Exhibit 99.1
Recent Developments
We are significantly expanding the geographic region that we serve and
focusing our growth efforts on our core communications services, primarily
digital personal communications, or PCS, services, Internet access, including
dedicated, high-speed digital subscriber line, or DSL, and dial-up services,
high-speed data transmission and local telephone services. In connection with
our expansion, we are receiving additional equity investments. We are also
divesting non-strategic assets. Transactions that are either in process or
have recently been completed include the:
. acquisition of the digital wireless licenses and assets of PrimeCo PCS,
L.P. in the Richmond-Petersburg and Norfolk-Virginia Beach, Virginia
markets, which we refer to as Richmond-Norfolk PCS;
. merger with R&B Communications, Inc., an integrated communications
provider in a geographic market contiguous to ours, which will give us a
controlling interest in the Virginia Alliance and the West Virginia
Alliance, through which we conduct our PCS operations;
. equity investments from Welsh Carson Anderson & Stowe and Morgan Stanley
Dean Witter;
. acquisition of certain PCS licenses currently owned by AT&T that will add
2.5 million POPs, or the population of a market, in certain markets in
Pennsylvania;
. sales of our wireless analog operations and our directory assistance
operations and communications tower sites; and
. arrangement of a new $325.0 million senior credit facility.
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The following graphics profile our company and our acquisition, merger,
equity investment, license swap and divestitures:
[GRAPH APPEARS HERE]
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Richmond-Norfolk PCS
A key component of our business strategy is to significantly expand our
digital PCS business. As part of that expansion, we have agreed to acquire
certain wireless operations of PrimeCo PCS, L.P. Pursuant to an asset exchange
agreement dated May 17, 2000, we will acquire from PrimeCo substantially all
of its wireless licenses and assets in the Richmond-Petersburg and Norfolk-
Virginia Beach, Virginia basic trading areas. In exchange, we will pay PrimeCo
$407.3 million in cash, subject to post-closing adjustments, transfer to
PrimeCo the assets and license comprising the analog cellular operations of
the RSA 6 partnership and our partnership interest in RSA 5, and assume
approximately $20.0 million of indebtedness in the form of leveraged lease
obligations. Our acquisition of Richmond-Norfolk PCS is subject to regulatory
approvals and other customary closing conditions. We expect this acquisition to
close in the third quarter of 2000.
Richmond-Norfolk PCS was the first digital PCS provider in the Richmond and
Norfolk BTAs, introducing its services in November 1996. The Richmond and
Norfolk BTAs cover approximately 3.0 million POPs. Richmond-Norfolk PCS adds
to our PCS footprint a large service territory in strategically located,
contiguous markets. These markets, both of which are densely populated and
relatively affluent, offer us an attractive opportunity to significantly
expand our PCS operations.
Richmond-Norfolk PCS offers communications products and services that it
markets through a multi-channel distribution network comprised of company-
operated retail outlets, third party agents and dealers, and direct sales
representatives who target business accounts. The Richmond-Norfolk PCS network
utilizes the same technologically-advanced digital code division multiple
access, or CDMA, technology that we use in our PCS services.
We believe that Richmond-Norfolk PCS offers us the potential for significant
future growth. Richmond-Norfolk PCS has rapidly grown its subscriber base and
increased its market penetration levels. As of March 31, 2000, Richmond-
Norfolk PCS provided PCS services to approximately 86,400 subscribers, a
penetration rate of approximately 2.9% of total market POPs. Total operating
revenues were $12.0 million in the first quarter of 1999, $13.3 million in the
first quarter of 2000, $31.3 million in 1998 and $50.5 million in 1999. EBITDA
was negative $4.0 million in the first quarter of 1999, negative $2.1 million
in the first quarter of 2000, negative $16.3 million in the year ended 1998
and negative $8.2 million in the year ended 1999.
