular system serving St. Croix in the U.S. Virgin Islands. This acquisition was in exchange for approximately 51,000 freely transferable F-10 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. UNAMORTIZED LICENSE ACQUISITION COSTS (CONTINUED) shares of the Company's common stock. The shares were valued at $1,909,000, based on the fair market value of the Company's common stock on the date of issuance. The Company also incurred $73,000 in expenses. In February 1996, the Company acquired the remaining minority interests aggregating approximately 6% in the San Juan Cellular Telephone Company in exchange for approximately 820,000 shares of the Company's common stock. The stock was valued at $21,536,000, the fair market value on the date of acquisition. In addition, the San Juan Cellular Telephone Company made a special cash distribution of $1,172,000 to the minority interest holders. The aggregate purchase price of $21,536,000 plus expenses of $56,000 and the deficiency in net assets acquired of $850,000 have been classified as license acquisition costs. In November 1996, the Company acquired the remaining interests, aggregating 49%, in Star Associates, Inc., the company which owns the FCC license for the non-wireline cellular system in Adjuntas, Puerto Rico (RSA-2) for cash of $5,755,000 including expenses. 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of:
DECEMBER 31, ------------------------- 1996 1995 Land.............................................. $ 2,027,000 $ 1,962,000 Operating equipment............................... 97,513,000 73,152,000 Office furniture and other equipment.............. 16,521,000 12,333,000 Rental equipment.................................. 1,174,000 498,000 Construction in progress.......................... 18,674,000 13,535,000 ------------ ------------ 135,909,000 101,480,000 Accumulated depreciation.......................... 37,964,000 25,711,000 ------------ ------------ $ 97,945,000 $ 75,769,000 ============ ============
5. ACCRUED EXPENSES Accrued expenses consists of:
DECEMBER 31, ----------------------- 1996 1995 Accrued compensation................................ $ 1,005,000 $ 1,056,000 Accrued franchise, property and income taxes........ 4,246,000 5,354,000 Commissions payable................................. 1,272,000 349,000 Accrued equipment purchases......................... 502,000 280,000 Subscriber deposits................................. 1,572,000 1,952,000 Other............................................... 2,292,000 1,904,000 ----------- ----------- $10,889,000 $10,895,000 =========== ===========
6. LONG-TERM DEBT In April 1995, the Company and one of its wholly-owned subsidiaries, CCPR Services, Inc. ("Services"), entered into a $200,000,000 revolving credit facility with various banks. A portion of the amount borrowed was F-11 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. LONG-TERM DEBT (CONTINUED) used to repay Cellular Communications of Ohio, Inc. ("CCI Ohio"). The line of credit was available until March 31, 1999, on which date it would have converted into a term loan with principal payments based on an amortization schedule until September 30, 2003. The terms included the payment of interest each quarter at a floating rate, which was, at the borrower's option, either (a) the higher of the bank's base rate or the Federal Funds Rate plus 1/2%, (b) the London Interbank Offering Rate or (c) the 936 Rate, plus, based on the ratio of the Company's debt to cash flow and the floating rate in effect, either .25% to 1.875% or 1.25% to 2.875%. The effective rate on the Company's borrowings as of December 31, 1996 and 1995 was 7.01% and 7.23%, respectively. The terms also included an unused commitment fee of 1/2% per annum which was payable quarterly. The carrying amount of the bank loan at December 31, 1996 and 1995 approximated fair value based on discounted cash flow analysis. The Company incurred costs of $5,183,000 in connection with the revolving credit facility which is included in deferred financing costs. In January 1997, Services issued $200,000,000 principal amount 10% Senior Subordinated Notes due 2007 (the "Notes") and received proceeds of $194,500,000 after discounts and commissions. The Notes are unconditionally guaranteed by the Company. The Company and Services used approximately $116,000,000 of the proceeds to repay the principal outstanding plus accrued interest and fees under the bank loan. Deferred financing costs of approximately $4,000,000 were written-off upon the repayment of the bank loan. In addition, Services made a cash payment to the Company of $80,000,000 in exchange for a 21% interest in the San Juan Cellular Telephone Company, and the Company distributed the $80,000,000 to CoreComm. The Notes are due on February 1, 2007. Interest on the Notes is payable semiannually commencing on August 1, 1997. The Notes are redeemable, in whole or in part, at the option of Services at any time on or after February 1, 2002, at a redemption price of 105% that declines annually to 100% in 2005, in each case together with accrued and unpaid interest to the redemption date. The Indenture contains certain covenants with respect to Services, the Company and certain subsidiaries that limit their ability to, among other things, (i) incur additional indebtedness, (ii) pay dividends or make other distributions or restricted payments, (iii) create liens, (iv) sell assets, (v) enter into mergers or consolidations or (vi) sell or issue stock of subsidiaries. The Company had a $47,942,000 principal amount note payable to a subsidiary of CCI, CCI Ohio, which was due and payable in full on July 31, 1996. The note permitted the deferral of interest payments, at the Company's option, throughout the term of the note. Interest was at a floating rate based on the interest rate in effect under CCI Ohio's bank line of credit and term loan agreement. Interest expense accrued for the years ended December 31, 1995 and 1994 was $1,683,000 and $3,956,000, respectively. In April 1995, the Company repaid the principal and deferred interest due to CCI Ohio of $60,920,000. In connection with license acquisitions, subsidiaries of the Company issued promissory notes which were paid in full, together with accrued interest, on their maturity dates in 1996. 7. RELATED PARTY TRANSACTIONS CCI provided management, financial and legal services to the Company. Amounts charged to the Company included direct costs where identifiable and allocated corporate overhead based upon the amount of time incurred on Company business by the common officers and employees of CCI and the Company. Amounts charged to the Company included in general and administrative expenses during the years ended December 31, 1996, 1995 and 1994 were $429,000, $458,000 and $456,000, respectively. In August 1996, upon the merger of CCI with AirTouch Communications, Inc., NTL Incorporated ("NTL") (formerly International CableTel Incorporated) F-12 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. RELATED PARTY TRANSACTIONS (CONTINUED) commenced providing management, financial and legal services to the Company. NTL charged the Company for direct costs where identifiable and allocated corporate overhead based upon the amount of time incurred on Company business by the common officers and employees of NTL and the Company. The amount charged to the Company included in general and administrative expenses in 1996 was $207,000. It is not practicable to determine the amount of expenses that would have been incurred had the Company operated as an unaffiliated entity. However, in the opinion of management of the Company, the allocation method is reasonable. In January 1997, CoreComm and NTL agreed to a change in NTL's fee for the provision of management, financial and legal services. NTL will charge CoreComm for direct costs where identifiable and a fixed percentage of its corporate overhead beginning January 1, 1997. 8. SHAREHOLDERS' EQUITY TREASURY STOCK In April 1996, the Company announced that its Board of Directors authorized the repurchase of up to an additional 750,000 shares of the Company's Common Stock through open market purchases as market conditions warrant. This repurchase plan is in addition to a previously announced repurchase plan for up to 250,000 shares. As of December 31, 1996, the Company had repurchased 550,000 shares for an aggregate of $14,468,000, of which 207,000 shares that cost an aggregate of $6,145,000 were retired. CONVERSION OF SENIOR SUBORDINATED NOTES In August 1992, the Company issued $40,000,000 principal amount 8 1/4% Convertible Senior Subordinated Notes due August 1, 2000 (the "Convertible Notes"). In 1995, primarily as a result of the Company's issuance of a notice of redemption, the Convertible Notes were converted into approximately 2,778,000 shares of Common Stock. Unamortized deferred financing costs of $1,421,000 were charged to equity upon the conversion. The net income per common share for 1995 assuming the conversion of the Convertible Notes at the beginning of 1995 would have been $03. SHAREHOLDER RIGHTS PLAN On January 23, 1992, the Board of Directors approved the Rights Agreement, which has become the CoreComm Rights Agreement. The Rights Agreement provides that eight-tenths of a Right will be issued with each share of Common Stock issued (whether originally issued or from treasury) on or after February 28, 1992 and prior to the occurrence of certain potential takeover events ("Rights Distribution Date"). The Rights are not exercisable until the Rights Distribution Date and will expire at the close of business on February 28, 2002 unless previously redeemed by CoreComm. When exercisable, each Right entitles the owner to purchase from CoreComm 1/100 of a share of Series A Junior Participating Preferred Stock ("Series A Preferred Stock") at a purchase price of $100. The Series A Preferred Stock will be entitled to a minimum preferential quarterly dividend payment of $.01 per share and will be entitled to an aggregate dividend of 100 times the dividend, if any, declared per share of Common Stock. In the event of liquidation, the holders of Series A Preferred Stock will be entitled to a minimum preferential liquidation payment of $1 per share and will be entitled to an aggregate payment of 100 times the payment made per share of Common Stock. Each share of Series A Preferred Stock will have 100 votes and will vote together with the Common Stock. In the event of any merger, consolidation or other transaction in which shares of Common Stock are changed or exchanged, each share of Series A Preferred Stock will be entitled to F-13 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. SHAREHOLDERS' EQUITY (CONTINUED) receive 100 times the amount received per share of Common Stock. The rights are protected by customary antidilution provisions. There are 80,000 shares of Series A Preferred Stock designated from the 2,500,000 authorized shares of Series Preferred Stock. No shares of Series A Preferred Stock are issued or outstanding. STOCK OPTIONS There are 1,848,000 shares of Common Stock reserved for issuance under the 1992 Stock Option Plan (the "Plan"). The Plan provides that incentive stock options be granted at the fair market value of the Common Stock on the date of grant, and nonqualified stock options be granted at not less than 85% of the fair market value of the Common Stock on the date of grant. Options are exercisable as to 20% of the shares subject thereto on the date of grant and become exercisable as to an additional 20% of the shares subject thereto on each January 1 thereafter, while the optionee remains an employee. Options will expire ten years after the date of the grant. There are 295,000 shares of Common Stock reserved for issuance under the Non- Employee Directors Stock Option Plan (the "Directors Plan"). The Directors Plan provides that all options be granted at the fair market value of the Common Stock on the date of grant. Options are exercisable as to 20% of the shares subject thereto on the first anniversary of the date of grant and become exercisable as to an additional 20% of the shares subject thereto on each subsequent anniversary of the grant date, while the optionee remains a director of CoreComm. Options will expire ten years after the date of the grant. The Directors Plan provides for the automatic grant of options to purchase 7,500 shares to each member of the Board of Directors who is not an employee of CoreComm in 1997 and 1998. Pro forma information regarding net income (loss) and income (loss) per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted- average assumptions for 1996 and 1995: risk-free interest rates of 6.56% and 6.61%, respectively, dividend yield of 0%, volatility factor of the expected market price of the Company's common stock of .258 and a weighted-average expected life of the option of 10 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Following is the Company's pro forma information:
YEAR ENDED DECEMBER 31, ------------------------ 1996 1995 Pro forma income (loss)........................... $ 3,467,000 $ (2,309,000) Pro forma income (loss) per share................. $ .25 $ (0.21)
F-14 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. SHAREHOLDERS' EQUITY (CONTINUED) A summary of the Company's stock option activity and related information for the years ended December 31, follows:
1996 1995 1994 --------------------- --------------------- --------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE OF OPTIONS PRICE OF OPTIONS PRICE OF OPTIONS PRICE ---------- --------- ---------- --------- ---------- --------- Outstanding--beginning of year................ 2,180,000 $16.41 1,918,000 $14.13 1,269,000 $ 9.15 Granted................. 289,000 27.87 287,000 31.60 715,000 22.85 Exercised............... (16,000) 7.64 (25,000) 15.94 (39,000) 9.91 Forfeited............... 0 0.00 0 0.00 (27,000) 17.00 --------- --------- --------- Outstanding--end of year................... 2,453,000 $17.81 2,180,000 $16.41 1,918,000 $14.13 ========= ========= ========= Exercisable at end of year................... 1,690,000 $14.06 1,317,000 $11.65 988,000 $ 8.80 ========= ========= =========
Weighted-average fair value of options, calculated using the Black-Scholes option pricing model, granted during 1996 and 1995 is $15.07 and $17.14, respectively. The following table summarizes the status of the stock options outstanding and exercisable at December 31, 1996:
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE -------------------------------- --------------------------- WEIGHTED- WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE OF OPTIONS LIFE PRICE OF OPTIONS PRICE RANGE OF EXERCISE PRICES ---------- ----------- --------- ------------- ------------ $0.08 to $0.64.......... 301,000 5.0 Years $ 0.345 301,000 $ 0.345 $0.88 to $1.11.......... 228,000 5.0 Years $ 0.939 228,000 $ 0.939 $11.40 to $15.20........ 447,000 5.2 Years $14.884 437,000 $ 14.887 $17.63 to $24.75........ 902,000 7.1 Years $21.766 567,000 $ 21.488 $27.25 to $32.00........ 575,000 8.8 Years $29.729 157,000 $ 30.260 --------- ------------- Total................. 2,453,000 1,690,000 ========= =============
In January 1997, the Company cancelled 200,000 options and 195,000 options from the 1996 and 1995 grants, respectively, and granted 351,000 options at an exercise price of $20.00 per share, the fair market value on the date of grant. 9. INCOME TAXES The provision for income taxes consists of the following:
YEAR ENDED DECEMBER 31, ------------------------------ 1996 1995 1994 Current: Federal.................................... $ -- $ -- $ -- Puerto Rico and U.S. Virgin Islands........ 4,555,000 4,007,000 328,000 ---------- ---------- -------- Total current................................ 4,555,000 4,007,000 328,000 ---------- ---------- -------- Deferred: Federal.................................... -- -- -- Puerto Rico................................ 797,000 -- -- ---------- ---------- -------- Total deferred............................... 797,000 -- -- ---------- ---------- -------- $5,352,000 $4,007,000 $328,000 ========== ========== ========
F-15 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. INCOME TAXES (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1996 and 1995 are as follows:
DECEMBER 31, ------------------------ 1996 1995 Deferred tax liabilities: Tax over book depreciation and amortization....... $21,759,000 $17,150,000 Deferred tax assets: Net operating loss carryforwards.................. 27,125,000 25,322,000 Valuation allowance for deferred tax assets....... (6,163,000) (8,172,000) ----------- ----------- Net deferred tax assets........................... 20,962,000 17,150,000 ----------- ----------- Net deferred tax liabilities........................ $ 797,000 $ -- =========== ===========
At December 31, 1996, the Company had net operating loss carryforwards of $79,700,000 for federal income tax purposes that expire as follows: $3,800,000 in 2004, $3,900,000 in 2006, $20,400,000 in 2007, $26,400,000 in 2008, $14,100,000 in 2009, $9,600,000 in 2010 and $1,500,000 in 2011. 10. PENSION PLAN Two subsidiaries of the Company have defined contribution plans covering all employees who have completed six months of employment. The Company's matching contributions are determined annually. Participants can make salary deferral contributions of 1% to 20% of annual compensation not to exceed the maximum allowed by law. The Company's expense for 1996, 1995 and 1994 was $168,000, $134,000 and $97,000, respectively. 11. LEASES Total rent expense during the years ended December 31, 1996, 1995 and 1994 was $3,085,000, $2,293,000 and $1,710,000, respectively. Future minimum annual lease payments under noncancellable operating leases at December 31, 1996 are: $3,603,000 (1997); $3,513,000 (1998); $3,291,000 (1999); $2,603,000 (2000); $1,772,000 (2001) and $10,640,000 thereafter. 12. COMMITMENT AND CONTINGENT LIABILITIES As of December 31, 1996, the Company was committed to purchase approximately $8,778,000 for cellular network and other equipment and for construction services. In 1992, the Company entered into an agreement which in effect provides for a twenty year license to use a service mark which is also licensed to many of the non-wireline cellular systems in the United States. The Company is required to pay licensing and advertising fees, and to maintain certain service quality standards. The total fees paid for 1996 were $202,000 which were determined by the size of the Company's markets. The Company is involved in various disputes, arising in the ordinary course of business, which may result in pending or threatened litigation. The Company's management expects no material adverse effect on the Company's financial condition to result from these matters. F-16 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E - ------------------------------------------------------------------------------------- ADDITIONS --------------------- (1) (2) ---------- ---------- CHARGED BALANCE AT CHARGED TO TO OTHER BALANCE AT BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- END OF DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD - ------------------------ ---------- ---------- ---------- ------------ ---------- Year ended December 31, 1996: Allowance for doubtful accounts............. $3,233,000 $7,520,000 $-- $(6,986,000)(a) $3,767,000 Year ended December 31, 1995: Allowance for doubtful accounts............. $1,174,000 $6,603,000 $-- $(4,544,000)(a) $3,233,000 Year ended December 31, 1994: Allowance for doubtful accounts............. $ 394,000 $2,579,000 $-- $(1,799,000)(b) $1,174,000
- -------- (a) Uncollectible accounts written off, net of recoveries. (b) Uncollectible accounts written off, net of recoveries and $77,000 allowance for doubtful accounts as of acquisition date of purchased subsidiary. F-17 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholder CCPR Services, Inc. We have audited the accompanying balance sheets of CCPR Services, Inc. as of December 31, 1996 and 1995, and the related statements of operations, shareholder's equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CCPR Services, Inc. at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP San Juan, Puerto Rico February 23, 1997 F-18 CCPR SERVICES, INC. BALANCE SHEETS
DECEMBER 31, ------------------------- 1996 1995 ASSETS Current assets: Cash and cash equivalents.......................... $ 1,918,727 $ 6,967,680 Marketable securities.............................. 5,916,811 -- Accounts receivable--trade, less allowance for doubtful accounts of $3,471,653 (1996) and $2,903,430 (1995)................................. 18,553,120 16,007,251 Due from affiliates................................ 20,160,464 16,631,692 Equipment inventory................................ 2,291,985 4,717,428 Prepaid expenses................................... 2,130,203 1,369,487 ------------ ------------ Total current assets............................. 50,971,310 45,693,538 Property, plant and equipment, net................... 89,911,857 69,507,101 Investment in San Juan Cellular Telephone Company.... 21,401,139 -- Deferred financing costs, net of accumulated amortization of $1,064,906 (1996) and $454,876 (1995)............... 4,118,504 4,705,968 Other assets, net of accumulated amortization of $473,959 (1996) and $1,294,749 (1995)............... 865,561 764,599 ------------ ------------ Total assets..................................... $167,268,371 $120,671,206 ============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Accounts payable.................................. $ 6,703,466 $ 5,299,383 Accrued expenses.................................. 9,136,954 6,545,197 Due to affiliates................................. 26,121,704 16,081,370 Commissions payable............................... 1,100,718 246,429 Deferred revenue.................................. 2,453,846 2,327,352 ------------ ------------ Total current liabilities....................... 45,516,688 30,499,731 Long-term debt...................................... 115,000,000 90,000,000 Commitments and contingent liabilities Shareholder's equity: Common stock, $1 par value: authorized, issued and outstanding--1,000 shares........................ 1,000 1,000 Additional paid-in capital........................ 5,258,302 5,258,302 Retained earnings (deficit)....................... 1,492,381 (5,087,827) ------------ ------------ Total shareholder's equity...................... 6,751,683 171,475 ------------ ------------ Total liabilities and shareholder's equity...... $167,268,371 $120,671,206 ============ ============
See accompanying notes. F-19 CCPR SERVICES, INC. STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ------------------------------------- 1996 1995 1994 Revenues: Administrative and capital usage fees charged to affiliates................ $26,924,079 $17,212,735 $ 3,656,492 Depreciation and amortization........... 13,005,623 9,669,381 6,843,383 ----------- ----------- ----------- Operating income (loss)................. 13,918,456 7,543,354 (3,186,891) Other income (expense): Intercompany interest income.......... 741,010 536,775 198,507 Interest and other income (expense)... 601,533 169,398 (101,982) Interest expense...................... (8,094,399) (2,750,576) -- Equity in net income of San Juan Cellular Telephone Company........... 304,374 -- -- ----------- ----------- ----------- (6,447,482) (2,044,403) 96,525 ----------- ----------- ----------- Income (loss) before income taxes....... 7,470,974 5,498,951 (3,090,366) Provision for income taxes.............. (890,766) (109,955) -- ----------- ----------- ----------- Net income (loss)....................... $ 6,580,208 $ 5,388,996 $(3,090,366) =========== =========== ===========
