| ATLANTIC TELE NETWORK INC /DE ITEM 1A RISK FACTORS Risks Relating to Our Wireless and Wireline Services in Guyana Our exclusive license to provide local exchange and long distance telephone services in Guyana is subject to significant political and regulatory risk |
| Since 1991, our subsidiary Guyana Telephone and Telegraph Company, Limited (or GT&T) has operated in Guyana pursuant to a license from the Government of Guyana to be the exclusive provider of local exchange and long distance services |
| From time to time, Guyana Government officials have publicly stated their intention to revoke or terminate the license and have made efforts to enact legislation that would allow for competition in areas that are precluded by the exclusivity terms |
| President Bharrat Jagdeo has publicly stated that it is a priority of his administration to enable other telecommunications companies to provide wireline services covered by our exclusive license, as well as to increase the number of wireless service providers |
| While we would seek to enforce our rights under the exclusive wireline license and believe that we would be entitled to damages for any termination of that license, we cannot guarantee that we would prevail in any court or arbitration proceedings |
| We are highly dependent on GT&T for a substantial majority of our revenues and profits |
| Approximately 85prca of our consolidated revenue for the year ended December 31, 2005 were generated by GT&T As of December 31, 2005, we have invested approximately dlra228 million in Guyanese telecommunications infrastructure |
| Any modification, early termination or other revocation of the exclusive wireline license could adversely affect a substantial majority of our revenues and profits and diminish the value of our investment in Guyana |
| Any significant decline in the price or volume of international long distance calls to Guyana could adversely affect our financial condition and results |
| We collect payments from foreign carriers for handling international long distance calls originating from the foreign carriers’ countries and ending in Guyana |
| The payments, which are based on volume and payment rates, are pursuant to arrangements we have with the foreign carriers and are subject to the actions of telecommunications regulators, such as the US Federal Communications Commission (or FCC) |
| For the year ended December 31, 2005, our revenues from GT&T’s international long distance services were dlra45dtta4 million (or 44prca of our consolidated revenue for 2005) and constituted a significant portion of our profits |
| Most of these revenues and profits were from collecting payments for international long distance calls into Guyana from other countries |
| 20 ______________________________________________________________________ Any decrease in the payment rate or the volume of inbound long distance calls would reduce the amount of the payments we collect |
| In January 2002, the FCC reduced the payment rate for US-Guyana traffic from dlra0dtta85 per minute to dlra0dtta23 per minute which negatively impacted GT&T’s operating profits |
| The lowering of the US international settlement rate in 2002 has been followed by a gradual reduction in settlement rates between Guyana and most other countries to dlra0dtta23 per minute or less |
| We believe the volume of outbound international long distance voice traffic is increasingly being threatened by customers and illegal operators bypassing our international exchange through various means, including sending voice traffic as Voice over Internet Protocol (or VoIP) |
| Further reductions in the payment rates or a decline in inbound international long distance volume, through VoIP or otherwise, would adversely affect our revenues and profits, and would deprive us of a critical source of US currency as payments from foreign carriers to GT&T are in US dollars |
| The regulation of the rates that GT&T may charge for local wireline telephone service may adversely affect our profitability, revenue growth and our ability to make additional network investment in Guyana |
| The rates that GT&T may charge for local wireline phone service are regulated by the Public Utility Commission (or PUC), an independent regulatory body responsible for regulating telecommunications in Guyana |
| The PUC has authority to set local wireline rates and has broad powers to assess GT&T’s compliance with the terms of GT&T’s exclusive license with the Government of Guyana |
| Under that license, GT&T is entitled to charge rates that will enable it to earn an annual minimum rate of return equal to 15prca of GT&T’s capital dedicated to public use |
| Unless otherwise agreed to by the parties, the license states that such rates shall be calculated on the basis of GT&T’s entire property, plant and equipment in a manner consistent with the practices and procedures of the FCC The PUC, however, has disallowed or challenged several million dollars of franchise rights and working capital that we believe should be included in the base upon which rates are determined in accordance with the terms of the license (or rate base) |
| Any failure by the PUC to calculate rates in accordance with the rate of return calculation in the license would adversely affect our profitability, revenue growth and our ability to make additional network investment in that country |
| In addition, we calculate the rate base in US dollars based on a historical US dollar valuation of dedicated capital, which protects the value of GT&T earnings from devaluations in the Guyanese dollar |
| The PUC has neither approved nor disapproved this method of calculation |
| If we were required to calculate the rate base based on a Guyanese dollar valuation of dedicated capital, the value of GT&T’s earnings would be subject to devaluations in the Guyanese dollar |