R&B Communications
Pursuant to an agreement and plan of merger dated June 16, 2000, we have
agreed to merge with R&B Communications by issuing an aggregate of 3.7 million
shares of our common stock, valued at approximately $141 million on that date,
for all of the issued and outstanding shares of R&B Communications common
stock. In connection with the merger, we have agreed to increase the size of
our board of directors to include two members designated by R&B
Communications, including R&B Communications' CEO, J. Allen Layman, who will
become our Chairman of the Board and President. The merger is expected to
qualify as a tax-free reorganization and will be accounted for as a purchase.
The merger is subject to the approval of our shareholders and the shareholders
of R&B Communications, regulatory approvals and other customary closing
conditions. We expect this transaction to close in the fourth quarter of 2000.
R&B Communications is an integrated communications provider offering a broad
range of products and services, including incumbent local exchange carrier, or
ILEC, competitive local exchange carrier, or CLEC, Internet access, data
transmission facilities and paging and long distance telephone services. We
and R&B Communications have pursued joint initiatives in the Virginia and West
Virginia communications markets for a number of years, including ValleyNet, a
fiber optic consortium, the Virginia Alliance and the West Virginia Alliance,
through which both of us conduct PCS operations, and acquisitions of several
digital PCS and local multipoint distribution service, or LMDS, wireless
spectrum licenses. R&B Communications operates as an ILEC in Botetourt County,
Virginia and offers its CLEC services in Roanoke, Virginia. Our merger with
R&B Communications will give us 91.1% and 78.9% interests in the Virginia
Alliance and the West Virginia Alliance, respectively. The merger will also
add approximately 125 miles to our fiber optic network.
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As of March 31, 2000, R&B Communications served approximately 2,200 Internet
subscribers and had approximately 4,400 CLEC and 12,300 ILEC access lines
installed. Total operating revenues were $3.9 million in the first quarter of
1999, $4.5 million in the first quarter of 2000, $13.9 million in 1998 and
$16.8 million in 1999. EBITDA was $2.0 million in the first quarter of 1999,
$1.9 million in the first quarter of 2000, $6.7 million in the year ended 1998
and $7.5 million in the year ended 1999.
Additional Equity Investment
We have commitments from Welsh, Carson, Anderson & Stowe and Morgan Stanley
Dean Witter to invest $200.0 million in us and $25.0 million, respectively. Of
these amounts, Welsh Carson has committed to purchase $100.0 million of our
Senior Cumulative Convertible Preferred Stock, Series B, and Morgan Stanley Dean
Witter has committed to purchase $12.5 million of that same Series B Preferred
Stock. In connection with the issuance of the Series B Preferred Stock, we will
issue to Welsh Carson and Morgan Stanley Dean Witter warrants to purchase
444,444.4 and 55,555.6 shares of our common stock, respectively, at an exercise
price of $50.00 per share. The purchase of the Series B Preferred Stock is
subject to regulatory approvals and other customary closing conditions.
Welsh Carson has also committed to purchase $42.2 million of our Senior
Cumulative Convertible Preferred Stock, Series C, and $57.8 million of our
Senior Cumulative Convertible Preferred Stock, Series D. Morgan Stanley Dean
Witter has committed to purchase $5.3 million of that same Series C Preferred
Stock and $7.2 million of that same Series D Preferred Stock. The Series B and
Series C Preferred Stock is convertible into our common stock at any time, and
the Series D Preferred Stock is convertible into Series C Preferred Stock upon
approval of our shareholders. The purchase of the Series C and Series D
Preferred Stock is subject to the closing of our acquisition of Richmond-Norfolk
PCS and customary closing conditions. The proceeds from the sale of the Series C
and Series D Preferred Stock will be used to fund a portion of the purchase
price of Richmond-Norfolk PCS.
PCS License Acquisitions
Pursuant to an exchange agreement with AT&T Corp. and certain affiliates, AT&T
will transfer to us digital PCS spectrum owned by AT&T. In exchange, we will
transfer to AT&T certain wireless communications services, or WCS, licenses that
we own. Under the terms of the letter of intent, AT&T will assign to us PCS
license spectrum ranging from 10MHz to 15MHz in certain markets in Pennsylvania
in exchange for our assignment to AT&T of our WCS licenses in Richmond, Virginia
and Columbus, Ohio. The acquisition of the AT&T PCS licenses will add 2.5
million POPs to our PCS license footprint in strategically located, contiguous
geographic markets. These POPs are not currently built out.