See accompanying notes F-20 CCPR SERVICES, INC. STATEMENT OF SHAREHOLDER'S EQUITY
ADDITIONAL RETAINED COMMON PAID-IN EARNINGS STOCK CAPITAL (DEFICIT) TOTAL ------ ----------- ----------- ----------- Balance at December 31, 1993..... $1,000 $30,405,656 $(7,386,457) $23,020,199 Net loss......................... (3,090,366) (3,090,366) ------ ----------- ----------- ----------- Balance at December 31, 1994..... 1,000 30,405,656 (10,476,823) 19,929,833 Return of capital................ (25,147,354) (25,147,354) Net income....................... 5,388,996 5,388,996 ------ ----------- ----------- ----------- Balance at December 31, 1995..... 1,000 5,258,302 (5,087,827) 171,475 Net income....................... 6,580,208 6,580,208 ------ ----------- ----------- ----------- Balance at December 31, 1996..... $1,000 $ 5,258,302 $ 1,492,381 $ 6,751,683 ====== =========== =========== ===========
See accompanying notes F-21 CCPR SERVICES, INC. STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ---------------------------------------- 1996 1995 1994 OPERATING ACTIVITIES Net income (loss).................... $ 6,580,208 $ 5,388,996 $ (3,090,366) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization...... 13,005,623 9,669,381 6,843,383 Equity in net income of San Juan Cellular Telephone Company........ (304,374) -- -- (Gain) loss on disposal of fixed assets............................ 66,598 (23,563) 33,749 Changes in operating assets and liabilities: Accounts receivable.............. (2,545,869) (6,946,139) (4,012,275) Due from affiliates.............. (3,528,772) (7,014,237) 8,745,371 Equipment inventory.............. 2,425,443 (2,517,311) (66,720) Prepaid expenses................. (760,716) (333,192) (299,112) Other assets..................... (279,264) (85,350) (140,561) Accounts payable................. 2,419,083 (2,630,391) 1,137,952 Accrued expenses................. 2,378,420 2,147,729 1,888,127 Due to affiliates................ (11,495,271) 23,934,954 763,645 Commissions payable.............. 854,289 (555,797) 164,832 Deferred revenue................. 126,494 774,108 393,794 ------------ ------------ ------------ Net cash provided by operating activities.......................... 8,941,892 21,809,188 12,361,819 INVESTING ACTIVITIES Purchase of marketable securities.... (15,658,307) -- -- Proceeds from maturities of marketable securities............... 9,741,496 -- -- Purchase of San Juan Cellular Telephone Company interest.......... (55,942) -- -- Acquisition of property, plant and equipment........................... (34,846,405) (26,817,828) (16,522,821) Proceeds from sale of equipment...... 1,850,879 1,721,593 -- ------------ ------------ ------------ Net cash used in investing activities.......................... (38,968,279) (25,096,235) (16,522,821) FINANCING ACTIVITIES Advances from parent company......... -- -- 4,415,729 Additional deferred financing costs.. (22,566) -- -- Proceeds from borrowings............. 52,000,000 10,000,000 -- Principal payments................... (27,000,000) -- -- ------------ ------------ ------------ Net cash provided by financing activities.......................... 24,977,434 10,000,000 4,415,729 Net increase (decrease) in cash...... (5,048,953) 6,712,953 254,727 Cash and cash equivalents at beginning of year................... 6,967,680 254,727 -- ------------ ------------ ------------ Cash and cash equivalents at end of year................................ $ 1,918,727 $ 6,967,680 $ 254,727 ============ ============ ============
F-22 CCPR SERVICES, INC. STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 Supplemental disclosure of cash flow information: Cash paid during the period for interest exclusive of amounts capitalized......... $ 7,032,031 $ 2,092,895 $ -- Income taxes paid......................... 225,743 -- -- Supplemental schedule of noncash investing activities: Liability to parent company incurred in connection with acquisition of San Juan Cellular Telephone Company interest...... $21,535,605 $ -- $ -- Liabilities incurred to acquire property, plant and equipment...................... 1,567,593 2,369,256 1,510,363 Supplemental schedule of noncash financing activities: Assumption of parent company's long term debt..................................... -- $80,000,000 -- Deferred financing costs transferred in connection with assumption of parent company's debt........................... -- 4,958,951 -- Reduction of amount due to parent company in connection with assumption of parent company's debt........................... -- 49,893,695 -- Return of capital in connection with assumption of parent company's debt...... -- 25,147,354 --
F-23 CCPR SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION CCPR Services, Inc. ("Services") is a wholly-owned subsidiary of Cellular Communications of Puerto Rico, Inc. ("CCPR"). Services manages and operates CCPR's Puerto Rico cellular systems (the "Puerto Rico System"). Services collects revenues on behalf of the Puerto Rico System affiliates and incurs costs on behalf of the affiliates. These revenues and costs are recorded by the affiliates. In January 1997, CCPR and its subsidiaries completed a corporate restructuring. A new entity named CoreComm Incorporated ("CoreComm") was formed, and a subsidiary of CoreComm was merged with and into CCPR. Upon the merger, CCPR became a wholly-owned subsidiary of CoreComm and shareholders of CCPR became shareholders of CoreComm on a one for one basis. CCPR, through its subsidiaries, owns licenses to operate cellular telephone and paging systems in Puerto Rico and in the U.S. Virgin Islands. Based on service revenues, the predominant line of business is cellular telephone services. The business of CCPR and subsidiaries is currently dependent on the trends in the use of cellular telephone and paging services and is subject to economic, social, political and governmental conditions in Puerto Rico and the U.S. Virgin Islands. The sale of cellular and paging services in each of CCPR and subsidiaries' markets is becoming increasingly competitive. CCPR and subsidiaries previously had one cellular competitor in each market, but in the near future it may face many wireless competitors due to the introduction of broadband personal communications services ("PCS") on frequencies recently auctioned by the Federal Communications Commission and specialized mobile radio ("SMR") services on existing SMR frequencies. At least one competitor is offering PCS services in several of the markets. Increased competition could result in pricing pressure, which could contribute to lower revenues per customer and higher customer acquisition costs. USE OF ESTIMATES The financial statements have been prepared in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS Cash equivalents are short-term highly liquid investments purchased with a maturity of three months or less. Cash equivalents were $288,000 and $6,849,000 at December 31, 1996 and 1995, respectively. At December 31, 1996 and 1995, cash equivalents consisted primarily of money market instruments. MARKETABLE SECURITIES Marketable securities are classified as available-for-sale, which are carried at fair value. Unrealized holding gains and losses on securities, net of tax, are carried as a separate component of shareholder's equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest and other income. Realized gains and losses and declines in value judged to be other than temporary will be included in interest and other income. The cost of securities sold or matured is based on the specific identification method. Interest on securities is included in interest and other income. F-24 CCPR SERVICES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Marketable securities at December 31, 1996 consist of U.S. Treasury securities and obligations of U.S. government agencies. During the year ended December 31, 1996, there were no realized gains or losses on sales of securities. As of December 31, 1996, there were no unrealized gains or losses on securities. All of the marketable securities as of December 31, 1996 had a contractual maturity of less than one year. EQUIPMENT INVENTORY Equipment inventory is stated at the lower of cost (first-in, first-out method) or market. INVESTMENT IN SAN JUAN CELLULAR TELEPHONE COMPANY The investment in San Juan Cellular Telephone Company (the "Partnership") consists of the cost of acquiring a 6% ownership interest in the Partnership and Services' share of the Partnership's earnings from the date of acquisition. The excess of the cost over the equity acquired is being amortized through charges to operations by the straight line method over 40 years. Services accounts for its ownership of the Partnership by the equity method of accounting. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows: operating equipment--7 to 25 years, office furniture and other equipment--1 to 5 years and rental equipment--2 years. DEFERRED FINANCING COSTS Deferred financing costs represent costs incurred relating to the issuance of debt and are amortized over the term of the related debt. LONG-LIVED ASSETS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Services adopted SFAS No. 121 in 1995, which had no material effect on Services' financial statements. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future discounted cash flow is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. ADVERTISING Advertising costs incurred and charged to affiliates for the years ended December 31, 1996, 1995 and 1994 was $2,544,168, $2,378,454 and $1,653,938, respectively. RECLASSIFICATIONS Certain of the 1995 and 1994 amounts have been reclassified to conform to the current presentation. F-25 CCPR SERVICES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENT IN SAN JUAN CELLULAR TELEPHONE COMPANY In February 1996, Services acquired approximately 6% of San Juan Cellular Telephone Company in exchange for 820,404 shares of common stock of CCPR. The stock was valued at $21,535,605, the fair market value on the date of acquisition. Services recorded a liability to CCPR of $21,535,605 in connection with the acquisition. Services incurred $55,942 in expenses related to the acquisition. The excess of the cost over Services' portion of the Partnership's equity is being amortized. Accumulated amortization amounted to $494,782 at December 31, 1996. 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of:
DECEMBER 31, -------------------------- 1996 1995 Land.............................................. $ 1,928,178 $ 1,928,178 Operating equipment............................... 90,337,161 67,984,982 Office furniture and other equipment.............. 15,408,337 11,362,389 Rental equipment.................................. 710,946 547,238 Construction in progress.......................... 17,644,214 12,362,936 ------------ ------------ 126,028,836 94,185,723 Accumulated depreciation.......................... (36,116,979) (24,678,622) ------------ ------------ $ 89,911,857 $ 69,507,101 ============ ============
4. ACCRUED EXPENSES Accrued expenses consist of:
DECEMBER 31, --------------------- 1996 1995 Accrued franchise, property and income taxes........... $2,874,496 $1,666,506 Other.................................................. 6,262,458 4,878,691 ---------- ---------- $9,136,954 $6,545,197 ========== ==========
5. RELATED PARTY TRANSACTIONS In 1990, Services entered into agreements whereby Services will manage and operate CCPR's subsidiaries' cellular telephone systems located in the following Puerto Rico markets: San Juan/Caguas, Mayaguez, Aguadilla, Ponce, Arecibo, Rincon, Adjuntas, Ciales and Culebra. Pursuant to the agreements, Services allocates the Puerto Rico System revenues to each affiliate based on the completed calls within each affiliate's license area in the Puerto Rico System during the year, and allocates the Puerto Rico System costs to each affiliate based on the number of cell sites and radio channels in operation or under construction within each affiliate's license area in the Puerto Rico System during the year. During 1996, 1995 and 1994, the Puerto Rico System had cellular service and equipment revenues of $116,481,131, $99,181,112 and $66,266,886, respectively, and incurred costs of $84,330,708, $73,366,566 and $51,712,313, respectively. In 1995, Services assumed $80,000,000 in long-term debt of CCPR, net of deferred financing costs of $4,958,951. This transaction was recorded by Services as a reduction of the amount due to CCPR ($49,893,695) with the balance ($25,147,354) recorded as a return of capital. F-26 CCPR SERVICES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. LONG-TERM DEBT In April 1995, Services and CCPR entered into a $200,000,000 revolving credit facility with various banks. The line of credit was available until March 31, 1999, on which date it would have converted into a term loan with principal payments based on an amortization schedule until September 30, 2003. The terms included the payment of interest each quarter at a floating rate, which was, at the borrower's option, either (a) the higher of the bank's base rate or the Federal Funds Rate plus 1/2%, (b) the London Interbank Offering Rate or (c) the 936 Rate, plus, based on the ratio of CCPR and subsidiaries' debt to cash flow and the floating rate in effect, either .25% to 1.875% or 1.25% to 2.875%. The effective rate on Services' borrowings as of December 31, 1996 and 1995 was 7.01% and 7.23%, respectively. The terms also included an unused commitment fee of 1/2% per annum which was payable quarterly. The carrying amount of the bank loan at December 31, 1996 and 1995 approximated fair value based on the discounted cash flow analysis. In January 1997, Services issued $200,000,000 principal amount 10% Senior Subordinated Notes due 2007 (the "Notes") and received proceeds of $194,500,000 after discounts and commissions. The Notes are unconditionally guaranteed by CCPR. Services used approximately $116,000,000 of the proceeds to repay the principal outstanding plus accrued interest and fees under the bank loan. Deferred financing costs of approximately $4,000,000 were written- off upon the repayment of the bank loan. In addition, Services made a cash payment to CCPR of $80,000,000 in exchange for a 21% interest in the San Juan Cellular Telephone Company. The Notes are due on February 1, 2007. Interest on the Notes is payable semiannually commencing on August 1, 1997. The Notes are redeemable, in whole or in part, at the option of Services at any time on or after February 1, 2002, at a redemption price of 105% that declines annually to 100% in 2005, in each case together with accrued and unpaid interest to the redemption date. The Indenture contains certain covenants with respect to Services, CCPR and certain subsidiaries of CCPR that limit their ability to, among other things, (i) incur additional indebtedness, (ii) pay dividends or make other distributions or restricted payments, (iii) create liens, (iv) sell assets, (v) enter into mergers or consolidations or (vi) sell or issue stock of subsidiaries. 7. INCOME TAXES The provision for income taxes consists of the following:
YEAR ENDED DECEMBER 31, ----------------------- 1996 1995 1994 Current: Federal............................................. $ -- $ -- $ -- Puerto Rico......................................... 93,766 109,955 -- -------- -------- ----- Total current......................................... 93,766 109,955 -- -------- -------- ----- Deferred: Federal............................................. -- -- -- Puerto Rico......................................... 797,000 -- -- -------- -------- ----- Total deferred........................................ 797,000 -------- -------- ----- $890,766 $109,955 $ -- ======== ======== =====
Services has been included in CCPR's consolidated federal income tax return through 1996. In January 1997, Services, CCPR and CoreComm entered into a tax sharing agreement which provides that CCPR and Services will pay to CoreComm (or CCPR, as appropriate) an amount which equals the amount of federal income F-27 CCPR SERVICES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES (CONTINUED) taxes for which Services and CCPR would be liable if Services and CCPR were not part of the CoreComm consolidated group. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Services' deferred tax liability and asset as of December 31, 1996 and 1995 are as follows:
DECEMBER 31, -------------------- 1996 1995 Deferred tax liability: Tax over book depreciation............................ $904,000 $ -- Deferred tax asset: Net operating loss carryforwards...................... 107,000 1,935,570 Valuation allowance for deferred tax assets........... -- (1,935,570) -------- ----------- Net deferred tax asset.................................. 107,000 -- -------- ----------- Net deferred taxes...................................... $797,000 $ -- ======== ===========
As of December 31, 1996, Services had net operating loss carryforwards of $276,000 to offset future Puerto Rico taxable income that expire in 2001. 8. LEASES Total Puerto Rico System rent, which was charged to affiliates, during the years ended December 31, 1996, 1995 and 1994 was approximately $2,852,000, $2,109,000 and $1,637,000, respectively. Future minimum annual lease payments under noncancelable operating leases at December 31, 1996 are: $3,449,000 (1997); $3,388,000 (1998); $3,178,000 (1999) $2,500,000 (2000); $1,704,000 (2001) and $10,475,000 (thereafter). 9. PENSION PLAN Services has a deferred contribution plan covering all employees who have completed six months of employment. Services' matching contributions are determined annually. Participants can make salary deferral contributions of 1% to 10% of annual compensation, not to exceed the maximum allowed by law. Services' expense for 1996, 1995 and 1994 was $144,969, $120,745 and $97,000, respectively. 10. COMMITMENT AND CONTINGENT LIABILITIES As of December 31, 1996, Services was committed to purchase approximately $8,655,000 for cellular network and other equipment and for construction services. Services is involved in various disputes, arising in the ordinary course of business, which may result in pending or threatened litigation. Services' management expects no material adverse effect on Services' financial condition to result from these matters. F-28 CCPR SERVICES, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E - ------------------------------------------------------------------------------------- ADDITIONS --------------------- (1) (2) ---------- ---------- CHARGED BALANCE AT CHARGED TO TO OTHER BALANCE AT BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- END OF DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD Year ended December 31, 1996: Allowance for doubtful accounts............. $2,903,000 $7,087,000 $-- $(6,518,000)(a) $3,472,000 Year ended December 31, 1995: Allowance for doubtful accounts............. $1,127,000 $6,164,000 $-- $(4,388,000)(a) $2,903,000 Year ended December 31, 1994: Allowance for doubtful accounts............. $ 394,000 $2,576,000 $-- $(1,843,000)(a) $1,127,000
- -------- (a) Uncollectible accounts written off, net of recoveries. F-29 CCPR SERVICES, INC. PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED) The unaudited pro forma condensed financial statements of CCPR Services, Inc. ("Services") reflect the following transactions (the "Transactions"): (1) the issuance of $200,000,000 principal amount Senior Subordinated Notes due 2007, (2) the use of a portion of the proceeds from the issuance of the Notes to repay the amounts outstanding under the revolving credit facility with various banks, and (3) the use of the balance of the proceeds from the issuance of the Notes and cash on hand of $2,678,000 to acquire a portion of the partnership interests in the San Juan Cellular Telephone Company ("SJCTC") from Cellular Communications of Puerto Rico, Inc. The unaudited pro forma condensed balance sheet as of December 31, 1996 gives effect to the Transactions as if they had occurred on December 31, 1996. The unaudited pro forma condensed statement of operations for the year ended December 31, 1996 gives effect to the Transactions as if they had occurred at the beginning of the year. The pro forma condensed financial statements have been prepared by Services management. These pro forma condensed financial statements may not be indicative of the results that actually would have occurred if the Transactions had been in effect on the dates indicated or which may be obtained in the future. The pro forma condensed financial statements should be read in conjunction with the financial statements and notes of Services and SJCTC included elsewhere in this Prospectus. F-30 CCPR SERVICES, INC. PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED) DECEMBER 31, 1996
HISTORICAL ADJUSTMENTS PRO FORMA ASSETS Current assets: Cash, cash equivalents and marketable securities................. $ 7,836,000 $(2,678,000) (a)(b)(c) $ 5,158,000 Accounts receivable, net.... 18,553,000 18,553,000 Due from affiliates......... 20,160,000 20,160,000 Other....................... 4,422,000 4,422,000 ------------ ----------- ------------ Total current assets...... 50,971,000 (2,678,000) 48,293,000 Property, plant and equipment, net.......................... 89,912,000 89,912,000 Investment in SJCTC........... 21,401,000 80,000,000 (c) 101,401,000 Other......................... 4,984,000 1,882,000 (a)(b) 6,866,000 ------------ ----------- ------------ Total assets.............. $167,268,000 $79,204,000 $246,472,000 ============ =========== ============ LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Due to affiliates........... $ 26,122,000 $ 26,122,000 Other....................... 19,395,000 $(1,678,000)(b) 17,717,000 ------------ ----------- ------------ Total current liabili- ties..................... 45,517,000 (1,678,000) 43,839,000 Long term debt................ 115,000,000 85,000,000 (a)(b) 200,000,000 Shareholder's equity.......... 6,751,000 (4,118,000)(b) 2,633,000 ------------ ----------- ------------ $167,268,000 $79,204,000 $246,472,000 ============ =========== ============
See accompanying notes. F-31 CCPR SERVICES, INC. PRO FORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 1996
HISTORICAL ADJUSTMENTS PRO FORMA Revenues........................ $26,924,000 $ 13,969,000(d) $ 40,893,000 Depreciation and amortization... 13,006,000 1,990,000(e)(f) 14,996,000 ----------- ------------ ------------ Operating income................ 13,918,000 11,979,000 25,897,000 Interest income................. 1,343,000 -- 1,343,000 Interest expense................ (8,094,000) (11,979,000)(g) (20,073,000) Equity in net income (loss) of SJCTC.......................... 304,000 (376,000)(h) (72,000) ----------- ------------ ------------ Income before income taxes...... 7,471,000 (376,000) 7,095,000 Provision for income taxes...... (891,000) -- (891,000) ----------- ------------ ------------ Net income...................... $ 6,580,000 $ (376,000) $ 6,204,000 =========== ============ ============
See accompanying notes. F-32 CCPR SERVICES, INC. NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED) For purposes of determining the effect of the Transactions on Services' Condensed Balance Sheet as of December 31, 1996 and on the Condensed Statement of Operations for the year ended December 31, 1996, the following pro forma adjustments have been made. The pro forma condensed financial statements give effect to the acquisition of a 21% SJCTC partnership interest for cash of $80,000,000.