| GT&T is engaged in significant tax disputes with the Guyanese tax authorities which could adversely affect our financial condition and results of operations |
| GT&T’s worldwide income is subject to Guyanese tax at an overall rate of 45prca |
| GT&T has received various income tax assessments from Guyana tax authorities for past periods that claim GT&T owes approximately dlra23dtta5 million in additional income taxes |
| A substantial portion of this amount is based on the disallowance of 80prca of GT&T’s deduction for management fees paid to us pursuant to the original investment agreement and related agreements |
| This management fee is currently set at approximately 6prca of GT&T’s revenue |
| Although we believe that the fee is part of the original contract, is similar to amounts charged by other international telecommunications companies to their foreign subsidiaries for management advisory services and is an appropriate and proper expense, we may not prevail in these tax disputes |
| In addition, as part of an overall settlement of outstanding issues with the Government we might be forced to agree to reduce the amount of, or deductibility of, the management fees |
| If GT&T is required to pay these additional taxes and/or reduce our management fee, it could have a material adverse effect on our financial condition and results of operations |
| 21 ______________________________________________________________________ Political transition in Guyana may adversely affect our operations |
| Presidential elections are currently scheduled to take place in Guyana during the Summer of 2006 |
| In the past, presidential elections in Guyana have caused an escalation of political and ethnic strife, and some observers are concerned that the upcoming elections could cause significant unrest, including acts of violence, vandalism and economic disruption |
| Given the potential for negative impact on our employees and our customers in Guyana, any such unrest, especially if severe or prolonged, could have a material adverse effect on our financial condition and results of operations |
| Other Risks Relating to Our Businesses and Industry Increased competition may adversely affect growth, require increased capital expenditures, result in the loss of existing customers and decrease our revenues |
| We face competition in the markets in which we operate |
| For example: · In Guyana, we face current competition from a nationwide wireless service provider and may face additional competition in the future |
| Guyana Government officials, including the President, have stated that Guyana will provide a wireless license to a large mobile telecommunications company operating in many Caribbean countries |
| · In Vermont, in addition to other competitive voice and data communications service providers, we compete with a much larger national carrier, which has greater financial resources, greater economies of scale and may employ more advanced technology than us |
| · Commnet’s greatest competitive risk is the possibility that its current customers may elect to build or enhance their own networks within the rural market in which Commnet currently provides service, which is commonly known as “over-building |
| ” If Commnet’s customers, which have greater financial resources and access to capital than we have, determine to over-build, their need for Commnet’s roaming services will be significantly reduced or eliminated |
| · In Bermuda, BDC competes with the incumbent wireless service provider and a larger regional provider, which because of the their greater size and financial resources, have earlier access to the most technologically advanced handsets and have greater negotiating power in purchasing handsets and other equipment from vendors |
| Over the last several years, an increase in competition has contributed to a decline in prices for communication services, including local and long distance telephone service, data services and mobile wireless services |
| Increased competition may decrease prices further |
| In addition, increased competition could reduce our customer base, require us to invest in new facilities and capabilities and reduce revenues, margins and returns |
| Our retail wireless businesses may not continue to grow at the same rate as in the past |
| The future growth of our retail wireless businesses and affiliates may be constrained by the smaller markets that we serve |
| In Guyana, the wireless communications market is relatively small in comparison with other developing countries and regions |
| At December 31, 2005, we estimate that the wireless penetration rate (the percentage of a population subscribing to wireless services) in Guyana is approximately 32prca |
| Bermuda is also a relatively small wireless market |
| At December 31, 2005, we estimate that the wireless penetration rate in Bermuda is approximately 70prca |
| It is unlikely that our wireless subscriber levels will continue to grow at the same rate as in the past |
| In addition, we believe that some portion of our wireless subscriber growth in Guyana since our deployment of GSM services in the fourth quarter of 2004 may be a result of TDMA prepaid subscribers buying a GSM handset and temporarily retaining their TDMA handset until their TDMA prepaid accounts 22 ______________________________________________________________________ are depleted |
| Such a subscriber would temporarily appear as two subscribers in our wireless growth numbers |
| This overlap would likely abate with the passage of time, which may reduce the future subscriber growth numbers but should not affect revenue |
| A significant portion of our US wireless revenue is derived from a small number of customers |
| Our Commnet subsidiary generates a substantial majority of its revenues from two national wireless service providers |
