<PAGE>
REGISTRATION NO. 333-36253
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PRICE COMMUNICATIONS WIRELESS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4812 13-3956941
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
----------------
45 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10020
(212) 757-5600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT PRICE
PRICE COMMUNICATIONS WIRELESS, INC.
45 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10020
(212) 757-5600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
RICHARD D. TRUESDELL, JR.
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 14, 1997
PROSPECTUS
, 1997
$175,000,000
OFFER TO EXCHANGE
11 3/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING
11 3/4% SERIES A SENIOR SUBORDINATED NOTES DUE 2007
OF
PRICE COMMUNICATIONS WIRELESS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON DECEMBER 12, 1997, UNLESS EXTENDED
Price Communications Wireless, Inc. (the "Company" or "PCW"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal (which together constitute the
"Exchange Offer"), to exchange $1,000 principal amount of 11 3/4% Series B
Senior Subordinated Notes due 2007 (the "New Notes") of the Company for each
$1,000 principal amount of the issued and outstanding 11 3/4% Series A Senior
Subordinated Notes due 2007 (the "Old Notes" and, together with the New Notes,
the "Notes") of the Company. As of the date of this Prospectus there were
outstanding $175,000,000 principal amount of Old Notes. The terms of the New
Notes are identical in all material respects to the Old Notes, except that the
offer of the New Notes will have been registered under the Securities Act of
1933, as amended (the "Securities Act"), and therefore, the New Notes will not
be subject to certain transfer restrictions, registration rights and related
liquidated damage provisions applicable to the Old Notes.
The New Notes will bear interest from July 10, 1997. Holders of Old Notes
(each person in whose name a Note is registered, a "Holder") whose Old Notes
are accepted for exchange will be deemed to have waived the right to receive
any payment in respect of interest on the Old Notes accrued from July 10, 1997
to the date of the issuance of the New Notes. Interest on the New Notes is
payable semi-annually on January 15 and July 15 of each year, commencing
January 15, 1998, accruing from July 10, 1997 at a rate of 11 3/4% per annum.
The Notes will be redeemable, in whole or in part, at the option of the
Company, at any time on or after July 15, 2002 at the redemption prices set
forth herein plus accrued and unpaid interest, if any, to the date of
redemption. See "Description of Notes."
The Notes are general, unsecured obligations of the Company and are
subordinated in right of payment to all Senior Indebtedness (as defined
herein) of the Company, including indebtedness under the New Credit Facility
(as defined herein). The Notes rank pari passu with any future senior
subordinated indebtedness of the Company and rank senior to all subordinated
indebtedness of the Company. As of June 30, 1997, on a pro forma basis after
giving effect to the issuance and sale of the Old Notes ("the Offering") and
the financing of the Acquisition (as defined herein), the Company would have
had $445.0 million of outstanding Senior Indebtedness.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement, dated July
10, 1997, among the Company and the other signatories thereto (the
"Registration Rights Agreement"). Based upon interpretations contained in
letters issued to third parties by the staff of the Securities and Exchange
Commissions (the "SEC"), including Exxon Capital Holdings Corporation, SEC No-
Action Letter (avail. May 13, 1988), Morgan Stanley & Co. Incorporated, SEC
No-Action Letter (avail. June 5, 1991) and Shearman & Sterling, SEC No-Action
Letter (avail. July 2, 1993) (collectively, the "Exchange Offer No-Action
Letters"), the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by each Holder thereof (other than a broker-dealer, as
set forth below, and any such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
Holder's business and such Holder has no arrangement or understanding with any
person to participate in the distribution of such New Notes. Eligible Holders
wishing to accept the Exchange Offer must represent to the Company in the
Letter of Transmittal that such conditions have been met. Each broker-dealer
that receives New Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange of Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of
Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date. In the event the Company terminates the Exchange Offer
and does not accept for exchange any Old Notes, the Company will promptly
return tendered Old Notes to the Holders thereof. See "The Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the Notes.