DECEMBER 31, 1996 (a)Issuance of the Notes................................. $200,000,000 Discounts and Commissions and estimated fees........... (6,000,000) ------------ Cash received.......................................... $194,000,000 (b)Cash used to repay the bank loan principal............ $115,000,000 Cash used to pay accrued bank loan interest and fees... $ 1,678,000 Write-off of bank loan deferred financing costs........ $ 4,118,000 (c)Purchase of SJCTC partnership interests............... $ 80,000,000 YEAR ENDED DECEMBER 31, 1996 (d)Additional capital usage fee charged to affiliates.... $ 13,969,000 (e)Amortization of deferred financing costs: Notes.................................................. $ 600,000 Bank loan.............................................. (610,000) ------------ (10,000) (f) Amortization of excess of cost over book value of in- vestment in SJCTC over 40 years...................... 2,000,000 ------------ $ 1,990,000 (g)Interest expense: Notes at 10% per annum................................. $ 20,000,000 Bank loan.............................................. (8,021,000) ------------ $ 11,979,000 (h)Equity in pro forma net (loss) of SJCTC............... $ (376,000)
The write-off of the deferred financing costs related to the bank loan is not reflected in the pro forma condensed statements of operations for the year ended December 31, 1996 since it is a nonrecurring charge directly attributable to the Transactions. The unamortized deferred financing costs as of December 31, 1996 were $4,118,000. F-33 REPORT OF INDEPENDENT AUDITORS The Partners San Juan Cellular Telephone Company (A Partnership) We have audited the accompanying balance sheets of San Juan Cellular Telephone Company (A Partnership) as of December 31, 1996 and 1995, and the related statements of operations, changes in partners' capital and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of San Juan Cellular Telephone Company at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP San Juan, Puerto Rico February 23, 1997 F-34 SAN JUAN CELLULAR TELEPHONE COMPANY (A PARTNERSHIP) BALANCE SHEETS
DECEMBER 31, ----------------------- 1996 1995 ASSETS Current assets: Cash................................................. $ 45,966 $ 115,983 Due from CCPR Services, Inc.......................... 9,959,109 6,545,348 Prepaid expenses..................................... 175,397 1,165,891 ----------- ---------- Total current assets............................... 10,180,472 7,827,222 Property and equipment: Operating equipment.................................. 462,590 462,590 Office furniture and equipment....................... 6,912 6,912 ----------- ---------- 469,502 469,502 Accumulated depreciation............................. (469,502) (430,768) ----------- ---------- -- 38,734 Deferred costs, less accumulated amortization of $674,285 (1996) and $588,230 (1995)................... 229,480 315,535 ----------- ---------- Total assets....................................... $10,409,952 $8,181,491 =========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable..................................... $ 10,630 $ 4,000 Income tax payable................................... 785,592 2,794,371 ----------- ---------- Total current liabilities.......................... 796,222 2,798,371 Partners' capital: Capital contributions................................ 271,983 1,443,990 Undistributed earnings............................... 9,341,747 3,939,130 ----------- ---------- Total partners' capital............................ 9,613,730 5,383,120 ----------- ---------- Total liabilities and partners' capital............ $10,409,952 $8,181,491 =========== ==========
See accompanying notes. F-35 SAN JUAN CELLULAR TELEPHONE COMPANY (A PARTNERSHIP) STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ----------------------------------- 1996 1995 1994 Revenues: Puerto Rico System allocated revenues.... $96,906,634 $82,990,708 $54,669,523 Costs and expenses: Puerto Rico System allocated expenses.... 69,197,887 60,231,826 41,671,500 Administrative and capital usage fees.... 18,417,053 11,913,906 2,487,446 General and administrative expenses...... 447,936 361,770 148,977 Depreciation and amortization............ 124,789 152,140 159,884 ----------- ----------- ----------- 88,187,665 72,659,642 44,467,807 ----------- ----------- ----------- Operating income........................... 8,718,969 10,331,066 10,201,716 Other income (expense): Interest income.......................... 2,245 1,173 891 Intercompany interest expense............ -- -- (65,754) ----------- ----------- ----------- Income before income taxes................. 8,721,214 10,332,239 10,136,853 Income taxes............................... 3,318,597 2,978,974 244,400 ----------- ----------- ----------- Net income................................. $ 5,402,617 $ 7,353,265 $ 9,892,453 =========== =========== ===========
See accompanying notes. F-36 SAN JUAN CELLULAR TELEPHONE COMPANY (A PARTNERSHIP) STATEMENT OF CHANGES IN PARTNERS' CAPITAL Balance at December 31, 1993..................................... $(11,862,598) Net income for the year ended December 31, 1994.................. 9,892,453 ------------ Balance at December 31, 1994..................................... (1,970,145) Net income for the year ended December 31, 1995.................. 7,353,265 ------------ Balance at December 31, 1995..................................... 5,383,120 Distribution..................................................... (1,172,007) Net income for the year ended December 31, 1996.................. 5,402,617 ------------ Balance at December 31, 1996..................................... $ 9,613,730 ============
See accompanying notes. F-37 SAN JUAN CELLULAR TELEPHONE COMPANY (A PARTNERSHIP) STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 ----------- ----------- ------------ OPERATING ACTIVITIES Net income............................ $ 5,402,617 $ 7,353,265 $ 9,892,453 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization....... 124,789 152,140 159,884 Changes in operating assets and liabilities: Prepaid expenses.................. 990,494 (1,115,836) (24,070) Due from CCPR Services, Inc....... (3,413,761) (6,545,348) -- Accounts payable.................. 6,630 4,000 -- Income tax payable................ (2,008,779) 2,549,971 244,400 Due to CCPR Services, Inc......... -- (2,324,818) (10,271,783) ----------- ----------- ------------ Net cash provided by operating activities........................... 1,101,990 73,374 884 ----------- ----------- ------------ FINANCING ACTIVITIES Distribution.......................... (1,172,007) -- -- ----------- ----------- ------------ Net increase (decrease) in cash....... (70,017) 73,374 884 Cash at beginning of year............. 115,983 42,609 41,725 ----------- ----------- ------------ Cash at end of year................... $ 45,966 $ 115,983 $ 42,609 =========== =========== ============ Supplemental disclosure of cash flow information: Income taxes paid................... $ 5,327,376 $ 429,003 $ --
See accompanying notes. F-38 SAN JUAN CELLULAR TELEPHONE COMPANY (A PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION San Juan Cellular Telephone Company (the "Partnership") was formed on February 21, 1986 for the purpose of constructing and operating a cellular telephone system in the San Juan/Caguas, Puerto Rico Metropolitan Statistical Area. In March 1988, the Partnership was issued a permit to construct a cellular system in San Juan/Caguas by the Federal Communications Commission ("FCC"). Profits and losses of the Partnership are allocated in accordance with the provisions of the Partnership agreement. The allocation is generally based on each partner's ownership interest in the Partnership. As of February 1993, Cellular Communications of Puerto Rico, Inc. ("CCPR"), either directly or through its wholly-owned subsidiaries, owned 93.854% of the Partnership interests. In February 1996, a wholly-owned subsidiary of CCPR, CCPR Services, Inc. ("Services"), acquired the remaining Partnership interests. In addition, the Partnership made a special cash distribution of $1,172,007. In January 1997, CCPR and its subsidiaries completed a corporate restructuring. A new entity named CoreComm Incorporated ("CoreComm") was formed, and a subsidiary of CoreComm was merged with and into CCPR. Upon the merger, CCPR became a wholly-owned subsidiary of CoreComm and shareholders of CCPR became shareholders of CoreComm in a one for one exchange. In addition, Services made a cash payment to CCPR of $80,000,000 in exchange for a 21% interest in the Partnership. As of January 1997, Services owns 27.146% of the Partnership interests and CCPR (directly and through subsidiaries other than Services) owns the remaining interests. CCPR, through its subsidiaries, owns licenses to operate cellular telephone and paging systems in Puerto Rico and in the U.S. Virgin Islands. Based on service revenues, the predominant line of business is cellular telephone services. The business of CCPR and subsidiaries is currently dependent on the trends in the use of cellular telephone and paging services and is subject to economic, social, political and governmental conditions in Puerto Rico and the U.S. Virgin Islands. The sale of cellular and paging services in each of the CCPR and subsidiaries markets is becoming increasingly competitive. CCPR and subsidiaries previously had one cellular competitor in each market, but in the near future it may face many wireless competitors due to the introduction of broadband personal communications services ("PCS") on frequencies recently auctioned by the FCC and specialized mobile radio ("SMR") services on existing SMR frequencies. At least one competitor is offering PCS services in several of the markets, including San Juan/Caguas. Increased competition could result in pricing pressure, which could contribute to lower revenues per customer and higher customer acquisition costs. USE OF ESTIMATES The financial statements have been prepared in conformity with generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-39 SAN JUAN CELLULAR TELEPHONE COMPANY (A PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Estimated useful lives range from 5 to 15 years. DEFERRED COSTS Deferred costs include license acquisition costs incurred to obtain the FCC permit. These costs are being amortized by the straight-line method over ten years (the life of the FCC license). 2. INCOME TAXES The Partnership is subject to Puerto Rico income taxes on its income. Income taxes for the years ended December 31, 1996, 1995 and 1994 of $3,318,597, $2,978,974 and $244,400, respectively, represent current provisions for Puerto Rico income taxes in 1996 and 1995 and the Puerto Rico alternative minimum tax in 1994. No provision has been made in the accompanying financial statements for federal income tax since, pursuant to provisions of the Internal Revenue Code, each item of income, gain, loss, deduction or credit is reportable by the partners. 3. RELATED PARTY TRANSACTIONS On April 2, 1991, the partners of the Partnership approved the terms and conditions whereby Services will manage and operate CCPR's Puerto Rico cellular system (the "Puerto Rico System"). Pursuant to these terms and conditions, Services collects revenues on behalf of the Puerto Rico System affiliates, and incurs expenditures on behalf of the affiliates. These revenues are allocated to the affiliates based on the completed calls within each affiliate's license area in the Puerto Rico System during the year, and expenses are allocated to the affiliates based on the cell sites and radio channels in operation or under construction within each affiliate's license area in the Puerto Rico System during the year. In addition, Services' administrative and capital use costs are charged to the affiliates. During the years ended December 31, 1996, 1995 and 1994, the Partnership's revenues consisted of Puerto Rico System allocated revenues. During the years ended December 31, 1996, 1995 and 1994, Puerto Rico System allocated expenses amounted to $69,197,887, $60,231,826 and $41,671,500, respectively, and administrative and capital usage fees charged by Services amounted to $18,417,053, $11,913,906 and $2,487,446, respectively. F-40 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SERVICES, CCPR OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RE- LATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THE NOTES, IN ANY JURISDICTION WHERE, OR TO ANY PERSON WHOM, IT IS UN- LAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------ TABLE OF CONTENTS
PAGE ---- Available Information...................................................... 2 Certain Definitions........................................................ 2 Prospectus Summary......................................................... 3 The Restructuring.......................................................... 5 Risk Factors............................................................... 12 Use of Proceeds............................................................ 18 The Exchange Offer......................................................... 19 Capitalization............................................................. 25 Selected Consolidated Financial Information................................ 26 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................ 28 Business................................................................... 34 Management................................................................. 48 Security Ownership of Principal Stockholders and Management............................................................ 52 Certain Relationships and Related Transactions............................. 54 Description of the Notes................................................... 55 Plan of Distribution....................................................... 83 Certain Federal Income Tax Considerations.................................. 84 Legal Matters.............................................................. 84 Experts.................................................................... 84 Index to Financial Statements.............................................. F-1
UNTIL , 1997 (90 DAYS FOLLOWING THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- $200,000,000 CCPR SERVICES, INC. 10% SENIOR SUBORDINATED NOTES DUE 2007 ---------------- PROSPECTUS ---------------- APRIL 29, 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS CCPR SERVICES, INC. Section 145 of the General Corporation Law of Delaware (the "DGCL") provides that a corporation may indemnify directors and officers against liabilities and expenses they may incur in such capacities provided certain standards are met, including good faith and the belief that the particular action is in or not opposed to the best interests of the corporation. Article EIGHTH of CCPR Services, Inc.'s ("Services") Restated Certificate of Incorporation provides as follows: "EIGHTH: The Corporation shall, to the fullest extent permitted by Section 145 of the DGCL, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-law agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person." Article 6 of the By-laws of Services provides as follows: "The Corporation shall indemnify any person, to the fullest extent authorized by the DGCL, with respect to any civil or criminal action or proceeding, instituted or threatened, by reason of the fact that he, his testator or intestate, is or was a director or an officer of the Corporation." CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. Section 145 of the DGCL provides that a corporation may indemnify directors and officers against liabilities and expenses they may incur in such capacities provided certain standards are met, including good faith and the belief that the particular action is in or not opposed to the best interests of the corporation. Article NINTH of Cellular Communications of Puerto Rico, Inc.'s ("CCPR") Restated Certificate of Incorporation provides as follows: "NINTH: No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such a director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) pursuant to Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article NINTH shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or appeal." Article VIII of CCPR's Restated By-laws provides as follows: "The Corporation shall indemnify to the full extent authorized or permitted by law (as now or hereafter in effect) any person made, or threatened to be made, a defendant or witness to any action, suit or proceeding (whether civil or criminal or otherwise) by reason of the fact that he, his testator or intestate, is or was a director or officer of the Corporation or by reason of the fact that such director or officer, at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity." II-1 In addition, the Registration Rights Agreement, the form of which is filed as an exhibit hereto, contains provisions for indemnification by the Initial Purchasers of CCPR and Services and their respective officers, directors, and controlling stockholders against certain liabilities under the Securities Act of 1933, as amended. ITEM 21. EXHIBITS A list of exhibits included as part of the Registration Statement is set forth below: EXHIBIT NO. DESCRIPTION 1.1 Purchase Agreement, dated January 28, 1997, by and among CCPR, Services and Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc and Wasserstein Perella Securities, Inc. with respect to the Old Notes. 2.1 Agreement and Plan of Merger, dated January 31, 1997, by and among CCPR, CoreComm Incorporated and CoreCom Sub Inc. (2) 3.1 Restated Certificate of Incorporation of Services. 3.2 By-laws of Services. 3.3 Restated Certificate of Incorporation of CCPR. (1) 3.4 By-laws of CCPR. (1) 4.1.1 CCPR's Rights Agreement. (2) 4.1.2 CCPR's Amendment No. 1 to the Rights Agreement. (2) 4.2 Registration Rights Agreement, dated January 31, 1997, between CCPR, Services and Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc and Wasserstein Perella Securities, Inc. (2) 4.3 Indenture dated as of January 31, 1997 between CCPR, Services and The Chase Manhattan Bank, Trustee. (2) 4.4 Form of 10% Senior Subordinated Note due 2007 (included in Exhibit 4.3). 5 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality of the securities being registered hereby.* 10.1 CCPR's 1992 Stock Option Plan. (2) 10.2 CCPR's Employee Stock Purchase Plan. (3) 10.3 CCPR's Non-Employee Director Stock Option Plan. (2) 10.4 Tax Sharing Agreement among CoreComm Incorporated, CCPR and Services, dated January 31, 1997. (2) 10.5 Administrative Services Agreement between CoreComm Incorporated and CCPR, dated January 31, 1997. (1) 10.6 Partnership Agreement relating to San Juan Cellular Telephone Company. (2) 10.7 Tax Sharing Agreement, dated as of January 24, 1992 between the Company and Cellular Communications, Inc. (2) 10.8 Form of Administration and Management Agreement between Services, on the one hand and, on the other hand, individually, each of Aguadilla Cellular Telephone Company, Inc., CCI PR RSA, Inc., Cellular Communications of Arecibo, Inc., Cellular Ponce, Inc., Gamma Communications, Mayaguez Cellular Telephone Co., Inc., SJCTC and Star Associates, Inc. (2) 10.9 Agreement dated as of January 31, 1997, by and between CCPR and Services. (2) 12.1 Statement re: Computation of ratio of earnings to fixed charges for Services. 12.2 Statement re: Computation of ratio of earnings to fixed charges for CCPR and subsidiaries. 21 Subsidiaries of CCPR and Services. (2) II-2 EXHIBIT NO. DESCRIPTION 23.1 Consent of Ernst & Young LLP with regard to Services. 23.2 Consent of Ernst & Young LLP with regard to CCPR and subsidiaries. 23.3 Consent of Ernst & Young LLP with regard to SJCTC. 23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5). 24 Power of Attorney (appearing on pages II-5 and II-6 hereof). 25 Form T-1 Statement of Eligibility of The Chase Manhattan Bank, Trustee. 27.1 Financial Data Schedule for Services. 27.2 Financial Data Schedule for CCPR and subsidiaries. 28.1 Form of Letter of Transmittal. 28.2 Form of Notice of Guaranteed Delivery. - --------------------- (1) Incorporated herein by reference to CoreComm Incorporated's Form 8-B as a successor issuer to CCPR, filed with the Commission on February 12, 1997, File No. 000-19869-99. (2) Incorporated herein by reference to CoreComm Incorporated's Annual Report on Form 10-K for the year ended December 31, 1996. (3) Incorporated herein by reference to CCPR's Proxy Statement on Schedule 14A dated April 29, 1996. * To be filed by amendment. ITEM 22. UNDERTAKINGS The undersigned Registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"), (ii) to reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement, and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrants pursuant to the foregoing provisions, or otherwise, the Registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such labilities (other than the payment by the Registrants of expenses incurred or paid by a director, officer or controlling person of the Registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrants hereby undertake that for the purposes of determining any liability under the Securities Act, each filing of the registrants' annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, (and, where applicable, each filing of an employee benefit II-3 plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended, that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned Registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. The undersigned Registrants hereby undertake to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Trust Indenture Act. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-4 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON APRIL 29, 1997. CCPR SERVICES, INC. /s/ George S. Blumenthal By: _________________________________ GEORGE S. BLUMENTHAL CHIEF EXECUTIVE OFFICER AND TREASURER POWER OF ATTORNEY We, the undersigned officers and directors of CCPR Services, Inc., hereby severally constitute and appoint George S. Blumenthal and Richard J. Lubasch, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Registration Statement on Form S-4 filed herewith and any and all pre-effective amendments to said Registration Statement, and generally to do all such things in our names and on our behalf in our capacities as officers and directors to enable CCPR Services, Inc. to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys or any of them, to said Registration Statement and any and all amendments thereto. Pursuant to the requirements of the Securities Act of 1933, as amended, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURES CAPACITY DATE /s/ George S. Blumenthal Chief Executive April 29, 1997 - ------------------------------------- Officer, Treasurer GEORGE S. BLUMENTHAL and Director (Principal Executive Officer) /s/ J. Barclay Knapp President and April 29, 1997 - ------------------------------------- Director (Principal J. BARCLAY KNAPP Operating and Financial Officer) /s/ Richard J. Lubasch Senior Vice April 29, 1997 - ------------------------------------- President-- General RICHARD J. LUBASCH Counsel, Secretary and Director /s/ Gregg Gorelick Vice President-- April 29, 1997 - ------------------------------------- Controller GREGG GORELICK (Principal Accounting Officer) II-5 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-4 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON APRIL 29, 1997. Cellular Communications of Puerto Rico, Inc. /s/ George S. Blumenthal By: _______________________________ GEORGE S. BLUMENTHAL CHIEF EXECUTIVE OFFICER, TREASURER AND DIRECTOR (PRINCIPAL EXECUTIVE OFFICER) POWER OF ATTORNEY We, the undersigned officers and directors of Cellular Communications of Puerto Rico, Inc., hereby severally constitute and appoint George S. Blumenthal, J. Barclay Knapp and Richard J. Lubasch, and each of them singly, our true and lawfull attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Registration Statement on Form S-4 filed herewith and any and all pre- effective amendments to said Registration Statement, and generally to do all such things in our names and on our behalf in our capacities as officers and directors to enable Cellular Communications of Puerto Rico, Inc. to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys or any of them, to said Registration Statement and any and all amendments thereto. Pursuant to the requirements of the Securities Act of 1933, as amended, the Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURES CAPACITY DATE /s/ George S. Blumenthal Chief Executive April 29, 1997 - ------------------------------------- Officer, Treasurer GEORGE S. BLUMENTHAL and Director (Principal Executive Officer) /s/ J. Barclay Knapp President and April 29, 1997 - ------------------------------------- Director (Principal J. BARCLAY KNAPP Operating and Financial Officer) Senior Vice April 29, 1997 - ------------------------------------- President-- General RICHARD J. LUBASCH Counsel and Secretary /s/ Gregg Gorelick Vice President-- April 29, 1997 - ------------------------------------- Controller GREGG GORELICK (Principal Accounting Officer) II-6 SIGNATURES CAPACITY DATE /s/ Sidney R. Knafel Director April 29, 1997 - ------------------------------------- SIDNEY R. KNAFEL /s/ Ted H. McCourtney Director April 29, 1997 - ------------------------------------- TED H. MCCOURTNEY /s/ Del Mintz Director April 29, 1997 - ------------------------------------- DEL MINTZ /s/ Alan J. Patricof Director April 29, 1997 - ------------------------------------- ALAN J. PATRICOF /s/ Warren Potash Director April 29, 1997 - ------------------------------------- WARREN POTASH II-7 EXHIBIT INDEX EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------- ----------- ------ 1.1 Purchase Agreement, dated January 28, 1997, by and among CCPR, Services and Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc and Wasserstein Perella Securities, Inc. with respect to the Old Notes. 2.1 Agreement and Plan of Merger, dated January 31, 1997, by and among CCPR, CoreComm Incorporated and CoreCom Sub Inc. (2) 3.1 Restated Certificate of Incorporation of Services. 3.2 By-laws of Services. 3.3 Restated Certificate of Incorporation of CCPR. (1) 3.4 By-laws of CCPR. (1) 4.1.1 CCPR's Rights Agreement. (2) 4.1.2 CCPR's Amendment No. 1 to the Rights Agreement. (2) 4.2 Registration Rights Agreement, dated January 31, 1997, between CCPR, Services and Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc and Wasserstein Perella Securities, Inc. (2) 4.3 Indenture dated as of January 31, 1997 between CCPR, Services and The Chase Manhattan Bank, Trustee. (2) 4.4 Form of 10% Senior Subordinated Note due 2007 (included in Exhibit 4.3). 5 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to the legality of the securities being registered hereby.* 10.1 CCPR's 1992 Stock Option Plan. (2) 10.2 CCPR's Employee Stock Purchase Plan. (3) 10.3 CCPR's Non-Employee Director Stock Option Plan. (2) 10.4 Tax Sharing Agreement among CoreComm Incorporated, CCPR and Services, dated January 31, 1997. (2) 10.5 Administrative Services Agreement between CoreComm Incorporated and CCPR, dated January 31, 1997. (1) 10.6 Partnership Agreement relating to San Juan Cellular Telephone Company. (2) 10.7 Tax Sharing Agreement, dated as of January 24, 1992 between the Company and Cellular Communications, Inc. (2) 10.8 Form of Administration and Management Agreement between Services, on the one hand and, on the other hand, individually, each of Aguadilla Cellular Telephone Company, Inc., CCI PR RSA, Inc., Cellular Communications of Arecibo, Inc., Cellular Ponce, Inc., Gamma Communications, Mayaguez Cellular Telephone Co., Inc., SJCTC and Star Associates, Inc. (2) 10.9 Agreement dated as of January 31, 1997, by and between CCPR and Services. (2) 12.1 Statement re: Computation of ratio of earnings to fixed charges for Services. 12.2 Statement re: Computation of ratio of earnings to fixed charges for CCPR and subsidiaries. 21 Subsidiaries of CCPR and Services. (2) 23.1 Consent of Ernst & Young LLP with regard to Services. 23.2 Consent of Ernst & Young LLP with regard to CCPR and subsidiaries. 23.3 Consent of Ernst & Young LLP with regard to SJCTC. EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------- ----------- ------ 23.4 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 5). 24 Power of Attorney (appearing on pages II-5 and II-6 hereof). 25 Form T-1 Statement of Eligibility of The Chase Manhattan Bank, Trustee. 27.1 Financial Data Schedule for Services. 27.2 Financial Data Schedule for CCPR and subsidiaries. 28.1 Form of Letter of Transmittal. 28.2 Form of Notice of Guaranteed Delivery. - --------------------- (1) Incorporated herein by reference to CoreComm Incorporated's Form 8-B as a successor issuer to CCPR, filed with the Commission on February 12, 1997, File No. 000-19869-99. (2) Incorporated herein by reference to CoreComm Incorporated's Annual Report on Form 10-K for the year ended December 31, 1996. (3) Incorporated herein by reference to CCPR's Proxy Statement on Schedule 14A dated April 29, 1996. * To be filed by amendment. EX-1.1 2 PURCHASE AGREEMENT EXHIBIT 1.1 EXECUTION COPY ================================================================================ PURCHASE AGREEMENT $200,000,000 10% SERIES A SENIOR SUBORDINATED NOTES DUE 2007 of CCPR SERVICES, INC. As Fully and Unconditionally Guaranteed by CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. Dated as of January 28, 1997 Donaldson, Lufkin & Jenrette Securities Corporation Salomon Brothers Inc Wasserstein Perella Securities, Inc. ================================================================================ January 28, 1997 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION SALOMON BROTHERS INC WASSERSTEIN PERELLA SECURITIES, INC. c/o Donaldson, Lufkin & Jenrette Securities Corporation 277 Park Avenue New York, New York 10172 Ladies and Gentlemen: CCPR Services, Inc., a Delaware corporation (the "Company" or "Services"), ------- -------- proposes to issue and sell an aggregate of $200,000,000 in principal amount of 10% Series A Senior Subordinated Notes due 2007 (the "Series A Notes") of the -------------- Company, to Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Salomon --- Brothers Inc and Wasserstein Perella Securities, Inc. (collectively, the "Initial Purchasers"). The payment of principal, premium, interest and - ------------------- liquidated damages, if any, on the Series A Notes will be fully and unconditionally guaranteed (the "Guarantee") by Cellular Communications of --------- Puerto Rico, Inc., a Delaware corporation (the "Guarantor"), on a senior --------- subordinated basis with respect to all other indebtedness of the Guarantor. The Series A Notes will be issued pursuant to an indenture (the "Indenture"), to be --------- dated the Closing Date (as defined herein), among the Company, the Guarantor and The Chase Manhattan Bank, as trustee (the "Trustee"). Capitalized terms used ------- herein and not otherwise defined shall the meaning assigned to them in the Indenture. 