| From September 15, 2005, through December 31, 2005, two national wireless service providers together accounted for 81prca of Commnet’s revenues |
| Commnet’s relationships with its customers generally are much more financially significant for Commnet than its customers, which can give its customers significant leverage in negotiating pricing and other terms |
| If we fail to keep any of these customers satisfied with our service offerings or economic terms, we could lose their business and suffer a substantial loss of revenue, which would have a materially adverse effect on our results of operations and financial condition |
| Our failure to maintain favorable roaming arrangements could have a material adverse effect on our ability to provide service to retail wireless customers who travel outside our coverage area |
| In addition to providing us with significant revenue, the roaming arrangements established by BDC and, to a lesser extent, GT&T enable our retail wireless customers to use the wireless networks of other wireless carriers when they travel outside of our licensed service area |
| This enables us to offer our customers competitively priced regional and international rate plans that include areas for which we do not own wireless licenses, and this is particularly important to BDC’s customers in Bermuda who travel frequently |
| If we are not able to maintain favorable roaming agreements with other wireless carriers, we may no longer be able to offer these regional and international rate plans and the coverage area and pricing we offer to our customers may not be as attractive relative to the offers from our competitors |
| This could have a material adverse effect on our future operations and financial condition |
| When our roaming agreements expire or are terminated, our roaming partners could choose not to renegotiate such agreements and could enter into roaming agreements with other carriers serving our markets or choose not to include our markets in their service offerings altogether |
| Furthermore, our roaming revenue is highly dependent on the pricing decisions made by our roaming partners |
| If our markets are not included in our roaming partners’ home calling areas and are instead subject to the imposition of additional roaming charges, we could see a loss of roaming minutes and revenue which could have a material adverse effect on our results of operations |
| Our foreign operations are subject to economic, political and other risks that could adversely affect our revenues or financial position |
| Our operations in Guyana and Bermuda may face adverse financial consequences and operational problems due to foreign political or economic changes, such as changes in national or regional political or economic conditions, or laws and regulations that restrict repatriation of earnings or other funds |
| In addition, we face risks associated with changes in foreign currency exchange rates |
| Any of these changes could adversely affect our revenues or financial position |
| Regulatory changes may impose restrictions that adversely affect us or cause us to incur significant unplanned costs in modifying our business plans or operations |
| We are subject to US federal, state and local regulations, Bermuda regulations and Guyanese regulations, all of which are subject to change |
| As new telecommunications laws and regulations are issued, we may be required to modify our business plans or operations |
| We cannot assure you that we can do so in a cost-effective manner |
| In addition, the failure by us to comply with applicable governmental regulations 23 ______________________________________________________________________ could result in the loss of our licenses or authorizations to operate, the assessment of penalties or fines or otherwise may have a material adverse effect on the results of our operations |
| SoVerNet, Commnet and Choice are subject to the Telecommunications Act of 1996 (or 1996 Act) |
| The interpretation and implementation of the provisions of the 1996 Act and the FCC rules implementing the 1996 Act continue to be heavily debated and may have a material adverse effect on our business, particularly our operations in Vermont |
| Also, although legislation has not yet been introduced, there have been indications that Congress may substantially revise the 1996 Act in the next few years |
| We cannot predict what effect any new legislation will have on our businesses |
| SoVerNet and Commnet are also subject to state regulatory commissions to the extent they provide intrastate services |
| While we have obtained the necessary certifications to provide service, each state commission retains the authority to revoke our certificate if that commission determines we have violated any condition of our certification or if it finds that doing so would be in the public interest |
| While we believe we are in compliance with regulatory requirements, our interpretation of our obligations may differ from those of regulatory authorities |
| Both federal and state regulators require us to pay various fees and assessments, file periodic reports and comply with various rules regarding the contents of our bills, on an on-going basis |
| If we fail to comply with these requirements, we may be subject to fines or potentially be asked to show cause as to why our certificate of authority to provide service should not be revoked |
| In Guyana, we are subject to regulation by the PUC, which has authority to assess GT&T’s compliance with the terms of GT&T’s exclusive wireline license with the Guyanese Government and has regulatory authority over GT&T’s wireless service |
| In February 2006, GT&T received a letter from the PUC alleging quality of service complaints from GT&T wireless subscribers and requesting that GT&T suspend any further sales of its wireless service until service levels are improved |