Divestitures
We are in the process of divesting certain of our non-strategic assets and
operations, including our wireless analog and directory assistance operations
and our communications tower sites. In connection with our acquisition of
Richmond-Norfolk PCS, we are transferring to PrimeCo the assets and license
comprising the analog cellular operations of RSA 6, a partnership in which we
own a 95.2% interest, and our 22.0% limited partnership interest in RSA 5. We
currently conduct our wireless analog operations through these two partnerships.
We have agreed to sell our directory assistance operations. Pursuant to a
stock purchase agreement dated May 17, 2000, with telegate AG, a public
company in Germany, we will sell to telegate AG the capital stock of CFW
Information Services, Inc., through which we conduct our directory assistance
operations. In exchange, we will receive $32.0 million in cash and $3.5
million of stock in telegate AG. Consummation of the transaction is subject to
regulatory approvals and other customary closing conditions. We expect this
transaction to close in the third quarter of 2000.
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In March 2000, we sold to Crown Castle International Corp., for
approximately $46.4 million, 145 communications tower sites that were owned by
either us, the Virginia Alliance or the West Virginia Alliance. In April 2000,
we sold to Crown Castle an additional six tower sites for approximately $1.1
million.
Finance Plan
To fund the $407.3 million cash portion of the purchase price of Richmond-
Norfolk PCS, we expect to sell $375.0 million of debt securities in a private
placement and $112.5 million of Series C and Series D Preferred Stock and close
on a $325.0 million senior credit facility. We are also refinancing
substantially all of the Alliances' and our indebtedness with proceeds from our
new senior credit facility and part of the proceeds from the $112.5 million sale
of our Series B Preferred Stock. The following table sets forth our intended
uses of the net proceeds from our proposed sale of debt securities, the proceeds
from our new senior credit facility and the proceeds from the sale of our Series
B, Series C and Series D Preferred Stock (dollars in thousands):
Sources of Funds
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Proposed sale of debt
securities................... $375,000
New senior credit facility(1).. 150,000
Sale of Series B Preferred
stock......................... 112,500
Sale of Series C Preferred
Stock......................... 47,500
Sale of Series D Preferred
Stock......................... 65,000
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$750,000
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Uses of Funds
- ------------------------------------------
Repay existing
indebtedness(2)................. $209,300
Acquisition of Richmond-Norfolk
PCS(3)......................... 407,250
Escrow account(4)............... 91,000
Transaction costs............... 42,300
Cash............................ 150
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$750,000
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(1) We will have an additional $175.0 million of borrowing availability under
our new senior credit facility, subject to certain conditions.
(2) Of this amount, $149.4 million is being used by the Virginia Alliance and
the West Virginia Alliance to repay their indebtedness to the Rural
Telephone Finance Cooperative.
(3) The aggregate purchase price for Richmond-Norfolk PCS is comprised of (i)
approximately $407.3 million in cash, (ii) the transfer of the assets and
license comprising the analog operations of RSA 6 and our limited
partnership interest in RSA 5, and (iii) our assumption of $20.0 million
of indebtedness in the form of leveraged lease obligations. The purchase
price is based on the assumed net working capital of Richmond-Norfolk PCS
and RSA 6 on the date of the agreement. The cash portion of the purchase
price payable at closing is subject to a post-closing dollar-for-dollar
adjustment (i) downward, if the estimated combined net working capital on
May 17, 2000 exceeds the actual combined net working capital on the
closing date or (ii) upward, if the estimated combined net working capital
on the closing date exceeds the actual combined net working capital on May
17, 2000. Pending the closing of the Richmond-Norfolk PCS acquisition,
approximately $332.7 million will be placed in escrow to partially pre-
fund a redemption of the debt securities in the event that the acquisition
of Richmond-Norfolk PCS does not close.
(4) Amount held in an escrow account used to fund the first four interest
payments on the proposed debt securities.
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