1. ISSUANCE OF SECURITIES. The Series A Notes will be offered and sold to the Initial Purchasers pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended (the "Securities ---------- Act"). The Company has prepared a preliminary offering memorandum, dated January 9, 1997 (including the documents incorporated by reference therein, the "Preliminary Offering Memorandum"), and a final offering memorandum, dated ------------------------------- January 28, 1997 (including the documents incorporated by reference therein, the "Offering Memorandum" and, together with the Preliminary Offering Memorandum, ------------------- the "Offering Documents"), relating to the Company, the Guarantor and the ------------------- Series A Notes. Upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Securities Act, the Series A Notes (and all securities issued in exchange therefor or in substitution thereof) shall bear the following legend: THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AND SUBJECT TO COMPLIANCE WITH OTHER APPLICABLE LAWS. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH SERVICES OR ANY AFFILIATE OF SERVICES WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE"), ONLY (A) TO SERVICES OR TO THE GUARANTOR, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),(2),(3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND OTHERWISE IN COMPLIANCE WITH OTHER APPLICABLE LAWS, SUBJECT TO SERVICES' AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND DELIVERY BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE OF A TRANSFER NOTICE, THE FORM OF WHICH MAY BE OBTAINED FROM THE TRUSTEE AND, IN THE CASE OF THE FOREGOING CLAUSE (E), DELIVERY BY THE TRANSFEROR OF A LETTER OF REPRESENTATION SIGNED BY SUCH TRANSFEREE, THE FORM OF WHICH MAY BE OBTAINED FROM THE TRUSTEE. THE LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. 2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the representations and warranties contained in, and subject to the terms and conditions of, this Agreement, (i) the Company agrees to issue and sell the Series A Notes to the Initial Purchasers and (ii) the Initial Purchasers, severally, but not jointly, agree to purchase the Series A Notes from the Company at a purchase price of 97.25% of the principal amount of the Series A Notes (the "Purchase Price") in -------------- the amount set forth opposite the name of such Initial Purchaser on Schedule I hereto. 3. TERM OF OFFERING. The Initial Purchasers have advised the Company that the Initial Purchasers will make offers (the "Exempt Resales") of the Series A -------------- Notes purchased by the Initial Purchasers hereunder on the terms set forth in the Offering Memorandum, as amended or supplemented, solely to (i) persons which the Initial Purchasers reasonably believe to be "qualified institutional buyers" as defined in Rule 144A under the Securities Act ("QIBs") in transactions under ---- Rule 144A, (ii) a limited number of other institutional "accredited investors," as defined in Rule 501(a) (1), (2), (3) and (7) under 2 the Securities Act, that make certain representations and agreements to the Company (each, an "Accredited Institution"), in private sales exempt from ---------------------- registration under the Securities Act and, (iii) non-U.S. persons outside the United States in reliance upon Regulation S ("Regulation S") under the ------------ Securities Act (such persons specified in clauses (i), (ii) and (iii) being referred to herein as the "Eligible Purchasers"). The Initial Purchasers will ------------------- offer the Series A Notes to Eligible Purchasers initially at a price equal to the purchase price set forth on the cover of the Offering Memorandum. Such price may be changed at any time without notice. Holders (including subsequent transferees) of the Series A Notes will have the registration rights set forth in the registration rights agreement (the "Registration Rights Agreement"), to be dated the Closing Date, in substantially - ------------------------------ the form of Exhibit A hereto, for so long as such Series A Notes constitute "Transfer Restricted Securities" (as defined in the Registration Rights Agreement). Pursuant to the Registration Rights Agreement, the Company and the Guarantor will agree to file with the Securities and Exchange Commission (the "Commission") under the circumstances set forth therein, (i) a registration - ----------- statement under the Securities Act (the "Exchange Offer Registration Statement") ------------------------------------- relating to (A) the Company's 10% Series B Senior Subordinated Notes due 2007 (the "Series B Notes" and, together with the Series A Notes, the "Notes") to be -------------- ----- offered in exchange for the Series A Notes (such offer to exchange being referred to as the "Exchange Offer"), and (ii) a shelf registration statement -------------- pursuant to Rule 415 under the Securities Act (the "Shelf Registration ------------------ Statement" and together with the Exchange Offer Registration Statement, the "Registration Statements") relating to the resale by certain holders of the - ------------------------ Series A Notes, and to use their best efforts to cause any such Registration Statement to be declared effective. This Agreement, the Indenture, the Registration Rights Agreement, the Notes and the Guarantee are hereinafter referred to collectively as the "Operative Documents." ------------------- 4. DELIVERY AND PAYMENT. Delivery to the Initial Purchasers by the Company of, and payment by the Initial Purchasers for, the Series A Notes shall be made at 9:00 a.m., New York City time, on January 31, 1997 (the "Closing ------- Date") at the offices of Latham & Watkins, 885 Third Avenue, New York, New York 10022, or at such other time or place as the Initial Purchasers and the Company shall designate. One or more Series A Notes in definitive form, registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), or such other --- names as the Initial Purchasers may request upon at least one business days' notice to the Company, having an aggregate principal amount corresponding to the aggregate principal amount of Series A Notes sold pursuant to Exempt Resales to QIBs and to Accredited Institutions, shall be delivered by the Company to the Initial Purchasers, against payment by the Initial Purchasers of the purchase price thereof by wire transfer of immediately available funds to the Company's account or as the Company may direct. The Global Notes in definitive form shall be made available to the Initial Purchasers for inspection not later than 9:30 a.m. on the business day immediately preceding the Closing Date. 5. AGREEMENTS OF THE COMPANY AND THE GUARANTOR. The Company and the Guarantor agree with the Initial Purchasers: (a) To advise the Initial Purchasers promptly and, if requested by the Initial Purchasers within the period of time referred to in paragraph (d) below, to confirm such advice in writing, (i) of receipt of any notification with respect to the issuance by any state securities commission of any stop order suspending the qualification or exemption from qualification of any of the Series A Notes for offering or sale in any jurisdiction designated by the Initial Purchasers 3 pursuant to Section 5(f) hereof, or the initiation of any proceeding for such purpose by any state securities commission or other regulatory authority, and (ii) of the happening of any event that makes any statement of a material fact made in the Offering Documents (or any amendment or supplement thereto) untrue or that requires the making of any additions to or changes in the Offering Documents (or any amendment or supplement thereto) in order to make the statements therein, in the light of the circumstances in which they are made, not misleading. The Company and the Guarantor shall use their best efforts to prevent the issuance of any stop order or order suspending the qualification or exemption from qualification of the Series A Notes under any state securities or Blue Sky laws, and, if at any time any state securities commission or other regulatory authority shall issue any stop order or order suspending the qualification or exemption from qualification of any of the Series A Notes under any state securities or Blue Sky laws, the Company and the Guarantor shall use their best efforts to obtain the withdrawal or lifting of such order at the earliest possible time. (b) Subject to paragraph (e) below, during the time period mentioned in paragraph (d) below, to furnish to the Initial Purchasers, without charge, as many copies of the Offering Documents, and any amendments or supplements thereto, as the Initial Purchasers may reasonably request. The Company and the Guarantor consent to the use of the Offering Documents, and any amendments or supplements thereto, by the Initial Purchasers in connection with Exempt Resales. (c) Not to amend or supplement the Offering Memorandum, whether before or after the Closing Date, unless (i) the Initial Purchasers have been previously advised thereof, and (ii) the Initial Purchasers have not reasonably objected thereto within five business days of being furnished a copy thereof (unless in the opinion of counsel to the Company such amendment or supplement is required by law); and to prepare, promptly upon the Initial Purchasers' reasonable request, any amendment or supplement to the Offering Memorandum that the Initial Purchasers deem necessary or advisable in connection with Exempt Resales. (d) Subject to paragraph (e) below, if, after the date hereof and prior to the completion of any Exempt Resale by the Initial Purchasers, in the opinion of counsel for the Initial Purchasers, any event shall occur as a result of which it becomes necessary to amend or supplement the Offering Memorandum to comply with any law or to make the statements therein, in the light of the circumstances at the time that the Offering Memorandum is delivered to an Eligible Purchaser which is a prospective purchaser, not misleading, the Company and the Guarantor agree to promptly (i) prepare an appropriate amendment or supplement to the Offering Memorandum and (ii) furnish the Initial Purchasers with such number of copies of the Offering Memorandum, as amended or supplemented, as the Initial Purchasers may reasonably request. (e) Prior to the consummation of the Exchange Offer or the effectiveness of the Shelf Registration Statement if, in the reasonable judgment of the Initial Purchasers, the Initial Purchasers or any of their affiliates (as such term is defined in the rules and regulations under the Securities Act) are required to deliver an offering memorandum in connection with sales of, or market-making activities with respect to, the Notes, subject to the terms of the Registration Rights Agreement, the Company and the Guarantor agree (A) to periodically amend or supplement the Offering Memorandum so that the information contained in the Offering Memorandum complies with the requirements of Rule 144A of the Securities Act, (B) to amend or supplement the Offering Memorandum when necessary to reflect any material changes in the 4 information provided therein so that the Offering Memorandum will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances existing as of the date the Offering Memorandum is so delivered, not misleading and (C) to provide the Initial Purchasers with such number of copies of each such amended or supplemented Offering Memorandum, as the Initial Purchasers may reasonably request. Following the consummation of the Exchange Offer or the effectiveness of the Shelf Registration Statement and for so long as the Notes are outstanding if, in the reasonable judgment of the Initial Purchasers, the Initial Purchasers or any of their affiliates (as such term is defined in the rules and regulations under the Securities Act) are required to deliver a prospectus in connection with sales of, or market-making activities with respect to, the Notes, (A) to periodically amend the applicable registration statement so that the information contained therein complies with the requirements of Section 10(a) of the Securities Act, (B) to amend the applicable registration statement or supplement the related prospectus or the documents incorporated therein when necessary to reflect any material changes in the information provided therein so that the registration statement and the prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances existing as of the date the prospectus is so delivered, not misleading and (C) to provide the Initial Purchasers with such number of copies of each amendment or supplement filed and such other documents, including, as provided in the Registration Rights Agreement, opinions of counsel and "comfort" letters, as the Initial Purchasers may reasonably request. The Company and the Guarantor hereby expressly acknowledge that the indemnification and contribution provisions of Section 8 hereof are specifically applicable and relate to each offering memorandum, registration statement, prospectus, amendment or supplement referred to in this Section 5(e). (f) To cooperate with the Initial Purchasers and counsel for the Initial Purchasers in connection with the qualification of the Series A Notes for offer and sale by the Initial Purchasers under the state securities or Blue Sky laws of such jurisdictions as the Initial Purchasers may reasonably request, to continue such qualification in effect so long as reasonably required for Exempt Resales of the Series A Notes and to file such consents to service of process or other documents as may be necessary in order to effect such qualification; provided, however, that the Company and the Guarantor shall not be required to qualify as a foreign corporation where they are not now so qualified or to take any action which would subject them to the service of process in suits or to taxation, other than as to matters and transactions relating to the offer and sale of the Notes, in any jurisdiction where they are not now so subject. (g) So long as any of the Notes are outstanding, to deliver to the Initial Purchasers, promptly upon their becoming available, (i) copies of all current, regular and periodic reports filed by the Company and the Guarantor with any securities exchange or with the Commission or any governmental authority succeeding to any of the Commission's functions, and (ii) copies of each report or other publicly available information of the Company and the Guarantor mailed to the holders of Notes and such other publicly available information concerning the Company, the Guarantor and their direct and indirect subsidiaries (each, a "Subsidiary" and, ---------- collectively, the "Subsidiaries") as the Initial Purchasers may reasonably ------------ request. 5 (h) To use the proceeds from the sale of the Series A Notes substantially in the manner specified in the Offering Documents (and any amendments or supplements thereto) under the caption "Use of Proceeds." (i) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement becomes effective or is terminated, to pay all costs, expenses, fees and taxes incident to and in connection with: (1) the preparation, printing, filing and distribution under the Securities Act of the Offering Documents (including, without limitation, financial statements and exhibits) and all amendments and supplements to any of them; (2) the printing and delivery of the Operative Documents, the preliminary and supplemental Blue Sky memoranda and all other agreements, memoranda, correspondence and other documents printed and delivered in connection herewith and with the Exempt Resales (including in each case any reasonable disbursements of counsel to the Initial Purchasers relating to such printing and delivery); (3) the issuance and delivery by the Company of the Series A Notes to the Initial Purchasers; (4) the registration or qualification of the Series A Notes for offer and sale under the securities or Blue Sky laws of the several states (including, without limitation, the reasonable fees and disbursements of counsel to the Initial Purchasers relating to such registration or qualification and memoranda relating thereto); (5) furnishing such copies of the Offering Documents (including all documents incorporated by reference therein) and all amendments and supplements thereto as may be reasonably requested for use in connection with the Exempt Resales; (6) the rating of the Notes by rating agencies, if any; (7) all expenses and listing fees in connection with the application for quotation of the Series A Notes in the National Association of Securities Dealers, Inc. Automated Quotation System - PORTAL ("PORTAL"); ------ (8) all fees and expenses (including fees and expenses of counsel) of the Company in connection with approval of the Notes by DTC for "book-entry" transfer; and (9) the performance by the Company and the Guarantor of their obligations under this Agreement (including, without limitation, the fees of the Trustee, the cost of its personnel and other internal costs, the cost of printing and engraving the certificates representing the Notes and all expenses and taxes incident to the sale and delivery of the Notes to the Initial Purchasers other than any transfer taxes on resales by the Initial Purchasers). 6 (j) Prior to the Closing Date, to furnish to the Initial Purchasers, as soon as they have been prepared by the Company and the Guarantor, a copy of any consolidated financial statements of the Company and the Guarantor for any period subsequent to the period covered by the financial statements appearing in the Offering Documents. (k) Not to distribute prior to the Closing Date any offering material in connection with the offering and sale of the Series A Notes other than the Offering Documents. (l) Not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) that would be integrated with the sale of the Series A Notes in a manner that would require the registration under the Securities Act of the sale to the Initial Purchasers or the Eligible Purchasers of Series A Notes. (m) For so long as Notes remain outstanding or until all of the Notes may be sold pursuant to Rule 144(k) under the Securities Act, and during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, to make available to any Eligible Purchaser or beneficial owner of Notes in connection with any sale thereof and any prospective purchaser of such Notes from such Eligible Purchaser or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act. (n) To comply with their agreements in the Registration Rights Agreement, and all agreements set forth in the representation letters of the Company to DTC relating to the approval of the Series A Notes by DTC for "book-entry" transfer. (o) To use their best efforts to effect the inclusion of the Series A Notes in PORTAL. (p) To use their best efforts to do and perform all things required or necessary to be done and performed under this Agreement by the Company and the Guarantor prior to the Closing Date and to satisfy all conditions precedent to the delivery of the Series A Notes and the issuance of the Guarantee. (q) Not to engage in any directed selling efforts with respect to the Notes within the meaning of Regulation S, and that the Company, the Guarantor and each person acting on their behalf has complied and will comply with the offering restrictions requirement of Regulation S. (r) During the period beginning from the date hereof and continuing to and including the date that is 60 days after the Closing Date, not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company (other than the Series B Notes) that are substantially similar to the Series A Notes including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Series A Notes or any such substantially similar securities (other than pursuant to employee or director stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement, in each case as described in the Offering Memorandum under the heading "Capitalization" or in the financial statements included therein), without the prior written consent of DLJ, on behalf of the Initial Purchasers. 7 (s) Not to cause any advertisement of the Series A Notes to be published in any newspaper or periodical or posted in any public place and not to issue any circular relating to the Series A Notes, without the prior approval of DLJ. 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE GUARANTOR. The Company and the Guarantor, jointly and severally, represent and warrant to the Initial Purchasers that: (a) The Offering Documents have been prepared in connection with the Exempt Resales. The Preliminary Offering Memorandum as of its date did not, and the Offering Memorandum as of its date does not and as of the Closing Date will not, and any amendment or supplement thereto will not, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that the representations and warranties contained in this paragraph (a) shall not apply to statements or omissions in the Offering Documents (or any amendment or supplement thereto) based upon information relating to the Initial Purchasers furnished to the Company in writing by or on behalf of any Initial Purchaser through such Initial Purchaser expressly for use therein. No stop order preventing the use of the any of the Offering Documents, or any amendment or supplement thereto, or any order asserting that any of the transactions contemplated by this Agreement are subject to the registration requirements of the Securities Act, have been issued. (b) Each of the Company, the Guarantor and the Subsidiaries is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, has all corporate or partnership power and authority to carry on its business as it is currently being conducted and to own its properties as described in the Offering Documents, and is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property legally requires such qualification, except where the failure to be so qualified or in good standing is not reasonably likely to have a material adverse effect on the business, condition (financial or other), results of operations or properties of the Company, the Guarantor and the Subsidiaries taken as a whole (a "Material -------- Adverse Effect"). All of the outstanding shares of capital stock of, or -------------- other equity interests in, each of the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable, are not subject to preemptive or similar rights and, except as described in the Offering Memorandum, all of the shares of capital stock or other equity interests in, the Subsidiaries are owned directly or indirectly by the Company or the Guarantor, free and clear of any security interest, claim, lien or encumbrance (each, a "Lien"), except as described in the Offering ---- Memorandum, and (ii) there are no outstanding rights, warrants or options to acquire, or instruments or securities convertible into or exchangeable for, any shares of capital stock or other equity interest in any such Subsidiary. (c) All the outstanding shares of capital stock of the Company and the Guarantor have been duly authorized and validly issued and are fully paid, non-assessable and not subject to any preemptive or similar rights. (d) Neither the Company, the Guarantor nor any of the Subsidiaries is (i) in violation of its respective articles or certificate of incorporation or by-laws or other governing documents or (ii) in default in the performance of any obligation, agreement or condition contained in any 8 bond, debenture, note or any other evidence of indebtedness or in any indenture or other agreement to which it is a party or by which it is bound or to which any of its properties is subject, except as may be described in the Offering Memorandum and except where such default would not have a Material Adverse Effect or (iii) in violation of any law, statute, rule, regulation applicable to the Company, the Guarantor or any of the Subsidiaries or of any decree of any court having jurisdiction over the Company, the Guarantor or any of the Subsidiaries, except where such violation or violations, individually or in the aggregate, would not have a Material Adverse Effect. The (i) execution, delivery and performance of the Operative Documents by the Company and the Guarantor, (ii) compliance by the Company and the Guarantor with all provisions of the Operative Documents, and (iii) the consummation of the transactions contemplated hereby and thereby will not conflict with, or constitute a breach or a violation of any of the terms or provisions of, or a default under, (A) the articles or certificate of incorporation or by-laws or other governing documents of the Company, the Guarantor or any of the Subsidiaries, or (B) any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any indenture or other material agreement to which it is a party or by which it is bound or to which any of its properties is subject, except as may be disclosed in the Offering Memorandum and except any such conflicts, breaches, violations or defaults which are not reasonably likely to have a Material Adverse Effect or (C) any law, statute, rule, regulation, judgment or court decree applicable to the Company, the Guarantor or any of the Subsidiaries other than any violation or violations which, individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect. Except as required under the Securities Act and applicable state securities or Blue Sky laws, no consent, authorization, approval or order of, or filing or registration with, or notice to, any court or governmental agency or body which has not been made or obtained is required for the execution, delivery and performance of the Operative Documents and the valid issuance, sale and performance of the Notes and the Guarantee. (e) The Company and the Guarantor have all requisite corporate power and authority to enter into and perform their obligations under the Operative Documents and to issue and deliver the Notes and the Guarantee as provided herein. This Agreement has been duly authorized, executed and delivered by the Company and the Guarantor and is a valid and legally binding obligation of the Company and the Guarantor, enforceable against the Company and the Guarantor in accordance with their terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor's rights generally, (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and except as rights to indemnity and contribution hereunder may be limited by state or federal laws relating to securities or by the policies underlying such laws. (f) The Indenture has been duly authorized by each of the Company and the Guarantor and, upon the execution and delivery by the Company and the Guarantor (and assuming the due authorization, execution and delivery by the Trustee), will constitute a legally valid and binding agreement of the Company and the Guarantor, as applicable, enforceable against the Company and the Guarantor in accordance with their terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor's rights generally and (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and the Indenture will conform in all material respects to the description thereof in the Offering Memorandum. 