| Although we believe the letter is not enforceable, we cannot guarantee that a court or arbitrator would agree |
| Although no quality of service rules currently exist under Guyanese law, the PUC has broad authority to regulate telecommunications service |
| The PUC could adopt such rules in the future and, subject to compliance with public hearings and process requirements, make a determination of substandard quality of services and issue a formal directive regarding the suspension of new sales of wireless services |
| ” In Bermuda, BDC is subject to the Telecommunications Act 1986 |
| In November 2005, the Minister of Telecommunications and Technology directed BDC to cease offering certain data services through its “Bull” branded wireless modem |
| While BDC has appealed the directive in Bermuda court claiming that the directive contravenes BDC’s license to provide data services and BDC’s long history of providing data services, we cannot guarantee that BDC’s claim will prevail in court |
| If the directive against BDC is upheld, it could negatively affect BDC’s ability to grow its revenue |
| See “Business—Regulation of Our BDC Affiliate |
| ” US federal or state governments (including territorial governments) or the governments of Guyana or Bermuda could adopt regulations or take other actions that might have a material adverse effect on our business |
| These changes could materially and adversely affect our business prospects and operating results |
| The loss of certain licenses would adversely affect our ability to provide wireless and broadband services |
| In the United States, wireless, PCS, and microwave licenses are valid for ten years from the effective date of the license |
| Licensees may renew their licenses for additional ten-year periods by filing renewal applications with the FCC Commnet’s wireless licenses expire between 2007 and 2115 |
| Choice’s wireless licenses expire between 2008 and 2016 |
| The renewal applications are subject to FCC review and are put out for public comment to ensure that the licensees meet their licensing requirements and comply with other applicable FCC mandates |
| Failure to file for renewal of these licenses or failure to meet any licensing requirements could lead to a denial of the renewal application and thus adversely affect our ability to 24 ______________________________________________________________________ continue to provide service in that license area |
| Furthermore, our compliance with regulatory requirements such as enhanced 911 and CALEA requirements may depend on the availability of necessary equipment or software |
| Failure to comply with these regulatory requirements may have an adverse effect on our licenses or operations and could result in sanctions, fines or other penalties |
| Rapid and significant technological changes in the telecommunications industry may adversely affect us |
| We face rapid and significant changes in technology |
| In particular, the telecommunications industry is experiencing significant technological changes, including: · evolving industry standards; · the allocation of new radio frequency spectrum in which to license and operate advanced wireless services; · ongoing improvements in the capacity and quality of digital technology and shorter development cycles for new products and enhancements; · changes in end-user requirements and preferences; · the development of VoIP telephony services; · development of data and broadband capabilities; and · migration to next-generation services, which may require the purchase of additional spectrum |
| For us to keep up with these technological changes and remain competitive, we will be required to continue to make significant capital expenditures |
| Our value to the wireless carriers that are Commnet’s customers depends in part on our network’s capability of supporting the services that such carriers’ customers demand |
| For example, mobile high-speed wireless data services, which allow customers of wireless carriers to use the wireless network to send and receive data files and access the Internet, have become increasingly popular in the United States |
| While we offer certain advanced services, such as GSM-EDGE, in certain of our coverage areas, we do not currently offer those services in all areas nor do we currently offer other such services such as CDMA EV-DO As demand for these services continues to grow, we may have difficulty satisfying our customers without substantial upgrades, which could have an adverse effect on our business |
| Similarly, in other markets, if we do not offer new services that are popular with customers and are offered by competitors, we may have difficulty attracting and retaining subscribers, which will have an adverse effect on our business |
| We cannot predict the effect of technological changes on our business |
| Technological changes may result in increases in our capital expenditures |
| New technologies may be protected by patents or other intellectual property laws and therefore may not be available to us |
| Also, alternative technologies may be developed that provide communications service or alternative service superior to that available from us |
| Rapid changes in technology in our market may adversely affect our business |
| For example, to accommodate the demand by customers of Commnet’s roaming partners for next generation advanced wireless products such as high-speed data and streaming video, we may be required to purchase additional spectrum |
| In each of our markets, providing more and higher speed data services through our wireless or wireline networks may require us to make substantial investments in additional telecommunications transport capacity connecting our networks to the Internet, and in some cases such capacity may not be available to us or be available on attractive terms |