9 (g) The Company has duly authorized the Series A Notes and, when executed by the Company and authenticated by the Trustee in accordance with the terms of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms hereof, will be the legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor's rights generally and (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and the Series A Notes will conform in all material respects to the description thereof in the Offering Memorandum. (h) The Guarantor has duly authorized the Guarantee to be endorsed on the Series A Notes and, when executed by the Guarantor and authenticated by the Trustee in accordance with the terms of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms hereof, the Guarantee will be the legally valid and binding obligation of the Guarantor, enforceable against it in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor's rights generally and (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and the Guarantee will conform in all material respects to the description thereof in the Offering Memorandum. (i) The Company has duly authorized the Series B Notes and, if executed by the Company and authenticated by the Trustee in accordance with the terms of the Exchange Offer and the Indenture, will be the legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor's rights generally and (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and the Series B Notes will conform in all material respects to the description thereof in the Offering Memorandum. (j) The Guarantor has duly authorized the Guarantee to be endorsed on the Series B Notes and, if executed by the Guarantor and authenticated by the Trustee in accordance with the terms of the Exchange Offer and the Indenture, the Guarantee will be the legally valid and binding obligation of the Guarantor, enforceable against it in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor's rights generally and (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law), and the Guarantee will conform in all material respects to the description thereof in the Offering Memorandum. (k) The Registration Rights Agreement has been duly authorized by each of the Company and the Guarantor and, upon the execution and delivery by the Company and the Guarantor and (assuming the due authorization, execution and delivery thereof by the Initial Purchasers) will be a legally valid and binding agreement of the Company and the Guarantor, enforceable against each of them in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting creditor's rights generally and (ii) general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 10 (l) Except as set forth in the Offering Memorandum, there is no legal or governmental proceeding pending or, to the knowledge of the Company or the Guarantor, threatened to which the Company, the Guarantor or any of the Subsidiaries is a party or of which any of them or their respective properties is subject which, if adversely determined, is reasonably likely to cause a Material Adverse Effect. No material contract, agreement, instrument or document of a character required to be described in the Offering Memorandum is not so described. (m) Except as disclosed in the Offering Memorandum, no holder of any security of the Company has or will have any right to require registration of any security of the Company by virtue of any transaction contemplated by this Agreement. (n) Except as otherwise set forth in the Offering Documents, the Company, the Guarantor and each of the Subsidiaries has (i) good title to all of the properties and assets described in the Offering Documents as owned by it, free and clear of all liens (other than liens for taxes not yet due and payable), charges, encumbrances or restrictions, except such as are described in the Offering Documents or that are not reasonably likely to have a Material Adverse Effect and (ii) all governmental licenses, certificates permits, authorizations, approvals, franchises or other rights necessary to engage in the business currently conducted by it, except as such that are not reasonably likely to have a Material Adverse Effect. All leases to which the Company, the Guarantor or any of the Subsidiaries is a party are valid and binding against the Company, the Guarantor or such Subsidiary and no default by the Company, the Guarantor or any of the Subsidiaries has occurred and is continuing thereunder except such defaults that are not reasonably likely to have a Material Adverse Effect. (o) No labor dispute with the employees of the Company, the Guarantor or any of the Subsidiaries exists or, to the knowledge of the Company or the Guarantor, is imminent that is reasonably likely to have a Material Adverse Effect. (p) The Company, the Guarantor and each of the Subsidiaries maintain reasonably adequate insurance for the conduct of their respective businesses and the value of their respective properties or otherwise self- insure in a manner consistent with industry practice or prudent business practice. (q) The financial statements of the Company and the consolidated financial statements of the Guarantor, together with the related schedules and notes, set forth in the Offering Documents (and any amendment or supplement thereto), present fairly the financial condition, results of operations and cash flows of the Company and the Guarantor and its consolidated Subsidiaries at the respective dates and for the respective periods indicated; such financial statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied throughout such periods, except as ---- described in the Offering Documents and except that the unaudited interim financial statements are subject to normal year-end adjustments; and the selected financial data included in the Offering Documents or in any supplement thereto or amendment thereof present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Offering Documents. 11 (r) Since the respective dates as of which information is given in the Offering Documents, except as otherwise stated in the Offering Documents, (i) there have been no transactions entered into by the Company, the Guarantor or the Subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company, the Guarantor and the Subsidiaries taken as a whole, (ii) there has not been any material adverse change, or any development involving a prospective material adverse change, in the capital stock or in the long-term debt of the Company, the Guarantor and the Subsidiaries, (iii) there has been no dividend or distribution of any kind declared, paid or made by the Company or the Guarantor on any class of their capital stock, and (iv) there are no liabilities or obligations of the Company, the Guarantor or the Subsidiaries, direct or indirect, contingent or matured, which are material to the Company, the Guarantor and the Subsidiaries taken as a whole, other than those reflected in the Offering Documents. (s) The Company, the Guarantor and the Subsidiaries possess the right to use the service mark CELLULARONE(R) and neither the Company, the Guarantor nor any of the Subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to such service mark which, if the subject of an unfavorable decision, ruling or finding, would result in any Material Adverse Effect. (t) Prior to and after the issuance of the Series A Notes and the Guarantee, (i) the present fair salable value of the assets of each the Company, the Guarantor and the Subsidiaries, taken as a whole, exceeded and will exceed the amount that will be required to be paid on or in respect of the existing debts and other liabilities (including the maximum amount of liability that may reasonably be expected to result from contingent liabilities) of the Company, the Guarantor and the Subsidiaries as they become absolute and matured, (ii) the assets of the Company, the Guarantor and the Subsidiaries, taken as a whole, do not constitute and will not constitute unreasonably small capital to carry out their business as conducted or as proposed to be conducted, (iii) the Company and the Guarantor do not intend to, or believe that they will, incur debts beyond their ability to pay such debts as they mature and (iv) the Company and the Guarantor do not intend to permit any of the Subsidiaries to, and does not believe any of the Subsidiaries will, incur debts or other liabilities beyond their respective ability to pay such debts and liabilities as they mature. (u) None of the Company, the Guarantor or any agent thereof (other than an Initial Purchaser or any agent, employee or representative thereof) acting on behalf of either of them has taken and none of them will take, any action that might cause this Agreement or the issuance or sale of the Series A Notes or the Guarantee to violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System, in each case as in effect now or as the same may hereafter be in effect on the Closing Date. (v) Ernst & Young LLP are independent auditors with respect to the Company, the Guarantor and the Subsidiaries as required by the Securities Act. (w) Neither the Company nor the Guarantor is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 12 (x) The Company, the Guarantor and all of their affiliates have complied with all applicable provisions of Section 517.075 of the Florida Statutes relating to doing business with the government of Cuba or with any person or affiliate located in Cuba. (y) Each certificate signed by any officer of the Company or the Guarantor and delivered to the Initial Purchasers or counsel for the Initial Purchasers shall be deemed to be a representation and warranty by the Company or the Guarantor, as the case may be, to each Initial Purchaser as to the matters covered thereby. (z) When the Series A Notes are issued and delivered pursuant to this Agreement, such Series A Notes will not be of the same class (within the meaning of Rule 144A under the Securities Act) as securities of the Company that are listed on a national securities exchange registered under Section 6 of the Exchange Act or that are quoted in a United States automated inter-dealer quotation system. (aa) Assuming (i) that the representations and warranties of the Initial Purchasers in Section 7 hereof are true, (ii) that the representations of the Accredited Institutions set forth in the certificates of such Accredited Institutions in the form set forth in Annex A to the Offering Memorandum are true, (iii) compliance by the Initial Purchasers with their covenants set forth in Section 7 hereof and (iv) that each of the Eligible Purchasers is a QIB or an Accredited Institution, the purchase and resale of the Series A Notes pursuant hereto (including pursuant to the Exempt Resales) is exempt from the registration requirements of the Securities Act. No form of general solicitation or general advertising was used by the Company or the Guarantor or any of their representatives (other than the Initial Purchasers, as to whom the Company and the Guarantor make no representation) in connection with the offer and sale of the Series A Notes, including, but not limited to, articles, notices or other communications published in any newspaper (other than any press release issued in connection with the Offering issued in accordance with Rule 135 of the Securities Act), magazine, or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. No securities of the same class as the Series A Notes have been issued and sold by the Company within the six-month period immediately prior to the date hereof. (ab) The execution and delivery of this Agreement, the other Operative Documents and the sale of the Series A Notes to be purchased by the Eligible Purchasers will not involve any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"). The representation made in the ---- preceding sentence is made in reliance upon and subject to the accuracy of, and compliance with, the representations and covenants made or deemed made by the Eligible Purchasers as set forth in the Offering Documents under the section entitled "Notice to Investors." (ac) None of the Company, the Guarantor, the Subsidiaries or any of their affiliates or any person acting on their behalf has engaged or will engage in any directed selling efforts within the meaning of Regulations S with respect to the Notes, and the Company, the Guarantor, the Subsidiaries and their affiliates and all persons acting on their behalf have complied with and will comply with the offering restrictions requirements of Regulation S in connection with the offering of the Notes outside the United States. 13 (ad) There is no "substantial U.S. market interest" as defined in rule 902(n) of Regulation S for the Notes or any security of the same class as the Notes. (ae) The sale of the Series A Notes in offshore transactions pursuant to Regulation S is not part of a plan or scheme to evade the registration provisions of the Securities Act. 7. REPRESENTATIONS AND WARRANTIES OF THE INITIAL PURCHASERS. Each Initial Purchaser, severally and not jointly, represents and warrants as follows: (a) It is a QIB or an Accredited Institution with such knowledge and experience in financial and business matters as is necessary in order to evaluate the merits and risks of an investment in the Series A Notes. (b) It (i) is not acquiring the Series A Notes with a view to any distribution thereof or with any present intention of offering or selling any of the Series A Notes in a transaction that would violate the Securities Act or the securities laws of any State of the United States or any other applicable jurisdiction and (ii) will be reoffering and reselling the Series A Notes only to QIBs in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A and to a limited number of Accredited Institutions that execute and deliver a letter containing certain representations and agreements in the form attached as Annex A to the Offering Documents and pursuant to offers and sales that occur outside the United States in compliance with Regulation S. (c) It understands that the Company and the Guarantor, and, for purposes of the opinions to be delivered to the Initial Purchasers pursuant to Sections 9(e), (f), (g), (h) and (i) hereof, counsel to the Company and counsel to the Initial Purchasers will rely upon the accuracy and truth of the foregoing representations and the Initial Purchasers hereby consent to such reliance. (d) Each of the Initial Purchasers agrees that, in connection with the Exempt Resales, each Initial Purchaser will solicit offers to buy the Series A Notes only from, and will offer to sell the Series A Notes only to, the Eligible Purchasers. Each of the Initial Purchasers further agrees that it will offer to sell the Series A Notes only to, and will solicit offers to buy the Series A Notes only from, persons who in purchasing such Series A Notes will be deemed to have represented and agreed (1) if such Eligible Purchaser is a QIB, that it is purchasing the Series A Notes for its own account or an account with respect to which it exercises sole investment discretion and that it or such accounts are QIBs, (2) that such Series A Notes will not have been registered under the Securities Act and may be resold, pledged or otherwise transferred, only (A) (I) inside the United States to a person who the seller reasonably believes is a QIB within the meaning of Rule 144A under the Securities Act in a transaction meeting the requirements of Rule 144A, (II) in a transaction meeting the requirements of Rule 144 under the Securities Act, (III) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act or (IV) in accordance with another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), (B) to the Company or the Guarantor or (C) pursuant to an effective registration statement under the Securities Act, in each case, in accordance with any applicable securities laws of any State of the United States or any other applicable jurisdiction, and (3) that the holder will, and each subsequent holder is required to, notify any purchaser from it of the Series A Note 14 evidenced thereby of the resale restrictions set forth in (2) above. Accordingly, each of the Initial Purchasers agrees that neither it, its affiliates nor any persons acting on its or their behalf has engaged or will engage in any directed selling efforts within the meaning of Rule 901(b) of Regulation S with respect to the Notes, and it, its affiliates and all persons acting on its or their behalf have complied and will comply with the offering restrictions requirements of Regulation S. (e) Each of the Initial Purchasers represents and agrees that the Notes offered and sold in reliance on Regulation S have been and will be offered and sold only in offshore transactions and that such securities have been and will be represented upon issuance by a global security that may not be exchanged for definitive securities until the expiration of the restricted period (as defined in Regulation S) (except to the extent of any beneficial owners thereof who acquired an interest therein pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a Rule 144A Global Note (as defined in the Indenture), as contemplated by the Indenture) and only upon certification of beneficial ownership of the securities by a non-U.S. person or a U.S. person who purchased such securities in a transaction that was exempt from the registration requirements of the Securities Act. (f) Each of the Initial Purchasers agrees that, at or prior to confirmation of a sale of Notes (other than a sale pursuant to Rule 144A, to Accredited Institutions in accordance with Section 3 of this Agreement or pursuant to paragraph (i) of this Section 7), it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Notes from it during the Restricted Period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the Securities Act and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meaning given to them by Regulation S." (g) Each of the Initial Purchasers further agrees that it has not entered and will not enter into any contractual arrangement with respect to the distribution or delivery of the Notes, except with its affiliates or with the prior written consent of the Company. (h) Notwithstanding the foregoing, Notes in registered form may be offered, sold and delivered by the Initial Purchasers in the United States and to U.S. persons pursuant to Section 3 of this Agreement without delivery of the written statement required by paragraph (f) of this Section 7. (i) Each of the Initial Purchasers further represents and agrees that (i) it has not offered or sold and will not offer or sell any Notes to persons in the United Kingdom prior to the expiry of the period of six months from the issue date of the Notes, except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the 15 meaning of the Public Offers of Securities Regulations 1995, (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom, and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issuance of the Notes to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the document may otherwise lawfully be issued or passed on. (j) Each of the Initial Purchasers agrees that it will not offer, sell or deliver any of the Notes in any jurisdiction outside the United States except under circumstances that will result in compliance with the applicable laws thereof, and that it will take at its own expense whatever action is required to permit its purchase and resale of the Notes in such jurisdictions. Each of the Initial Purchasers understands that no action has been taken to permit a public offering in any jurisdiction outside the United States where action would be required for such purpose. (k) Each of the Initial Purchasers agrees not to cause any advertisement of the Notes to be published in any newspaper or periodical or posted in any public place and not to issue any circular relating to the Notes, without the prior approval of the Company. (l) The sale of the Series A Notes in offshore transactions pursuant to Regulation S is not part of a plan or scheme to evade the registration provisions of the Securities Act. Terms used in this Section 7 that have meanings assigned to them in Regulation S are used herein as so defined. 8. INDEMNIFICATION. (a) The Company and the Guarantor, jointly and severally, agree to indemnify and hold each of the Initial Purchasers and each person, if any, who controls or is under common control with any of the Initial Purchasers within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act harmless from and against any and all losses, claims, damages, liabilities, actions or judgments (including, without limiting the foregoing, the reasonable legal and other expenses incurred in connection with any action, suit or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of any material fact contained in the Offering Documents, or any amendment or supplement thereto, or arise out of or are caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided, however, that the Company and the Guarantor will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission (i) in reliance upon and in conformity with written information furnished to the Company or the Guarantor by any Initial Purchaser specifically for use therein or (ii) made in the Preliminary Offering Memorandum, if a copy of the Offering Memorandum (as amended or supplemented, if the Company or Guarantor shall furnish the amendment or supplement thereto) was not sent or given by or on behalf of the Initial Purchasers to the person asserting any such loss, claim or liability, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Notes as required by the Securities Act and the Offering Memorandum (as so amended or supplemented) would have corrected in all material respects such untrue statement or omission. 16 (b) In case any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought against any Initial Purchaser or any person controlling or under common control with such Initial Purchaser, based upon the Offering Documents or any amendment or supplement thereto and with respect to which indemnity may be sought against the Company or the Guarantor, such Initial Purchaser or any person controlling or under common control with such Initial Purchaser shall promptly notify the Company or the Guarantor in writing and the Company or the Guarantor shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Initial Purchaser and payment of all reasonable fees and expenses. Such Initial Purchaser or any such controlling person shall have the right to employ separate counsel in any such action or proceeding and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Initial Purchaser's expense or at the expense of any such controlling person unless (i) the employment of such counsel has been specifically authorized in writing by the Company or the Guarantor, (ii) neither the Company nor the Guarantor has assumed the defense and employed counsel reasonably satisfactory to such Initial Purchaser within a reasonable time after notice of commencement of such action, or (iii) the named parties to any such action or proceeding (including any impleaded parties) include both an Initial Purchaser or such controlling person and the Company or the Guarantor and such Initial Purchaser or such controlling person shall have been advised in writing by such counsel (with a copy to the Company or the Guarantor) that there may be one or more legal defenses available to such Initial Purchaser or such controlling person which are different from or additional to those available to the Company or the Guarantor (in which case the Company and the Guarantor shall not have the right to assume the defense of such action or proceeding on behalf of such Initial Purchaser or on behalf of such controlling person, it being understood, however, that the Company and the Guarantor shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for the Initial Purchasers and such controlling persons, which firm shall be designated in writing by DLJ, and that all such fees and expenses shall be reimbursed as they are incurred upon written request and presentation of reasonably satisfactory invoices). The Company and the Guarantor shall not be liable for any settlement of any such action effected without the written consent of the Company or the Guarantor, which shall not be unreasonably withheld, but if settled with the written consent of the Company or the Guarantor or if there is a final judgment for the plaintiff, the Company and the Guarantor agree to indemnify and hold harmless such Initial Purchaser and any such controlling person from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is a party and indemnity has been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (c) Each Initial Purchaser agrees, severally but not jointly, to indemnify and hold harmless the Company, the Guarantor and their respective directors, officers, and any person controlling the Company or the Guarantor within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity from the Company or the Guarantor to each Initial Purchaser, but only with reference to information relating to such Initial Purchaser furnished in writing by or on behalf of such Initial Purchaser expressly for use in the Offering Documents or any supplement or amendment to any thereof. In case any action shall be brought against the Company, the Guarantor or any of their directors, any such officers, or any such controlling person based on the Offering Documents and in respect of which indemnity may be sought against any or all of the Initial Purchasers, such Initial Purchasers shall have the rights and duties given to the Company and the Guarantor (except 17 that if the Company or the Guarantor as provided in Section 8(b) hereof shall have assumed the defense thereof such Initial Purchasers shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof but the fees and expenses of such counsel shall be at such Initial Purchaser's expense), and the Company, the Guarantor and their directors, any such officers, and any such controlling person shall have the rights and duties given to the Initial Purchasers by Section 8(b) hereof. (d) If the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to herein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantor on the one hand and the Initial Purchasers on the other from the offering of the Notes, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Guarantor on the one hand and the Initial Purchasers on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Guarantor on the one hand and the Initial Purchasers on the other hand shall be deemed to be in the same proportions as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and the Guarantor, and the total underwriting discounts and commissions received by the Initial Purchasers, bear to the total proceeds from the offering of the Notes, in each case as set forth in the table on the cover page of the Offering Memorandum. The relative fault of the Company and the Guarantor on the one hand and the Initial Purchasers on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Company and the Guarantor or by the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. The Company, the Guarantor and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 8(d), in no event shall any Initial Purchaser be required to contribute any amount in excess of the amount by which the total fees received by such Initial Purchaser with respect to the Notes purchased by such Initial Purchaser exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations to contribute pursuant to this Section 8(d) are several and not joint and are in proportion to the respective underwriting obligations hereunder. 18 (e) The statements with respect to the Initial Purchasers and with respect to the offering of the Notes under the caption "Plan of Distribution," in the last paragraph on page 4 relating to stabilization and in the last paragraph on the cover page of the Offering Documents constitute the only information heretofore furnished to the Company and the Guarantor in writing on behalf of or by the Initial Purchasers expressly for use in the Offering Documents or any amendment or supplement thereto. (f) The obligations of the Company and the Guarantor under this Section 8 shall be in addition to any liability that the Company and the Guarantor may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any of the Initial Purchasers within the meaning of the Securities Act; and the obligations of the Initial Purchasers under this Section 8 shall be in addition to any liability that each respective Initial Purchaser may otherwise have and shall extend, upon the same terms and conditions, to each director and officer of the Company and the Guarantor and to each person, if any, who controls the Company or the Guarantor within the meaning of the Securities Act. 9. CONDITIONS OF THE INITIAL PURCHASERS' OBLIGATIONS. The several obligations of the Initial Purchasers to purchase the Series A Notes under this Agreement are subject to the satisfaction of each of the following conditions: (a) All the representations and warranties of the Company and the Guarantor contained in this Agreement shall be true and correct on the date hereof and the Closing Date, with the same force and effect as if made on and as of the date hereof and the Closing Date, respectively. The Company and the Guarantor shall have performed or complied with all of the agreements herein contained and required to be performed or complied with by the Company or the Guarantor on or prior to the Closing Date. (b) (1) The Offering Memorandum shall have been printed and copies distributed to the Initial Purchasers not later than 9:00 a.m., New York City time, on January 30, 1997, or at such later date and time as the Initial Purchasers may approve in writing; (2) no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance of the Series A Notes; and (3) at the Closing Date, no stop order preventing the use of the Offering Documents, or any amendment or supplement thereto, or suspending the qualification or exemption from qualification of any of the Series A Notes for sale in any jurisdiction designated by the Initial Purchasers pursuant to Section 5(f) hereof shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending before or, to the knowledge of the Company or the Guarantor, be contemplated. (c) (1) Since the date hereof or since the dates as of which information is given in the Offering Memorandum, there shall not have been any event that had a Material Adverse Effect, or any development involving a prospective change that would have a Material Adverse Effect, whether or not arising in the ordinary course of business; (2) since the date of the latest balance sheet included in the Offering Memorandum, there has not been any change that would have a Material Adverse Effect, or any development involving a prospective change that would have a Material Adverse Effect, in the capital stock or in the long-term debt of the Company, the 19 Guarantor or any of the Subsidiaries from that set forth in the Offering Memorandum; (3) the Company, the Guarantor and the Subsidiaries shall have no liability or obligation, direct or contingent, that is required to be disclosed on a balance sheet in accordance with GAAP and that is not disclosed on the latest balance sheet included in (or otherwise disclosed in) the Offering Memorandum; and (4) the Company, the Guarantor and the Subsidiaries shall have no material liability or obligation, direct or contingent, other than those reflected in the Offering Memorandum. (d) The Initial Purchasers shall have received certificates of the Company and the Guarantor (satisfactory to the Initial Purchasers and counsel to the Initial Purchasers), dated the Closing Date, executed on behalf of each of the Company and the Guarantor by the President or any Vice President and a principal financial or accounting officer of the Company and the Guarantor, confirming, as of the Closing Date, all matters set forth in Section 9(a), (b), and (c). (e) The Initial Purchasers shall have received on the Closing Date an opinion (substantially in the following form), dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Company and the Guarantor, to the effect that: (i) Each of the Company, the Guarantor and their subsidiaries which are listed on Exhibit A to such opinion and incorporated in Delaware (the "Delaware Subsidiaries") has been duly incorporated and is validly --------------------- existing as a corporation and in good standing under the laws of the State of Delaware. The Company and the Guarantor have the corporate power and authority to execute and deliver the Notes and the Guarantee, respectively, and to enter into and perform their respective obligations under the Operative Documents. (ii) The execution and delivery by the Company of the Notes, the execution by the Guarantor of the Guarantee and the execution, delivery and performance by the Company and the Guarantor of their respective obligations under each of the Operative Documents do not (a) (i) conflict with the certificate of incorporation or by-laws or other governing documents of the Company, the Guarantor and each of the Delaware Subsidiaries, or (ii) constitute a violation of or default under the terms of any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company, the Guarantor or any of the Subsidiaries which is listed on Exhibit B to such opinion is a party or bound (except that such counsel need not express an opinion as to any covenant, restriction or provision with respect to financial covenants, ratios or tests or any aspect of the financial condition or results of operations of the Company, the Guarantor or any of the Subsidiaries and such counsel may assume that all such agreements or instruments are governed by the law of New York or Delaware), or (iii) result in any violation of any provision of any Applicable Laws (as hereinafter defined), or (iv) result in a violation of any judgment, order or decree of any court, regulatory body, administrative agency or governmental body or arbitrator (collectively, "Orders") of the United States, the State of New ------ York and the State of Delaware having jurisdiction over the Company, the Guarantor or any of the Subsidiaries or any of their properties or assets. Such counsel's opinion expressed in clause (iv) of this paragraph (e)(ii) may be based on its review of those Orders specifically identified to such counsel by the Company and the Guarantor as being Orders to which they are subject. In addition, such counsel need express no opinion with respect to any federal or state securities or Blue Sky laws or the matters on which opinions are rendered in paragraph (xi) below. "Applicable Laws" shall mean those laws, rules and regulations of the State of New York, the general corporate law of the State of Delaware and of the United States of America which, in 20 such counsel's experience, are normally applicable to transactions of the type contemplated by this Agreement and the other Operative Documents, but without having made any special investigation concerning any other laws, rules or regulations. (iii) This Agreement has been duly authorized, executed and delivered by the Company and the Guarantor. (iv) The Indenture has been duly authorized, executed and delivered by the Company and the Guarantor, and, assuming due authorization, execution and delivery by the Trustee, constitutes a valid and binding obligation of the Company and the Guarantor enforceable against the Company and the Guarantor in accordance with its terms, except as such enforceability may be limited by (A) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, (B) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity), (C) the waiver contained in Section 4.04 of the Indenture may be deemed unenforceable and (D) the enforceability, under certain circumstances, of provisions imposing a payment obligation if the Company and the Guarantor are unable to comply timely with their respective registration obligations under the Registration Rights Agreement may be limited by applicable law. (v) The Company has duly authorized the Series A Notes and, when issued and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms hereof, the Series A Notes will conform to the description thereof in the Offering Memorandum, and will be the valid and binding obligations of the Company, enforceable against the Company in accordance with their terms and entitled to the benefits of the Indenture, except as such enforceability may be limited by (A) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, (B) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity), (C) the waiver contained in Section 4.04 of the Indenture may be deemed unenforceable and (D) the enforceability, under certain circumstances, of provisions imposing a payment obligation if the Company and the Guarantor are unable to comply timely with their respective registration obligations under the Registration Rights Agreement may be limited by applicable law. (vi) The Guarantor has duly authorized the Guarantee to be endorsed on the Series A Notes and, when executed and delivered in accordance with the terms of the Indenture and when the Series A Notes have been issued and authenticated in accordance with the terms of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms hereof, the Guarantee will conform to the description thereof in the Offering Memorandum, and will be the valid and binding obligation of the Guarantor, enforceable against the Guarantor in accordance with its terms, except as such enforceability may be limited by (A) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditor's rights generally, (B) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity), (C) the waiver contained in Section 4.04 of the Indenture may be deemed unenforceable and (D) the enforceability, under certain circumstances, of provisions imposing a payment obligation if the Company and the Guarantor are unable to comply timely with their respective registration obligations under the Registration Rights Agreement may be limited by applicable law. 21 (vii) The Registration Rights Agreement has been duly authorized by the Company and the Guarantor and constitutes a valid and binding agreement of the Company and the Guarantor enforceable against the Company and the Guarantor in accordance with its terms, except as such enforceability may be limited by (A) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, (B) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law), (C) the enforceability of indemnification and contribution provisions may be limited by federal and state securities laws and the policies underlying such laws, (D) the waiver contained in Section 4.04 of the Indenture may be deemed unenforceable and (E) the enforceability, under certain circumstances, of provisions imposing a payment obligation if the Company and the Guarantor are unable to comply timely with their respective registration obligations under the Registration Rights Agreement may be limited by applicable law. (viii) The Company and the Guarantor are not required to be registered, as an "investment company" as such term is defined under the Investment Company Act of 1940, as amended. (ix) The statements made in the Offering Memorandum under the headings "Description of the Notes" and "Certain Relationships and Related Transactions," insofar as they purport to constitute statements of law or legal conclusions (and assuming that the documents referred to therein are governed by the law of New York or Delaware) have been reviewed by such counsel and fairly present the information disclosed therein in all material respects. (x) No Governmental Approval (as hereinafter defined), which has not been obtained or taken and is not in full force and effect, is required to authorize or is required in connection with the execution, delivery or performance of any of the Operative Documents by the Company and the Guarantor, except such as have been obtained and made under the Securities Act and such as may be required under state Blue Sky or securities laws. "Governmental Approval" means any consent, approval, license, registration with, any governmental authority pursuant to Applicable Laws. (xi) Assuming, without independent investigation, (1) the accuracy of the representations and warranties of the Company, the Guarantor and the Initial Purchasers set forth herein, (2) the due performance by the Company and the Guarantor of the agreements set forth herein and the due performance by the Initial Purchasers of the agreements set forth herein, (3) compliance by the Initial Purchasers with the offering and transfer procedures and restrictions described elsewhere in this Agreement and in the Offering Memorandum, (4) the accuracy of the representations made in accordance with this Agreement and the Offering Memorandum of the purchasers to whom the Initial Purchasers initially resell Notes and (5) that the purchasers to whom the Initial Purchasers initially resell Notes receive a copy of the Offering Memorandum, neither the registration of the Notes under the Securities Act, nor the qualification of the Indenture under the Trust Indenture Act of 1939, as amended, with respect thereto, is required for the offer, sale and initial resale of the Notes in the manner contemplated by this Agreement and the Offering Memorandum, it being understood that such counsel expresses no opinion as to any subsequent resale of any Note. In addition, such counsel shall also state that such counsel has participated in conferences with directors, officers and other representatives of the Company and the Guarantor, 22 representatives of the independent public accountants for the Company and the Guarantor, representatives of the Initial Purchasers and representatives of their counsel, at which conferences the contents of the Offering Memorandum and related matters were discussed, and, although such counsel is not passing upon and does not assume responsibility for, the accuracy, completeness or fairness of the statements contained in the Offering Memorandum and have made no independent check or verification thereof (except as stated in paragraph (ix) hereof), on the basis of the foregoing, no facts have come to such counsel's attention which have led such counsel to believe that on the date of this Agreement and on the Closing Date the Offering Memorandum contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion or belief with respect to the financial statements and related notes and other financial, statistical and accounting data included in or excluded from the Offering Memorandum). Such opinion may be limited to the General Corporation Law of the State of Delaware and the laws of the State of New York and the federal laws of the United States. In rendering such opinion, such counsel may rely as to matters involving the application of laws of any jurisdiction other than the State of New York, the State of Delaware or the United States, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel who are satisfactory to counsel for the Initial Purchasers. (f) The Initial Purchasers shall have received on the Closing Date an opinion (substantially in the following form), dated the Closing Date, of special Puerto Rico counsel for the Company and the Guarantor, who shall be reasonably acceptable to the Initial Purchasers, to the effect that: (i) The issuance and sale of the Notes by the Company, the issuance of the Guarantee by the Guarantor and the execution, delivery and performance by the Company and the Guarantor of the Operative Documents does not result in any violation of any statute, rule or regulation of the Commonwealth of Puerto Rico or any order of any court or governmental agency or body of the Commonwealth of Puerto Rico having jurisdiction over the Company, the Guarantor or any of the Subsidiaries or any of their properties or assets. Such counsel's opinion expressed in this paragraph may be based on its review of those statutes, rules and regulations which, in its experience, are normally applicable to transactions of the type provided for in this Agreement, but without having made any special investigation concerning any other statutes, rules and regulations, and those orders of the type described above specifically identified to such counsel by the Company and the Guarantor as being orders to which they are subject. In addition, such counsel need express no opinion with respect to any state securities or Blue Sky laws; (ii) All payments made under the Notes to persons who are not residents of the Commonwealth of Puerto Rico and that are not engaged in business in the Commonwealth of Puerto Rico, apart from holding the Notes, will not be subject to a required withholding of tax under the laws of the Commonwealth of Puerto Rico; and (iii) The issuance and sale of the Notes by the Company, the issuance of the Guarantee by the Guarantor and the execution, delivery and performance by the Company and the Guarantor of this Agreement and the Indenture do not constitute a breach of or default under 23 the terms of any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to him to which the Company, the Guarantor or any of the Subsidiaries is a party or by which the Company, the Guarantor or any of the Subsidiaries is bound or to which any of the property or assets of the Company, the Guarantor or any of the Subsidiaries is subject or any statute, law, ordinance, rule, regulation, judgment, order or decree of any court or governmental authority of the Commonwealth of Puerto Rico having jurisdiction over the Company, the Guarantor or any of the Subsidiaries or any of their respective assets known to him to be applicable to the Company, the Guarantor or any of the Subsidiaries. (g) The Initial Purchasers shall have received on the Closing Date an opinion (substantially in the following form), dated the Closing Date, from Francisco Silva, Counsel for the Company, to the effect that: To the best of his knowledge, no notice has been issued and no investigation or review is pending or threatened by any governmental authority with respect to any alleged violation by the Company, the Guarantor or any of the Subsidiaries of any statute, law, ordinance, rule, regulation, judgment, order or decree of any court or governmental authority of the Commonwealth of Puerto Rico having jurisdiction over the Company, the Guarantor or any of the Subsidiaries or any of their respective assets which would (individually or in the aggregate) be reasonably expected to have a Material Adverse Effect. (h) The Initial Purchasers shall have received on the Closing Date an opinion (substantially in the following form), dated the Closing Date, from Richard J. Lubasch, Senior Vice President-General Counsel and Secretary of the Company and the Guarantor, to the effect that: (i) The Company and the Guarantor have the requisite power and authority to own and to operate their businesses as described in the Offering Memorandum. The Company, the Guarantor and each of the Subsidiaries is duly qualified to do business and is in good standing under the laws of each jurisdiction where it is required to be so qualified, except where the failure to be so qualified would not individually or in the aggregate have a Material Adverse Effect. (ii) To the best of his knowledge, all of or a majority of the outstanding capital stock or other equity interests of each of the Subsidiaries is owned, directly or indirectly, by the Company or the Guarantor, free and clear of any perfected security interest, claim, lien or encumbrance, other than any such security interests which may be described in the Offering Memorandum; to the best of his knowledge, there are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in any Subsidiary, except as may be described in the Offering Memorandum. (iii) To the best of his knowledge, except for matters that are disclosed in the Offering Documents, there are no actions, suits, investigations or other proceedings pending against the Company or the Guarantor or of which any property of the Company or the Guarantor is the subject (a) (i) in which an injunction or order has been entered preventing the issuance or sale of the Notes or the Guarantee or the execution, delivery or performance of this Agreement or the Indenture, or (ii) which seeks to restrain, enjoin or prevent the issuance of the Notes or the Guarantee or the execution, delivery or performance of this Agreement or the Indenture, or 24 (iii) which questions the legality or validity of any transaction contemplated by this Agreement or which seeks to recover damages or obtain other relief in connection with any such transaction, (b) which would be reasonably expected to have a Material Adverse Effect, or (c) which is required to be described in the Offering Documents and is not so described. (iv) (a) None of the Company, the Guarantor or any of the Subsidiaries (i) is in violation of its respective certificate of incorporation or by-laws, or (ii) to the best of his knowledge, is in default (and no event has occurred which with notice or lapse of time, or both, would constitute such a default) under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to him to which the Company, the Guarantor or any of the Subsidiaries is a party or to which any of their respective property or assets is subject and, (b) to the best of his knowledge, no notice has been issued and no investigation or review is pending or threatened by any governmental authority with respect to any alleged violation by the Company, the Guarantor or any of the Subsidiaries of any statute, law, ordinance, rule, regulation, judgment, order or decree of any court or governmental authority of the United States or the State of New York having jurisdiction over the Company, the Guarantor or any of the Subsidiaries or any of their respective assets which, with respect to clauses (a) and (b), would (individually or in the aggregate) be reasonably expected to have a Material Adverse Effect. (v) All of the outstanding capital stock of each of the Subsidiaries has been validly authorized and issued and is fully paid and non-assessable. In rendering such opinion, Richard J. Lubasch may rely as to factual matters upon certificates or written statements from officers or other appropriate representatives of the Company, the Guarantor and the Subsidiaries or upon certificates of public officials and need not express any opinion with regard to the laws of any jurisdiction other than the federal law of the United States, the General Corporation Law of the State of Delaware and the law of the State of New York. (i) The Initial Purchasers shall have received on the Closing Date an opinion, dated the Closing Date, of Latham & Watkins, counsel for the Initial Purchasers, in form and substance satisfactory to the Initial Purchasers. (j) The Initial Purchasers shall have received letters from Ernst & Young LLP, independent public accountants, on the date hereof as well as on the Closing Date, substantially in the form previously approved by the Initial Purchasers, with respect to the financial statements and certain financial information contained in Offering Memorandum. (k) Latham & Watkins shall have been furnished with such documents and opinions, in addition to those set forth above, as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in this Section 9 and in order to evidence the accuracy, completeness or satisfaction in all material respects of any of the representations, warranties or conditions herein contained. (l) The Company and the Guarantor shall have in all material respects performed or complied with any of the agreements herein contained and required to be performed or complied with by the Company and the Guarantor on or prior to the Closing Date. 25 (m) The Company, the Guarantor and the Trustee shall have entered into the Operative Documents to which they are a party and the Initial Purchasers shall have received counterparts, conformed as executed, thereof. (n) On the Closing Date no condition exists that would constitute a default (or an event that with notice or the lapse of time, or both, would constitute a default) under the Indenture. (o) At or prior to the Closing Date, all FCC approvals required in connection with the Restructuring (as defined in the Offering Memorandum) shall have been obtained and the Company and the Guarantor shall have delivered to the Initial Purchasers evidence satisfactory to the Initial Purchasers that such FCC approvals have been obtained. 10. DEFAULT BY AN INITIAL PURCHASER. If one or more of the Initial Purchasers shall fail or refuse to purchase and pay for any of the Notes which it or they have agreed to purchase hereunder and the aggregate amount of Notes which such defaulting Initial Purchaser or Initial Purchasers, as the case may be, failed or refused to purchase is not more than one-tenth of the total amount of Notes to be purchased and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Initial Purchasers shall be obligated severally to take up and pay for the Notes which the defaulting Initial Purchaser or Initial Purchasers have agreed but failed to purchase, in the proportion which the amount of Notes set forth opposite such Initial Purchaser's name in Schedule I hereto bears to the total amount of Notes which all non-defaulting Initial Purchasers have agreed to purchase, or in such other proportion as the non-defaulting Initial Purchasers shall specify; provided, however, that in the event that the aggregate principal -------- ------- amount of Notes which the defaulting Initial Purchaser or Initial Purchasers have agreed but failed to purchase shall exceed 10% of the aggregate principal amount of Notes set forth in Schedule I hereto, the remaining Initial Purchasers shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Notes, and if such non-defaulting Initial Purchaser does not purchase all the Notes, this Agreement will terminate without liability to any non-defaulting Initial Purchaser, the Company or the Guarantor. In the event of a default by any Initial Purchaser as set forth in this Section 10, the Closing Date shall be postponed for such period, not exceeding seven days, as the remaining Initial Purchasers shall determine in order that the required changes in the Offering Memorandum or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Initial Purchaser of its liability, if any, to the Company, the Guarantor or any non-defaulting Initial Purchaser for damages occasioned by its default hereunder. 11. EFFECTIVE DATE OF AGREEMENT AND TERMINATION. This Agreement shall become effective at the time that the Company, the Guarantor and the Initial Purchasers execute this Agreement. (a) DLJ, on behalf of the Initial Purchasers, may terminate this Agreement at any time prior to the Closing Date by notice to the Company if any of the following has occurred: (i) since the respective dates as of which information is given in the Offering Memorandum and except as disclosed or contemplated therein, any adverse change or development involving a prospective adverse change which would cause a Material Adverse Effect, whether or not arising in the ordinary course of business, which would, in DLJ's sole judgment make it impracticable or inadvisable to market the Series A Notes; 26 (ii) any outbreak or escalation of hostilities or other national or international calamity or crisis or material adverse change in the financial markets of the United States, or any other substantial national or international calamity or emergency, if the effect of such outbreak, escalation, calamity, crisis, change or emergency would, in DLJ's sole judgment, make it impracticable or inadvisable to market the Series A Notes or to enforce contracts for the sale of securities; (iii) any suspension or limitation of trading in securities on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market or general limitation on prices for securities on any such exchange or the Nasdaq National Market if the effect of such suspension or limitation would, in DLJ's sole judgment, make it impracticable or inadvisable to market the Series A Notes; (iv) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in DLJ's sole judgment causes or will cause a Material Adverse Effect; (v) the declaration of a general banking moratorium by either federal or New York State authorities; (vi) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in DLJ's sole judgment has a material adverse effect on the financial markets in the United States and makes it impracticable or inadvisable to sell the Series A Notes; (vii) any of the Company's or the Guarantor's securities shall have been downgraded or placed on any "watch list" for possible downgrading by any nationally recognized statistical rating organization, provided that in the case of such "watch list" placement, termination shall be permitted only if such placement would, in the judgment of DLJ, make it impracticable or inadvisable to market the Series A Notes or to enforce contracts for the sale of the Series A Notes or materially impair the investment quality of the Series A Notes; (b) The respective indemnities and contribution provisions and the other agreements, representations and warranties of the Company and the Guarantor, their respective officers and directors and of the Initial Purchasers set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Series A Notes, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of the Initial Purchasers or any person controlling any of the Initial Purchasers or by or on behalf of the Company or the Guarantor, their respective officers or directors or any person controlling the Company or the Guarantor, (ii) acceptance of the Series A Notes and payment for them hereunder and (iii) termination of this Agreement; and (c) If this Agreement shall be terminated by the Initial Purchasers pursuant to clause (i) of Section 11(a) or because of the failure or refusal on the part of the Company or the Guarantor to comply with the terms or to fulfill any of the conditions of this Agreement, the Company and the Guarantor agree to reimburse the Initial Purchasers for all out-of-pocket expenses (including the fees and disbursements of counsel) reasonably incurred by the Initial Purchasers. Notwithstanding any termination of this 27 Agreement, the Company and the Guarantor shall be liable for all expenses which they have agreed to pay pursuant to Section 5(i) hereof. 12. NOTICES. Notices given pursuant to any provision of this Agreement shall be addressed as follows: (i) if to the Company or the Guarantor, to CCPR Services, Inc., 110 East 59th Street, 26th Floor, New York, New York 10022, Attention: Chief Financial Officer and (ii) if to the Initial Purchasers, c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172, and Attention: Syndicate Department, and in each case, with a copy to Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, Attention: Thomas H. Kennedy, Esq. and Latham & Watkins, 885 Third Avenue, Suite 1000, New York, New York 10022, Attention: Philip E. Coviello, Esq., or in any case to such other address as the person to be notified may have requested in writing. 13. SUCCESSORS. Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Company, the Guarantor, the Initial Purchasers, any indemnified person referred to herein and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include a purchaser of any of the Series A Notes from the Initial Purchasers merely because of such purchase. 14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS CHOICE OF LAW PROVISIONS. 15. JURISDICTION. Each party to this Agreement hereby irrevocably consents to the personal jurisdiction of the courts of the State of New York located in the borough of Manhattan and of the United States of America sitting in the Southern District of New York, in any action to enforce, interpret or construe any provision of this Agreement, and also hereby irrevocably waives any defense of improper venue or forum non conveniens to any such action brought in either of those courts. Each party further irrevocably agrees that any action to enforce, interpret or construe any provision of this Agreement will be brought only in either of those courts and not in any other court. 16. COUNTERPARTS. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. [Signature Page Follows] 28 Please confirm that the foregoing correctly sets forth the agreement between the Company and the Guarantor and the Initial Purchasers. Very truly yours, CCPR SERVICES, INC. By: ______________________________ Name: Title: CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. By: ______________________________ Name: Title: Accepted and Agreed to: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION SALOMON BROTHERS INC WASSERSTEIN PERELLA SECURITIES, INC. By: Donaldson, Lufkin & Jenrette Securities Corporation By: ________________________________ Name: Title: SCHEDULE I
Amount of Series A Notes Initial Purchasers to be Purchased - ------------------ --------------- Donaldson, Lufkin & Jenrette Securities Corporation........................... $100,000,000 Salomon Brothers Inc.............................. 80,000,000 Wasserstein Perella Securities, Inc............... 20,000,000 ------------ Total........................................... $200,000,000 ============