| We cannot assure you that we will gain access to spectrum or capacity at a reasonable cost or at all |
| Failure to provide these services could have a material adverse effect on our ability to compete with carriers offering these new technologies in our markets |
| 25 ______________________________________________________________________ We rely on a limited number of key suppliers and vendors for timely supply of equipment and services relating to our network infrastructure |
| If these suppliers or vendors experience problems or favor our competitors, we could fail to obtain sufficient quantities of the products and services we require to operate our businesses successfully |
| We depend on a limited number of suppliers and vendors for equipment and services relating to our network infrastructure |
| If these suppliers experience interruptions or other problems delivering these network components on a timely basis, our subscriber or revenue growth and operating results could suffer significantly |
| Our initial choice of a network infrastructure supplier can, where proprietary technology of the supplier is an integral component of the network, cause us to be effectively locked into one or a few suppliers for key network components |
| As a result, we have become reliant upon a limited number of network equipment manufacturers, including GT&T’s reliance upon Nortel Networks and BDC’s reliance upon Lucent Technologies, Inc |
| If it becomes necessary to seek alternative suppliers and vendors, we may be unable to obtain satisfactory replacement suppliers or vendors on economically attractive terms on a timely basis |
| If we lose our senior management, our business may be adversely affected; we rely on local management to run our operating units |
| The success of our business is largely dependent on our executive officers and the executive officers of our operating units, as well as on our ability to attract and retain other highly qualified technical and management personnel |
| We believe that there is, and will continue to be, intense competition for qualified personnel in the communications industry, and we cannot assure you that we will be able to attract and retain the personnel necessary for the development of our business |
| The loss of key personnel or the failure to attract additional personnel as required could have a material adverse effect on our business, financial condition and results of operations |
| We do not currently maintain “key person” life insurance on any of our key employees and none of the executives at our parent company are under employment agreements |
| We rely heavily on local management to run our operating units |
| Most of the markets we operate in are small and somewhat isolated and therefore it is particularly difficult attracting and retaining talent qualified managers and staff in those markets |
| For example, we have spent many months trying to find an appropriate replacement for our departing chief financial officer of GT&T Our network capacity and customer service system may not be adequate and may not expand quickly enough to support our customer growth |
| Our financial and operational success depends on assuring that we have adequate network capacity and a sufficient customer and operational support systems to accommodate anticipated new customers and the related increase in usage of our network |
| This includes capacity on our wireline and wireless networks and capacity on our inter- and intra-network transport facilities |
| Our failure to expand and upgrade our networks and transport facilities to meet the increased usage could impair our quality of service, cause a decline in customer satisfaction and have a material adverse effect on our business |
| For example, we have been experiencing severe congestion problems on parts of our GSM network in Guyana and, as a result, have experienced adverse publicity and negative reaction from our customers and Guyana regulators |
| Our wireless network capacity plans in Guyana and Bermuda generally rely on: · the availability of wireless handsets of the appropriate model and type to meet the demands and preferences of our customers; · the ability to obtain and construct additional cell sites and other infrastructure equipment; · the ability to obtain additional spectrum if required; and · the ability to obtain the capital to expand and upgrade our network |
| 26 ______________________________________________________________________ In addition, we must implement, manage and monitor effective procedures for customer activation, customer service, billing and other support services |
| Reliance on our customer service functions will increase as we add new customers |
| Our failure to timely and efficiently meet the demands for these services could decrease or slow subscriber growth or delay or otherwise impede billing and collection of amounts owed, which would adversely affect our revenue |
| We cannot make assurances that our customer service systems and network capacity will expand quickly enough to keep up with our anticipated customer growth, and failure to do so would impair our ability to compete, which would adversely affect our results and financial operations |
| Our wireless and wireline revenues depend on the reliability and performance of our network infrastructure |
| We must operate our wireless and wireline networks so as to minimize any disruption that may occur to our services |
| The operation and growth of our networks and the implementation of new technologies and services involve operating risks that may disrupt our services and cause losses in revenue |