30 EXHIBIT A Registration Rights Agreement 31 EX-3.1 3 RESTATED CERTF OF INCORP. OF SERVICES EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION ------------------------------------- OF CCPR SERVICES, INC. ------------------- CCPR Services, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is CCPR Services, Inc. The original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on May 27, 1982 under the name Cellular Communications of Colorado, Inc. 2. This Amended and Restated Certificate of Incorporation was duly adopted by the Board of Directors and sole stockholder pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware. 4. The text of the Certificate of Incorporation is hereby restated, integrated and amended to read in its entirety as follows: FIRST: The name of the corporation (hereinafter called the "corporation") ------ is CCPR SERVICES, INC. SECOND: The address, including street, number, city, and county, of the ------- registered office of the corporation in the State of Delaware is 32 Loockerman Square, Suite L-100, City of Dover, County of Kent; and the name of the registered agent of the corporation in the State of Delaware is The Prentice-Hall Corporation System, Inc. THIRD: The purpose of the corporation is to engage in any lawful act or ------ activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of stock which the corporation shall ------- have authority to issue is 1,000 shares of common stock with a par value of $1.00 per share. FIFTH: The corporation is to have perpetual existence. ------ SIXTH: For the management of the business and for the conduct of the ------ affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided: (a) The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The phrase "whole Board" and the phrase "total number of directors" shall be deemed to have the same meaning, to wit, the total number of directors which the corporation would have if there were no vacancies. No election of directors need be by written ballot. (b) After the original or other By-Laws of the corporation have been adopted, amended, or repealed, as the case may be, in accordance with the provisions of Section 109 of the General Corporation Law of the State of Delaware, and, after the corporation has received any payment for any of its stock, the power to adopt, amend, or repeal the By-Laws of the corporation may be exercised by the Board of Directors of the corporation; provided, however, that any provision for the classification of directors of the corporation for staggered terms pursuant to the provisions of subsection (d) of Section 141 of the General Corporation Law of the State of Delaware shall be set forth in an initial By-Law or in a By-Law adopted by the stockholders entitled to vote of the corporation unless provisions for such classification shall be set forth in this certificate of incorporation. (c) Whenever the corporation shall be authorized to issue only one class of stock, each outstanding share shall entitle the holder thereof to notice of, and the right to vote at, any meeting of stockholders. Whenever the corporation shall be authorized to issue more than one class of stock, no outstanding share of any class of stock which is denied voting power under the provisions of the certificate of incorporation shall entitle the holder thereof to the right to vote at any meeting of stockholders except as the provisions of paragraph (2) of subsection (b) of Section 242 of the General Corporation Law of the State of Delaware shall otherwise require; provided, that no share of any such class which is otherwise denied voting power shall entitle the holder thereof to vote upon the increase or decrease in the number of authorized shares of said class. SEVENTH: The personal liability of the directors of the corporation is ------- hereby eliminated to the fullest extent permitted by the provisions of paragraph (7) of subsection (b) of Section 102 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented. EIGHTH: The corporation shall, to the fullest extent permitted by the ------ provisions of Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 2 NINTH: From time to time any of the provisions of this certificate of ------ incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the corporation by this certificate of incorporation are granted subject to the provisions of this Article NINTH. IN WITNESS WHEREOF, Cellular Communications of CCPR Services, Inc., has caused this Amended and Restated Certificate of Incorporation to be executed by its duly authorized officer this 4th day of May, 1995. CCPR SERVICES, INC. /s/ ---------------------------------------- Senior Vice President-General Counsel 3 EX-3.2 4 BY-LAWS OF SERVICES BYLAWS of Cellular Communications of Colorado, Inc. 1. MEETING OF STOCKHOLDERS. 1.1 Annual Meeting. The annual meeting of stockholders shall be held on -------------- the first Tuesday of June in each year, or as soon thereafter as practicable, and shall be held at a place and time determined by the board of directors (the "Board"). 1.2 Special Meeting. Special meetings of the stockholders may be called --------------- by resolution of the Board or by the President, and shall be called by the President or the Secretary upon the written request (stating the purpose or purposes of the meeting) of at least a majority of the directors then in office. 1.3 Place of Meetings. Meetings of the stockholders may be held in or ----------------- outside Delaware at the place fixed by the Board and stated in the notice of meeting. 1.4 Notice of Meetings. Written notice of each meeting of stockholders ------------------ shall be mailed to each stockholder entitled to vote at the meeting, not less than 10 nor more than 60 days before the meeting, and shall state the time and place of the meeting and the purpose for which it is called and, unless it is the annual meeting, shall state at whose direction the meeting is called. 1.5 Quorum. The presence in person or by proxy of the holders of a ------ majority of the shares entitled to vote shall constitute a quorum for the transaction of any business. In the absence of a quorum, a majority in voting interest of those present or, if no stockholders are present, any officer entitled to preside at or to act as secretary of the meeting, may adjourn the meeting until a quorum is present. At any adjourned meeting at which a quorum is present, any action may be taken which might have been taken at the meeting as originally called. No notice of an adjourned meeting need be given if the time and place thereof are announced at the meeting at which the adjournment is taken. However, if the adjournment is for more than thirty days, or, if after the adjournment a new record date is fixed for the meeting, notice of the adjourned meeting shall be given pursuant to section 1.4. 1.6 Voting; Proxies. Corporate action to be taken by stockholder vote, --------------- other than the election of directors, shall be authorized by a majority of the votes cast at a meeting of stockholders at which a quorum is present, except as otherwise provided by law. Directors shall be elected in the manner provided in section 2.1 of these bylaws. Voting need not be by ballot unless requested by a stockholder at the meeting or ordered by the chairman of the meeting. 1.7 Inspectors of Election. The Board shall have the power to appoint one ---------------------- or two persons (who need not be stockholders) to act as inspector or inspectors of election at each meeting of stockholders. If there is no inspector present, ready and willing to act, the chairman presiding at any meeting may appoint a temporary inspector or inspectors to act at such meeting. No candidate for the office of director shall act as an inspector of any election for director. 2. BOARD OF DIRECTORS. ------------------ 2.1 Number, Qualification, Election and Terms of Directors. ------------------------------------------------------ The Business of the Corporation shall be managed by the Board, which shall consist of such number of directors as shall be designated from time to time by a majority of the entire Board or by the stockholders, but no decrease may shorten the term of any incumbent director. Directors shall be elected at each annual meeting of stockholders by a plurality of the votes cast and shall hold office until the next annual meeting of stockholders and until the election of their respective successors. As used in these bylaws, "entire Board" means the total number of directors which the Corporation would have if there were no vacancies. 2.2 Quorum and Manner of Acting. A majority of the directors then in --------------------------- office (providing they constitute at least one-third of the entire Board) shall constitute a quorum for the transaction of business at any meeting, except as provided in section 2.7 of these bylaws. Action of the Board shall be authorized by the vote of a majority of the directors present at the time of the vote if there is a quorum, unless otherwise provided by law or these bylaws. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum is present. 2.3 Annual and Regular Meetings. Annual meetings of the Board, for the --------------------------- election of officers and consideration of other matters, shall be held either (a) without notice immediately after the annual meeting of stockholders and at the same place, or (b) as soon as practicable after the annual meeting of stockholders, on notice as provided in section 2.5 of these bylaws. Regular meetings of the Board may be held without notice at such times and places as the Board determines. If the day fixed for a regular meeting is a legal holiday, the meeting shall be held on the next business day. 2.4 Special Meetings. Special meetings of the Board may be called by the ---------------- President or by a majority of the directors then in office. Only business related to the purposes set forth in the notice of meeting may be transacted at a special meeting. 2 2.5 Notice of Meetings; Waiver of Notice. Notice of the time and place of ------------------------------------ each special meeting of the Board, and of each annual meeting not held immediately after the annual meeting of stockholders and at the same place, shall be given to each director by mailing it to him at his residence or usual place of business at least five days before the meeting, or by delivering or telephoning or telegraphing it to him at least two days before the meeting. Each notice of a special meeting shall also state the purpose or purposes for which the meeting is called. Notice need not be given to any director who submits a signed waiver of notice before or after the meeting, or who attends the meeting without protesting the lack of notice to him either before the meeting or when it begins. Notice of any adjourned meeting need not be given, other than by announcement at the meeting at which the adjournment is taken. 2.6 Removal of Directors. Any or all of the directors may be removed at -------------------- any time, either with or without cause, by vote of the stockholders, and any of the directors may be removed for cause by the Board. 2.7 Vacancies. Any vacancy in the Board, including one created by an --------- increase in the number of directors, may be filled for the unexpired term by a majority vote of the remaining directors, though less than a quorum. 2.8 Resignations. Any director may resign at any time by delivering his ------------ resignation in writing to the President or Secretary of the Corporation, to take effect at the time specified therein; the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make it effective. 3. COMMITTEES. ---------- 3.1 Committees. The Board, by resolution adopted by a majority of the ---------- entire Board, may designate an Executive Committee of one or more directors which shall have all the authority of the Board, except as otherwise provided in the resolution or by law. The Board may also designate such other committees as it deems advisable. 4. OFFICERS. -------- 4.1 Number. The executive officers of the Corporation shall be the ------ President, one or more Vice Presidents, a Secretary, and a Treasurer. Any two or more offices may be held by the same person. 4.2 Election; Term of Office. The executive officers of the Corporation ------------------------ shall be elected annually by the Board, and each such officer shall hold office until the next annual meeting of the Board and until the election of his successor, subject to the provisions of section 4.4. 3 4.3 Subordinate Officers. The Board may appoint subordinate officers -------------------- (including Assistant Secretaries and Assistant Treasurers), agents or employees, each of whom shall hold office for such period and have such powers and duties as the Board determines. The Board may delegate to any executive officer or to any committee the power to appoint and define the powers and duties of any subordinate officers, agents or employees. 4.4 Removal of Officers. Any officer elected or appointed by the Board ------------------- or appointed by an executive officer or by a committee may be removed by the Board either with or without cause and, in the case of an officer appointed by an executive officer or by a committee, by the officer or committee who appointed him or by the President. 4.5 Vacancies. A vacancy in any office may be filled for the unexpired --------- term in the manner prescribed in sections 4.2 and 4.3 of these bylaws for election or appointment to the office. 4.6 Resignations. Any officer may resign at any time by delivering his ------------ resignation in writing to the President or Secretary of the Corporation, to take effect at the time specified therein; the acceptance of such resignation, unless required by the terms thereof, shall not be necessary to make it effective. 4.7 President. The President shall be the chief executive officer of the --------- Corporation, and he shall have general supervision over the business and affairs of the Corporation. He shall have the power to execute contracts and other instruments of the Corporation, and such other powers and duties as the Board assigns to him. 4.8 Vice Presidents. Each Vice President shall have such powers, duties --------------- and designations as the Board, or the President, subject to the control of the Board, assigns to him. In the absence of the President, the Vice Presidents, in the order designated by the Board, shall act in the place of the President. 4.9 Secretary. The Secretary shall record the minutes of all meetings of --------- the Board and of the stockholders, shall be responsible for giving notice of all meetings of stockholders and of the Board, shall keep the seal of the Corporation and, in the proper cases, shall apply it to any instrument requiring it and attest it. He shall have such other duties as the Board or the President assigns to him. In the absence of the Secretary from any meeting, the minutes shall be recorded by the person appointed for that purpose by the presiding officer. 4.10 Treasurer. Subject to the control of the Board and the President, --------- the Treasurer shall have charge of the Corporation's funds and securities and the Corporation's receipts and disbursements. He shall have such other powers and duties as the 4 Board or the President assigns to him. 4.11 Salaries. The Board may fix the officers' salaries or it may -------- authorize the President to fix the salary of any other officer. 5. SHARES. ------ 5.1 Certificates. The stock of the Corporation shall be represented by ------------ certificates in the form approved by the Board. 5.2 Transfers. Stock shall be transferable only on the Corporation's --------- books, upon surrender of the certificate for the stock, properly endorsed. The Board may require satisfactory surety before issuing a new certificate in replacement of one claimed to have been lost or destroyed. 6. INDEMNIFICATION. --------------- 6.1 Indemnification of Directors and Officers. The Corporation shall ----------------------------------------- indemnify any person, to the full extent authorized by the General Corporation Law of Delaware, with respect to any civil or criminal action or proceeding, instituted or threatened, by reason of the fact that he, his testator or intestate, is or was a director or an officer of the Corporation. 7. MISCELLANEOUS. ------------- 7.1 Seal. The seal of the Corporation shall be in the form of a circle ---- and shall bear the Corporation's name and the year and state in which it was incorporated. 7.2 Fiscal Year. The Board may determine the Corporation's fiscal year. ----------- 7.3 Voting of Stock in Other Corporations. Stock in other corporations ------------------------------------- which is held by the Corporation may be represented and voted by the President or a Vice President or by a proxy or proxies appointed by one of them. The Board may, however, appoint some other person to vote any such shares. 5 EX-12.1 5 COMPUTATION OF RATIO OF EARNINGS FOR SERVICES EXHIBIT 12.1 CCPR SERVICES, INC. STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------- ---------- ----------- ----------- ----------- Fixed charges Interest.............. $ 8,094,000 $2,751,000 $ -- $ -- $ -- Amortization of debt expense.............. 610,000 253,000 -- -- -- Interest portion of rental expense....... 951,000 703,000 546,000 416,000 296,000 ----------- ---------- ----------- ----------- ----------- $ 9,655,000 $3,707,000 $ 546,000 $ 416,000 $ 296,000 =========== ========== =========== =========== =========== Earnings: Income (loss) before income tax........... $ 7,471,000 $5,499,000 ($3,090,000) ($3,153,000) ($2,646,000) Fixed charges per above................ 9,655,000 3,707,000 546,000 416,000 296,000 Less: Capitalized interest........... (198,000) (119,000) (80,000) (123,000) (99,000) ----------- ---------- ----------- ----------- ----------- $16,928,000 $9,087,000 ($2,624,000) ($2,860,000) ($2,449,000) =========== ========== =========== =========== =========== Ratio of Earnings to Fixed Charges.......... 1.8 2.5 -- -- --
EX-12.2 6 COMPUTATION OF RATIO OF EARNINGS , CCPR EXHIBIT 12.2 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------- ----------- ----------- ------------ ------------ Fixed charges: Interest.............. $ 8,181,000 $ 8,501,000 $ 7,305,000 $ 6,249,000 $ 3,658,000 Amortization of debt expense.............. 610,000 619,000 280,000 279,000 99,000 Interest portion of rental expense....... 1,028,000 764,000 570,000 416,000 300,000 ----------- ----------- ----------- ------------ ------------ $ 9,819,000 $ 9,884,000 $ 8,155,000 $ 6,944,000 $ 4,057,000 =========== =========== =========== ============ ============ Earnings: Income (loss) before income tax........... $10,466,000 $ 2,556,000 $(4,484,000) $(18,575,000) $(14,850,000) Fixed charges per above................ 9,819,000 9,884,000 8,155,000 6,944,000 4,057,000 Less: Capitalized interest........... (198,000) (119,000) (80,000) (123,000) (99,000) ----------- ----------- ----------- ------------ ------------ $20,087,000 $12,321,000 $ 3,591,000 $(11,754,000) $(10,892,000) =========== =========== =========== ============ ============ Ratio of Earnings to Fixed Charges.......... 2.0 1.2 0.4 -- --
EX-23.1 7 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Financial Information" and "Experts" and to the use of our report dated February 23, 1997, in the Registration Statement (Form S-4) and related Prospectus of CCPR Services, Inc. dated April 29, 1997. Ernst & Young LLP San Juan, Puerto Rico April 28, 1997 EX-23.2 8 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Consolidated Financial Information" and "Experts" and to the use of our report dated February 23, 1997, with respect to the financial statements and schedule of Cellular Communications of Puerto Rico, Inc. included in the Registration Statement (Form S-4) and related Prospectus of CCPR Services, Inc. dated April 29, 1997. Ernst & Young LLP San Juan, Puerto Rico April 28, 1997 EX-23.3 9 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated February 23, 1997, with respect to the financial statements of San Juan Cellular Telephone Company (a Partnership) included in the Registration Statement (Form S-4) and related Prospectus of CCPR Services, Inc. dated April 29, 1997. Ernst & Young LLP San Juan, Puerto Rico April 28, 1997 EX-25 10 FORM T-1 __________________________________________________________ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 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)(2) ________ ________________________________________ THE CHASE MANHATTAN BANK (Exact name of trustee as specified in its charter) NEW YORK 13-4994650 (State of incorporation (I.R.S. employer if not a national bank) identification No.) 270 PARK AVENUE NEW YORK, NEW YORK 10017 (Address of principal executive offices) (Zip Code) William H. McDavid General Counsel 270 Park Avenue New York, New York 10017 Tel: (212) 270-2611 (Name, address and telephone number of agent for service) _____________________________________________ CCPR SERVICES, INC. (Exact name of obligor as specified in its charter) DELAWARE 13-3120943 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) 110 EAST 59TH STREET NEW YORK, NEW YORK 10022 (Address of principal executive offices) (Zip Code) _____________________________________________ 10% SENIOR SUBORDINATED NOTES DUE 2007 (Title of the indenture securities) _____________________________________________ GENERAL 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. New York State Banking Department, State House, Albany, New York 12110. Board of Governors of the Federal Reserve System, Washington, D.C., 20551 Federal Reserve Bank of New York, District No. 2, 33 Liberty Street, New York, N.Y. Federal Deposit Insurance Corporation, Washington, D.C., 20429. (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. - 2 - Item 16. List of Exhibits List below all exhibits filed as a part of this Statement of Eligibility. 1. A copy of the Articles of Association of the Trustee as now in effect, including the Organization Certificate and the Certificates of Amendment dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982, February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1 filed in connection with Registration Statement No. 333-06249, which is incorporated by reference). 2. A copy of the Certificate of Authority of the Trustee to Commence Business (see Exhibit 2 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in connection with the merger of Chemical Bank and The Chase Manhattan Bank (National Association), Chemical Bank, the surviving corporation, was renamed The Chase Manhattan Bank). 3. None, authorization to exercise corporate trust powers being contained in the documents identified above as Exhibits 1 and 2. 4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to Form T-1 filed in connection with Registration Statement No. 333-06249, which is incorporated by reference). 5. Not applicable. 6. The consent of the Trustee required by Section 321(b) of the Act (see Exhibit 6 to Form T-1 filed in connection with Registration Statement No. 33- 50010, which is incorporated by reference. On July 14, 1996, in connection with the merger of Chemical Bank and The Chase Manhattan Bank (National Association), Chemical Bank, the surviving corporation, was renamed The Chase Manhattan Bank). 7. A copy of the latest report of condition of the Trustee, published pursuant to law or the requirements of its supervising or examining authority. 8. Not applicable. 9. Not applicable. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, The Chase Manhattan Bank, 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 22ND DAY OF APRIL, 1997. THE CHASE MANHATTAN BANK By /s/ Andrew M. Deck -------------------------------- ANDREW M. DECK SENIOR TRUST OFFICER - 3 - Exhibit 7 to Form T-1 Bank Call Notice RESERVE DISTRICT NO. 2 CONSOLIDATED REPORT OF CONDITION OF The Chase Manhattan Bank of 270 Park Avenue, New York, New York 10017 and Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business December 31, 1996, in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. DOLLAR AMOUNTS ASSETS IN MILLIONS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin................................. $ 11,509 Interest-bearing balances......................... 8,457 Securities:......................................... Held to maturity securities......................... 3,128 Available for sale securities....................... 40,534 Federal Funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's: Federal funds sold................................ 9,222 Securities purchased under agreements to resell... 422 Loans and lease financing receivables: Loans and leases, net of unearned income $133,935 Less: Allowance for loan and lease losses 2,789 Less: Allocated transfer risk reserve........... 16 -------- Loans and leases, net of unearned income, allowance, and reserve............................ 131,130 Trading Assets...................................... 49,876 Premises and fixed assets (including capitalized leases)........................................... 2,877 Other real estate owned............................. 290 Investments in unconsolidated subsidiaries and associated companies.............................. 124 Customer's liability to this bank on acceptances outstanding....................................... 2,313 Intangible assets................................... 1,316 Other assets........................................ 11,231 -------- TOTAL ASSETS........................................ $272,429 ======== - 4 - LIABILITIES Deposits In domestic offices............................ $ 87,006 Noninterest-bearing .......................................$35,783 Interest-bearing ....................... 51,223 ------- In foreign offices, Edge and Agreement subsidiaries, and IBF's...................................... 73,206 Noninterest-bearing ............................ $ 4,347 Interest-bearing ............................................. 68,859 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's Federal funds purchased........................ 14,980 Securities sold under agreements to repurchase. 10,125 Demand notes issued to the U.S. Treasury......... 1,867 Trading liabilities.............................. 34,783 Other Borrowed money: With a remaining maturity of one year or less.. 14,639 With a remaining maturity of more than one year.... 425 Mortgage indebtedness and obligations under capitalized leases......................................... 40 Bank's liability on acceptances executed and outstanding 2,267 Subordinated notes and debentures................ 5,471 Other liabilities................................ 11,343 TOTAL LIABILITIES................................ 256,152 -------- Limited-Life Preferred stock and related surplus 550 EQUITY CAPITAL Common stock........................................ 1,251 Surplus............................................. 10,243 Undivided profits and capital reserves.............. 4,526 Net unrealized holding gains (Losses) on available-for-sale securities..................... (309) Cumulative foreign currency translation adjustments.. 16 TOTAL EQUITY CAPITAL............................... 15,727 -------- TOTAL LIABILITIES, LIMITED-LIFE PREFERRED STOCK AND EQUITY CAPITAL........................ $272,429 ======== I, Joseph L. Sclafani, S.V.P. & Controller of the above-named bank, do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true to the best of my knowledge and belief. JOSEPH L. SCLAFANI We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the in- structions issued by the appropriate Federal regulatory authority and is true and correct. WALTER V. SHIPLEY ) EDWARD D. MILLER )DIRECTORS THOMAS G. LABRECQUE ) EX-27.1 11 FINANCIAL DATA SCHEDULE
5 0001038374 CCPR SERVICES, INC. YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1,718,727 5,916,811 22,024,773 3,471,653 2,291,985 50,971,310 126,028,836 36,116,979 117,268,371 45,516,688 115,000,000 0 0 1,000 6,750,683 167,268,371 0 26,924,079 0 0 0 0 8,094,399 7,470,974 890,766 6,580,208 0 0 0 6,580,208 0 0
EX-27.2 12 FINANCIAL DATA SCHEDULE
5 0000881817 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 2,307,000 5,917,000 23,801,000 (3,767,000) 2,912,000 3,022,000 135,909,000 (37,964,000) 300,722,000 23,114,000 115,000,000 0 0 134,000 162,474,000 300,722,000 13,979,000 133,818,000 17,962,000 33,176,000 63,223,000 0 8,181,000 10,466,000 5,352,000 5,114,000 0 0 0 5,114,000 .36 0
EX-28.1 13 FORM OF LETTER OF TRANSMITTAL EXHIBIT 28.1 LETTER OF TRANSMITTAL CCPR SERVICES, INC. Offer for all Outstanding 10% Senior Subordinated Notes due 2007 in Exchange for 10% Senior Subordinated Notes due 2007 which Have Been Registered Under the Securities Act of 1933, As Amended, Pursuant to the Prospectus, dated _______, 1997 - -------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON __________, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. - -------------------------------------------------------------------------------- Delivery To: The Chase Manhattan Bank, Exchange Agent By Mail or Hand Delivery: The Chase Manhattan Bank Corporate Trust-Securities Window 55 Water Street, Room 234 New York, New York 10041 Attention: Ms. Sharon Lewis By Facsimile Transmission: (for Eligible Institutions Only) (212) 638-7380 Attention: Ms. Sharon Lewis Confirm by Telephone: (212) 638-0454 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY OF THIS LETTER OF TRANSMITTAL. The undersigned acknowledges that he or she has received and reviewed the Prospectus, dated ____________, 1997 (the "Prospectus"), of CCPR Services, Inc., a Delaware corporation (the "Company"), and this Letter of Transmittal (the "Letter"), which together constitute the Company's offer (the "Exchange Offer") to exchange an aggregate principal amount of up to $200,000,000 of the Company's 10% Senior Subordinated Notes due 2007 which have been registered under the Securities Act of 1933, as amended (the "New Notes"), for a like principal amount of the Company's issued and outstanding 10% Senior Subordinated Notes due 2007 (the "Old Notes") from the registered holders thereof (the "Holders"). For each Old Note accepted for exchange, the Holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. The New Notes will bear interest from the most recent date to which interest has been paid on the Old Notes or, if no interest has been paid on the Old Notes, from January 31, 1997. Accordingly, registered Holders of New Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from January 31, 1997. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange will not receive any payment in respect of accrued interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer. This Letter is to be completed by a holder of Old Notes either if certificates for such Old Notes are to be forwarded herewith or if a tender is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in "The Exchange Offer--Book-Entry Transfers" section of the Prospectus and an Agent's Message is not delivered. Tenders by book-entry transfer may also be made by delivering an Agent's Message in lieu of this Letter. The term "Agent's Message" means a message, transmitted by the Book- Entry Transfer Facility to and received by the Exchange Agent and forming a part of a Book-Entry Confirmation (as defined below), which states that the Book- Entry Transfer Facility has received an express acknowledgement from the tendering participant, which acknowledgement states that such participant has received and agrees to be bound by this Letter and that the Company may enforce this Letter against such participant. Holders of Old Notes whose certificates are not immediately available, or who are unable to deliver their certificates or confirmation of the book-entry tender of their Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other documents required by this Letter to the Exchange Agent on or prior to the Expiration Date, must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer-- Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. The undersigned has completed the appropriate boxes below and signed this Letter to indicate the action the undersigned desires to take with respect to the Exchange Offer. List below the Old Notes to which this Letter relates. If the space provided below is inadequate, the certificate numbers and principal amount of Old Notes should be listed on a separate signed schedule affixed hereto.
- -------------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF OLD NOTES 1 2 3 - -------------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) AGGREGATE (PLEASE FILL IN, IF BLANK) PRINCIPAL PRINCIPAL CERTIFICATE AMOUNT OF AMOUNT NUMBER(S)* OLD NOTE(S) TENDERED** - -------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ TOTAL - --------------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry transfer. ** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Old Notes represented by the Old Notes indicated in column 2. See Instruction 2. Old Notes tendered hereby must be in denominations of principal amount of $1,000 and any integral multiple thereof. See Instruction 1. [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution ----------------------------------------------- Account Number Transaction Code Number --------------------- ------------------ By crediting the Old Notes to the Exchange Agent's account at the Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP") and by complying with applicable ATOP procedures with respect to the Exchange Offer, including transmitting to the Exchange Agent a computer-generated message (an "Agent's Message") in which the holder of the Old Notes acknowledges and agrees to be bound by the terms of, and makes the representations and warranties contained in, the Letter, the participant in the Book-Entry Transfer Facility confirms on behalf of itself and the beneficial owners of such Old Notes all provisions of this Letter (including all representations and warranties) applicable to it and such beneficial owner as fully as if it had completed the information required herein and executed and transmitted this Letter to the Exchange Agent. [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) -------------------------------------------- Window Ticket Number (if any) ---------------------------------------------- Date of Execution of Notice of Guaranteed Delivery ------------------------- Name of Institution Which Guaranteed Delivery ------------------------------ IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING: Account Number Transaction Code Number --------------------- ------------------ Name of Tendering Institution ---------------------------------------------- [ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH. 2 [ ] 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: ------------------------------------------------------------------------ ------------------------------------------------------------------------ If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of New Notes. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act of 1933, as amended, in connection with any resale of such New Notes; however, by so acknowledging and by delivering such a prospectus the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act of 1933, as amended. If the undersigned is a broker-dealer that will receive New Notes, it represents that the Old Notes to be exchanged for the New Notes were acquired as a result of market-making activities or other trading activities. 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 aggregate principal amount of Old Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Old Notes as are being tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the undersigned's true and lawful agent and attorney-in-fact with respect to such tendered Old Notes, with full power of substitution, among other things, to cause the Old Notes to be assigned, transferred and exchanged. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Old Notes, and to acquire Exchange 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 thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Company. The undersigned hereby further represents that any New Notes acquired in exchange for Old Notes tendered hereby will have been acquired in the ordinary course of business of the person receiving such New Notes, whether or not such person is the undersigned, that neither the Holder of such Old Notes nor any such other person is participating in, intends to participate in or has an arrangement or understanding with any person to participate in the distribution of such New Notes and that neither the Holder of such Old Notes nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"), of the Company. The undersigned acknowledges that this Exchange Offer is being made in reliance on interpretations by the staff of the Securities and Exchange Commission (the "SEC"), as set forth in no-action letters issued to third parties, that the New Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for resale, resold and otherwise transferred by Holders thereof (other than any such Holder that 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 Holders' business and such Holders have no arrangement with any person to participate in the distribution of such New Notes. However, the SEC has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in other circumstances. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of New Notes and has no arrangement or understanding to participate in a distribution of New Notes. If any Holder is an affiliate of the Company, is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could not rely on the applicable interpretations of the staff of the SEC and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. If the undersigned is a broker-dealer 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 market-making activities or other trading activities and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes; however, by so acknowledging and 3 by delivering a prospectus meeting the requirements of the Securities Act, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Old Notes tendered hereby. All authority conferred or agreed to be conferred in this Letter and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section of the Prospectus. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, please deliver the New Notes (and, if applicable, substitute certificates representing Old Notes for any Old Notes not exchanged) in the name of the undersigned or, in the case of a book-entry delivery of Old Notes, please credit the account indicated above maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" below, please send the New Notes (and, if applicable, substitute certificates representing Old Notes for any Old Notes not exchanged) to the undersigned at the address shown above in the box entitled "Description of Old Notes." THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS SET FORTH IN SUCH BOX ABOVE.
- --------------------------------------------------------- ------------------------------------------------------------------ SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4) - --------------------------------------------------------- ------------------------------------------------------------------ To be completed ONLY if certificates for Old Notes not exchanged and/or New Notes are to be issued in the name of someone other than the person or persons whose signature(s) appear(s) on this Letter above, or To be completed ONLY if certificates for Old Notes not exchanged if Old Notes delivered by book-entry transfer which and/or New Notes are to be sent to someone other than the person are not accepted for exchange are to be returned by or persons whose signature(s) appear(s) on this Letter above or credit to an account maintained at the Book-Entry to such person or persons at an address other than shown in the Transfer Facility other than the account indicated box entitled "Description of Old Notes" on this Letter above. above. Issue: New Notes and/or Old Notes to: Name(s)................................................... (PLEASE TYPE OR PRINT) Mail: New Notes and/or Old Notes to: .......................................................... (PLEASE TYPE OR PRINT) Address................................................... Name(s)........................................................... (PLEASE TYPE OR PRINT) .......................................................... (ZIP CODE) (COMPLETE SUBSTITUTE FORM W-9) .................................................................. [ ] Credit unexchanged Old Notes delivered by book-entry (PLEASE TYPE OR PRINT) transfer to the Book-Entry Transfer Facility account set forth below. - ---------------------------------------------------------- Address........................................................... (BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER, IF APPLICABLE) .................................................................. (ZIP CODE) - --------------------------------------------------------- ------------------------------------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE IN LIEU THEREOF (TOGETHER WITH THE CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. 4 PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX ABOVE. PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING HOLDERS) (COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE) Dated:..................................................................., 1997 x ............................................ ........................., 1997 x ............................................ ........................., 1997 SIGNATURE(S) OF OWNER DATE Area Code and Telephone Number...................................... This Letter must be signed by the registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old Notes hereby tendered or on a security position, on listing or by any person(s) authorized to become registered holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 3. Name(s):...................................................................... .............................................................................. (PLEASE TYPE OR PRINT) Capacity:..................................................................... Address:...................................................................... .............................................................................. (INCLUDING ZIP CODE) SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 3) Signature(s) Guaranteed by an Eligible Institution: ...................................................... (AUTHORIZED SIGNATURE) .............................................................................. (TITLE) .............................................................................. (NAME AND FIRM) Dated: ..........................................................,1997 5 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE 10% SENIOR SUBORDINATED NOTES DUE 2007 OF CCPR SERVICES, INC. IN EXCHANGE FOR THE 10% SENIOR SUBORDINATED NOTES DUE 2007 OF CCPR SERVICES, INC., WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED 1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES. This letter is to be completed by holders of Old Notes either if certificates are to be forwarded herewith or if tenders are to be made pursuant to the procedures for delivery by book-entry transfer set forth in "The Exchange Offer- - -Book-Entry Transfers" section of the Prospectus and an Agent's Message is not delivered. Tenders by book-entry transfer may also be made by delivering an Agent's Message in lieu of this Letter of Transmittal. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to and received by the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgement from the tendering participant, which acknowledgement states that such participant has received and agrees to be bound by, and makes the representations and warranties contained in, the Letter of Transmittal and that the Company may enforce the Letter of Transmittal against such participant. Certificates for all physically tendered Old Notes, or Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed Letter (or manually signed facsimile hereof or Agent's Message in lieu thereof and any other documents required by this Letter, must be received by the Exchange Agent at the address set forth herein on or prior to the Expiration Date, or the tendering holder must comply with the guaranteed delivery procedures set forth below. Old Notes tendered hereby must be in denominations of principal amount of $1,000 and any integral multiple thereof. Holders whose certificates for Old Notes are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date, or who cannot complete the procedure for book-entry transfer on a timely basis, may tender their Old Notes pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer- - -Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to such procedures, (i) such tender must be made through an Eligible Institution, (ii) prior to 5:00 P.M., New York City time, on the Expiration Date, the Exchange Agent must receive from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Company (by 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 three New York Stock Exchange ("NYSE") trading days after the Expiration Date, the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, together with a properly completed and duly executed Letter (or facsimile thereof or Agent's Message in lieu thereof) with any required signature guarantees and any other documents required by this Letter will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, together with a properly completed and duly executed Letter (or facsimile thereof or Agent's Message in lieu thereof) with any required signature guarantees and all other documents required by this Letter, are received by the Exchange Agent within three NYSE trading days after the Expiration Date. The method of delivery of this Letter, the Old Notes and all other required documents is at the election and risk of the tendering holders, but the delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If Old Notes are sent by mail, it is suggested that the mailing be registered mail, properly insured, with return receipt requested, made sufficiently in advance of the Expiration Date to permit delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer" section of the Prospectus. 2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If less than all of the Old Notes evidenced by a submitted certificate are to be tendered, the tendering holder(s) should fill in the aggregate principal amount of Old Notes to be tendered in the box above entitled "Description of Old Notes--Principal Amount Tendered." A reissued certificate representing the balance of nontendered Old Notes will be sent to such tendering holder, unless otherwise provided in the appropriate box on this Letter, promptly after the Expiration Date. ALL OF THE OLD NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED. 6 3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter is signed by the Holder of the Old Notes tendered hereby, the signature must correspond exactly with the name as written on the face of the certificates or on the Book-Entry Transfer Facility's security position listing as the holder of such Old Notes without any change whatsoever. If any tendered Old Notes are owned of record by two or more joint owners, all of such owners must sign this Letter. If any tendered Old Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are different registrations of certificates. When this Letter is signed by the registered holder or holders of the Old Notes specified herein and tendered hereby, no endorsements of certificates or separate bond powers are required. If, however, the New Notes are to be issued, or any untendered Old Notes are to be reissued, to a person other than the registered holder, then endorsements of any certificates transmitted hereby or separate bond powers are required. Signatures on such certificate(s) must be guaranteed by a participant in a securities transfer association recognized signature program. If this Letter is signed by a person other than the registered holder or holders of any certificate(s) specified herein, such certificate(s) must be endorsed or accompanied by appropriate bond powers, in either case signed exactly as the name or names of the registered holder or holders appear(s) on the certificate(s) and signatures on such certificate(s) must be guaranteed by an Eligible Institution. If this Letter or any certificates or bond powers 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 to so act must be submitted. ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A FINANCIAL INSTITUTION (INCLUDING MOST BANKS, SAVINGS AND LOAN ASSOCIATIONS AND BROKERAGE HOUSES) THAT IS A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM, THE NEW YORK STOCK EXCHANGE MEDALLION SIGNATURE PROGRAM OR THE STOCK EXCHANGES MEDALLION PROGRAM (EACH AN "ELIGIBLE INSTITUTION"). SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) WHO HAS NOT COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS" ON THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Old Notes should indicate in the applicable box the name and address to which New Notes issued pursuant to the Exchange Offer and or substitute certificates evidencing Old Notes not exchanged are to be issued or sent, if different from the name or address of the person signing this Letter. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. Noteholders tendering Old Notes by book-entry transfer may request that Old Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such noteholder may designate hereon. If no such instructions are given, such Old Notes not exchanged will be returned to the name and address of the person signing this Letter. 5. TAXPAYER IDENTIFICATION NUMBER. Federal income tax law generally requires that a tendering holder whose Old Notes are accepted for exchange must provide the Company (as payor) with such holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9 below, which in the case of a tendering holder who is an individual, is his or her social security number. If the Company is not provided with the current TIN or an adequate basis for an exemption, such tendering holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery to such tendering holder of New Notes may be subject to backup withholding in an amount equal to 31% of all reportable payments made after the exchange. If withholding results in an overpayment of taxes, a refund may be obtained. 7 Exempt holders of Old Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed Guidelines of Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for additional instructions. To prevent backup withholding, each tendering holder of Old Notes must provide its correct TIN by completing the Substitute Form W-9 set forth below, certifying that the TIN provided is correct (or that such holder is awaiting a TIN) and that (i) the holder is exempt from backup withholding, or (ii) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of a failure to report all interest or dividends or (iii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the tendering holder of Old Notes is a nonresident alien or foreign entity not subject to backup withholding, such holder must give the Company a completed Form W-8, Certificate of Foreign Status. These forms may be obtained from the Exchange Agent. If the Old Notes are in more than one name or are not in the name of the actual owner, such holder should consult the W-9 Guidelines for information on which TIN to report. If such holder does not have a TIN, such holder should consult the W-9 Guidelines for instructions on applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note: Checking this box and writing "applied for" on the form means that such holder has already applied for a TIN or that such holder intends to apply for one in the near future. If such holder does not provide its TIN to the Company within 60 days, backup withholding will begin and continue until such holder furnishes its TIN to the Company. 6. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the transfer of Old Notes to it or its order pursuant to the Exchange Offer. If, however, New Notes and/or substitute Old Notes not exchanged 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 tendered Old Notes are registered in the name of any person other than the person signing this Letter, 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 persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption 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 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER. 7. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive satisfaction of any or all conditions enumerated in the Prospectus. 8. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of Old Notes, by execution of this Letter or an Agent's Message in lieu thereof, shall waive any right to receive notice of the acceptance of their Old Notes for exchange. Neither the Company, the Exchange Agent nor any other person is obligated to give notice of any defect or irregularity with respect to any tender of Old Notes nor shall any of them incur any liability for failure to give any such notice. 9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder whose Old Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. 10. WITHDRAWAL RIGHTS. Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. For a withdrawal of a tender of Old Notes to be effective, a written notice of withdrawal must be received by the Exchange Agent at the address set forth above prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having tendered the Old Notes to be withdrawn (the 8 "Depositor"), (ii) identify the Old Notes to be withdrawn (including certificate number or numbers and the principal amount of such Old Notes), (iii) contain a statement that such holder is withdrawing his election to have such Old Notes exchanged, (iv) be signed by the holder in the same manner as the original signature on the Letter by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer to have the Trustee with respect to the Old Notes register the transfer of such Old Notes in the name of the person withdrawing the tender and (v) specify the name in which such Old Notes are registered, if different from that of the Depositor. If Old Notes have been tendered pursuant to the procedure for book-entry transfer set forth in "The Exchange Offer--Book-Entry Transfers" section of the Prospectus, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by 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 and no New Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes that 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 set forth in "The Exchange Offer--Book-Entry Transfers" section of the Prospectus, such Old Notes will be credited to an account maintained with the 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 the procedures described above at any time on or prior to 5:00 p.m., New York City time, on the Expiration Date. 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter, and requests for Notices of Guaranteed Delivery and other related documents may be directed to the Exchange Agent, at the address and telephone number indicated above. 9 TO BE COMPLETED BY ALL TENDERING HOLDERS (See Instruction 5) PAYOR'S NAME: THE CHASE MANHATTAN BANK
PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY TIN: _________________________ BY SIGNING AND DATING BELOW. SOCIAL SECURITY NUMBER OR SUBSTITUTE EMPLOYER IDENTIFICATION NUMBER FORM W-9 PART 2--TIN APPLIED FOR [ ] DEPARTMENT OF THE TREASURY PAYOR'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER ("TIN") AND CERTIFICATION INTERNAL REVENUE SERVICE CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT: PAYOR'S REQUEST FOR (1) the number shown on this form is my correct Taxpayer Identification Number (or I TAXPAYER am waiting for a number to be issued to me). IDENTIFICATION NUMBER (2) I am not subject to backup withholding either because: (a) I am exempt from ("TIN") AND backup withholding, or (b) I have not been notified by the Internal Revenue Service CERTIFICATION (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding, and (3) any other information provided on this form is true and correct. SIGNATURE ............................................... DATE........................ - --------------------------------------------------------------------------------------------------------------------- You must cross out item (2) of the above certification if you have been notified by the IRS that you are subject to backup withholding because of underreporting of interest or dividends on your tax return and you have not been notified by the IRS that you are no longer subject to backup withholding. - ---------------------------------------------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of the exchange, 31 percent of all reportable payments made to me thereafter will be withheld until I provide a number. - ---------------------------------------------------- --------------------------------------------------------- SIGNATURE DATE - --------------------------------------------------------------------------------------------------------------------------
10 EX-28.2 14 FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 28.2 NOTICE OF GUARANTEED DELIVERY FOR CCPR SERVICES, INC. This form or one substantially equivalent hereto must be used to accept the Exchange Offer of CCPR Services, Inc. (the "Company") made pursuant to the Prospectus, dated ____________, 1997 (the "Prospectus"), if certificates for the outstanding 10% Senior Subordinated Notes due 2007 of the Company (the "Old Notes") are not immediately available or if the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach The Chase Manhattan Bank, as exchange agent (the "Exchange Agent") prior to 5:00 p.m., New York City time, on the Expiration Date of the Exchange Offer. Such form may be delivered or transmitted by facsimile transmission, mail or hand delivery to the Exchange Agent as set forth below. Capitalized terms not defined herein are defined in the Prospectus. Delivery To: The Chase Manhattan Bank, Exchange Agent By Mail or Hand Delivery: The Chase Manhattan Bank Corporate Trust-Securities Window 55 Water Street, Room 234 New York, New York 10041 Attention: Ms. Sharon Lewis By Facsimile Transmission: (for Eligible Institutions only) (212) 638-7380 Attn: Ms. Sharon Lewis Confirm by Telephone: (212) 638-0454 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF THIS INSTRUMENT VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. Ladies and Gentlemen: Upon the terms and conditions set forth in the Prospectus, the undersigned hereby tenders to the Company the principal amount of Old Notes set forth below pursuant to the guaranteed delivery procedure described in "The Exchange Offer-- Guaranteed Delivery Procedures" section of the Prospectus. Principal Amount of Old Notes Tendered:/*/ $ -------------------------------------- Certificate Nos. (if available): If Old Notes will be delivered by book- - -------------------------------------- entry transfer to The Depository Trust Company, provide account number. Total Principal Amount Represented by Old Notes Certificate(s): $ Account Number -------------------------------------- -------------------------- - -------------------------------------------------------------------------------- - ------------------------------- * Must be in denominations of principal amount of $1,000 and any integral multiple thereof. ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE DEATH 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. - -------------------------------------------------------------------------------- PLEASE SIGN HERE X ------------------------- ---------- X ------------------------- ---------- Signature(s) of Owner(s) Date or Authorized Signatory Area Code and Telephone Number: ------------------------- Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on certificates for Old Notes or on a security position listing, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- Capacity: ---------------------------------------------------------------- Address(es): ---------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- GUARANTEE (Not to be used for signature guarantee) The undersigned, a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion Program, hereby guarantees that the certificates representing the principal amount of Old Notes tendered hereby in proper form for transfer, or timely confirmation of the book- entry transfer of such Old Notes into the Exchange Agent's account at The Depository Trust Company pursuant to the procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of the Prospectus, together with one or more properly completed and duly executed Letters of Transmittal (or facsimile thereof or Agent's Message in lieu thereof) and any required signature guarantee and any other documents required by the Letter of Transmittal, will be received by the Exchange Agent at the address set forth above, no later than three New York Stock Exchange trading days after the Expiration Date. - ------------------------------------- ------------------------------------- Name of Firm Authorized Signature - ------------------------------------- ------------------------------------- Address Title Name: - ------------------------------------- -------------------------------- Zip Code (Please Type or Print) Area Code and Tel. No. Dated: --------------- ------------------------------- NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR OLD NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL. -----END PRIVACY-ENHANCED MESSAGE-----