| In Guyana, for example, the Americas II fiber optic cable, which connects Guyana with the United States, has been repeatedly vandalized and severed during the past year, resulting in service outages, customer dissatisfaction and increased repair expense |
| Other risks which may also cause interruptions in service or reduced capacity for customers include power loss, capacity limitations, software defects and breaches of security by computer viruses, break-ins or otherwise |
| Disruptions in our networks and the unavailability of our services could lead to a loss of customers, damage to our reputation and violation of the terms of our licenses and contracts with customers |
| These failures could also lead to significant negative publicity, regulatory problems and litigation |
| The occurrence of severe weather and natural catastrophes may materially disrupt our operations |
| We operate in Guyana, the US Virgin Islands and Bermuda, which have experienced severe weather conditions over the years including hurricanes, damaging storms and floods |
| Such events may materially disrupt and adversely affect our business operations |
| A major hurricane passed over Bermuda in 2005 causing major damage to our network and to the island’s infrastructure |
| Guyana has suffered from severe rains and flooding in each of the last two years |
| While these events have not had a significant negative impact on the operating results or financial condition of the affected businesses or our overall business, we cannot assure you that these types of events will not have such an impact in the future or that the insurance coverage we maintain for these risks will adequately compensate us for all damage and economic losses resulting from natural catastrophes |
| Concerns about the actual or perceived health risks relating to electromagnetic and radio frequency emissions, as well as the attendant publicity or possible resultant litigation, may have a negative effect on our financial condition or the results of our operations |
| Media and other reports have suggested that electromagnetic and radio frequency emissions from wireless telephone handsets and base stations may cause health problems, including cancer |
| There is also some concern that these emissions may interfere with the operation of certain electronic equipment, including automobile braking and steering systems |
| The actual or perceived risks relating to wireless communications devices and base stations, or press reports about these risks, could adversely affect us by, for example, reducing our subscriber growth rate, subscriber base or average use per subscriber and increasing our litigation risk |
| Actual or perceived risks of wireless handsets or base stations could make it difficult to find attractive sites for base stations and reduce our growth rates, customer base and average usage per customer |
| 27 ______________________________________________________________________ Our economic interest in our Bermuda affiliate may be reduced in 2008 |
| In July 2008, BDC has the option to repurchase from us all, but not less than all, of our 44prca equity interest in BDC at a price equal to fair market value |
| Also in 2008, our management fee for providing advisory services to BDC, which equals 6prca of BDC’s annual revenues, is scheduled to expire |
| For fiscal years 2003, 2004 and 2005, we recorded equity in earnings of BDC of dlra2dtta0 million, dlra2dtta6 million and dlra2dtta9 million, respectively, and received cash dividends from BDC of approximately dlra550cmam000, dlra621cmam000 and dlra1dtta5 million, respectively |
| For the same periods, we earned management fees of approximately dlra0dtta9 million, dlra1dtta2 million and dlra1dtta2 million, respectively |
| If BDC exercises its repurchase rights and we are unable to redeploy the repurchase proceeds in a similarly productive investment, our financial results would be negatively affected |
| We may be unable to realize the value that we believe exists in businesses that we acquire |
| To realize the value that we believe exists in Commnet and SoVerNet and future businesses that we acquire, if any, we must successfully integrate them into our holding company organization |
| If we are unable to effectively manage their operations or are unable to retain their key employees, we may not realize the value that we believe such businesses hold |
| In addition, failure to successfully integrate these businesses may have a material adverse effect on our results of operations and financial condition |
| Risks Related to Our Capital Structure Our debt instruments include restrictive and financial covenants that limit our operating flexibility |
| Our credit facility requires us to maintain certain financial ratios and contains covenants that, among other things, restrict our ability to take specific actions, even if we believe such actions are in our best interest |
| These include restrictions on our ability to: · incur additional debt; · create liens or negative pledges with respect to our assets; · pay dividends or distributions on, or redeem or repurchase, our capital stock; · make investments, loans or advances or other forms of payments; · issue, sell or allow distributions on capital stock of specified subsidiaries; · enter into transactions with affiliates; or · merge, consolidate or sell our assets |
| Any failure to comply with the restrictions of the credit facility or any subsequent financing agreements may result in an event of default |
| Such default may allow our creditors to accelerate the repayment of the related debt and may result in the acceleration of the repayment of any other debt to which a cross-acceleration or cross-default provision applies |
| In addition, these creditors may be able to terminate any commitments they had made to provide us with further funds |
| If we fail to meet our payment or other obligations under the credit facility, the lenders could foreclose on and acquire control of substantially all of our assets |
| In connection with the incurrence of the indebtedness under the credit facility, the lenders received a pledge of our share of the capital stock of all of our subsidiaries, and that of future direct and indirect subsidiaries with some limited exceptions |
| Additionally, the lenders under our credit facility generally have a lien on all of our US assets |
| As a result of these pledges and liens, if we fail to meet our payment or other obligations under the credit facility (including meeting or exceeding certain financial measurements), 28 ______________________________________________________________________ the lenders would be entitled to foreclose on and liquidate substantially all of our assets, to the extent required to pay our obligations under the credit facility |
| As a result, the holders of our securities may lose a portion of, or the entire value of, their investment in our securities |
| Our Chairman controls the vote of a majority of our common stock and may at times have interests adverse to the interests of the other holders of our common stock; Future sales of our common stock may depress the market price of our common stock |
| Cornelius B Prior, Jr, our chairman and the father of our chief executive officer, owns approximately 56prca of our outstanding shares of common stock |
| Accordingly, he controls our company and has the power to elect all of our directors, appoint new management and approve or reject any action requiring the approval of stockholders, including adopting amendments to our charter and approving mergers and sales of all or substantially all of our assets |
| He may make decisions that are adverse to the interests of other holders of our securities |
| In addition, if we or Cornelius B Prior, Jr |
| sell substantial amounts of common stock in the public market or if it is perceived that such sales could occur, the market price of our common stock could fall |
| Low trading volume of our stock may limit your ability to sell shares and/or result in lower sale prices |
| During the most recent three months, the average daily trading volume of our common stock has been approximately 3cmam700 shares |
| There has been, and may continue to be, only limited shares of our common stock available on the market and limited trading volume |
| As a result, you may have difficulty selling a large number of shares of our common stock in the manner or at a price that might be attainable if our common stock were more actively traded |
| In addition, the market price of our common stock may not be reflective of its underlying value |
| We may not pay dividends in the future |
| Our stockholders may receive dividends out of legally available funds if, and when, they are declared by our Board of Directors |
| We have paid quarterly dividends in the past, but may cease to do so at any time |
| Our credit facility limits our ability to pay dividends on, or repurchase, our capital stock |
| We may incur additional indebtedness in the future that may further restrict our ability to declare and pay dividends |
| We may also be restricted from paying dividends in the future due to restrictions imposed by state corporation laws, our financial condition and results of operations, capital requirements, covenants contained in our financing agreements, management’s assessment of future capital needs and other factors considered by our Board of Directors |
| In the future, we may cease to voluntarily comply with American Stock Exchange corporate governance listing standards |
| The American Stock Exchange has established rules with respect to certain corporate governance matters, including requirements for a board consisting of a majority of independent directors, executive sessions of independent directors and independent audit, compensation and nominating committees, among others |
| Any company of which more than 50prca of the voting power is held by an individual, group or another company, or a “controlled company,” is exempt from certain of these requirements |
| We qualify under the “controlled company” exemption and many of the new corporate governance rules are inapplicable to us |
| In the future, we may cease to voluntarily comply with American Stock Exchange corporate governance listing requirements |
| 29 ______________________________________________________________________ Preparations for Section 404 of the Sarbanes-Oxley Act of 2002 will increase our administrative costs and a finding of ineffective internal controls could cause investors to lose confidence in our reported financial information |
| Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and related Securities and Exchange Commission rules in effect today, we will have to furnish a report of management’s assessment of the effectiveness of our internal controls at December 31, 2006 |
| In addition, our Independent Registered Public Accounting Firm will need to audit and report on management’s assessment |
| If management or our auditors conclude that our internal control over financial reporting was not effective at December 31, 2006 because of identified deficiencies in our controls and if our deficiencies are not adequately addressed, we could experience accounting errors that could result in misstatements of our financial position and results of operations, potential restatements of our financial statements or otherwise adversely affect our business, reputation and results of operations |
| A finding of ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our securities |
| Also preparations for Section 404 of the Sarbanes-Oxley Act of 2002 will increase our cost of being a public company in 2006 and beyond |