The Company does not currently intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active public market for the New
Notes will develop.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE
CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE EXCHANGE
OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in
this Prospectus (this "Prospectus") in connection with the offer made hereby
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or any other person. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
or incorporated by reference herein is correct as of any time subsequent to
its date. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy the securities offered hereby by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to
anyone to whom it is unlawful to make such offer or solicitation.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information (including the financial statements and the notes thereto) included
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Unless otherwise indicated, all references herein
to the "Company," "PCW" or "Palmer" include their respective subsidiaries and
predecessors. References herein to the "Acquisition" refer to the acquisition
by the Company of Palmer and the related sales of the Fort Myers and Georgia-1
systems of Palmer, as described below under "The Acquisition." EXCEPT FOR
HISTORICAL FINANCIAL INFORMATION AND UNLESS OTHERWISE INDICATED, ALL
INFORMATION PRESENTED BELOW RELATING TO THE COMPANY, INCLUDING POPS, NET POPS
AND THE COMPANY'S SYSTEMS, GIVES EFFECT TO THE CONSUMMATION OF THE ACQUISITION
(INCLUDING THE SALES OF THE FORT MYERS AND GEORGIA-1 SYSTEMS).
THE COMPANY
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. At
June 30, 1997, after giving effect to the Acquisition, PCW provided cellular
telephone service to 286,131 subscribers in Georgia, Alabama, Florida and South
Carolina in a total of 16 licensed service areas composed of eight Metropolitan
Statistical Areas ("MSAs") and eight Rural Service Areas ("RSAs"), with an
aggregate estimated population of 3.3 million. PCW sells its cellular telephone
service as well as a full line of cellular products and accessories principally
through its network of retail stores. PCW markets all of its products and
services under the nationally recognized service mark CELLULAR ONE.
During the first six months of 1997, on a pro forma basis, after giving
effect to the Acquisition, the Company's subscriber base increased from 243,204
to 286,131 or 17.7%. On a pro forma basis for the first six months of 1997, the
Company's operating income before depreciation and amortization ("EBITDA") was
$31.7 million and the Company would have incurred net losses of $20.6 million.
See "Summary Historical and Unaudited Pro Forma Financial and Operating Data."
OPERATIONS
The Company has developed its business through the acquisition and
integration of cellular telephone systems, clustering multiple systems in order
to provide broad areas of uninterrupted service and achieve certain economies
of scale, including centralized marketing and administrative functions as well
as multi-system capital expenditures. The Company devotes considerable
attention to engineering, maintenance and improvement of its cellular telephone
systems in an effort to deliver high-quality service to its subscribers and to
implement new technologies as soon as economically practicable. Through its
participation in the North American Cellular Network ("NACN"), PCW is able to
offer seven-digit dialing access to its subscribers when they travel outside
the Company's service areas, providing them with convenient roaming access
throughout large areas of the United States, Canada, Mexico and Puerto Rico
served by other NACN participants. By marketing its products and services under
the CELLULAR ONE name, PCW also enjoys the benefits of association with a
nationally recognized service mark.
The Company's cellular telephone systems include 15 contiguous licensed
service areas in Georgia, Alabama and South Carolina, as well as a system in
Panama City, Florida. The following table sets forth as of July 18, 1997, after
giving effect to the Acquisition, with respect to each service area in which
PCW owns a cellular telephone system, the estimated population, PCW's
beneficial ownership percentage, the Net Pops and the date of initial operation
of such system by Palmer or a predecessor operator.
3
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED OWNERSHIP DATE SYSTEM
SERVICE AREA(1) POPULATION(2) PERCENTAGE NET POPS OPERATIONAL
<S> <C> <C> <C> <C>
Albany, GA.................... 118,527 86.5% 102,526 4/88
Augusta, GA................... 439,116 100.0 439,116 4/87
Columbus, GA.................. 254,150 85.2 216,518 11/88
Macon, GA..................... 313,686 99.2 311,234 12/88
Savannah, GA.................. 283,878 98.5 279,578 3/88
Georgia-6 RSA................. 199,516 95.0 189,560 4/93
Georgia-7 RSA................. 134,376 100.0 134,376 10/91
Georgia-8 RSA................. 157,451 100.0 157,451 10/91
Georgia-9 RSA................. 119,410 100.0 119,410 9/92
Georgia-10 RSA................ 149,699 100.0 149,699 10/91
Georgia-12 RSA................ 211,799 100.0 211,799 10/91
Georgia-13 RSA................ 147,392 86.5 127,494 10/90
Dothan, AL.................... 136,160 94.6 128,807 2/89
Montgomery, AL................ 318,371 92.8 295,430 8/88
Alabama-8 RSA................. 173,993 100.0 171,993 7/93
--------- ---------
Subtotal.................... 3,155,524 3,034,991
--------- ---------
Panama City, FL............... 146,018 78.4 114,493 9/88
--------- ---------
Total....................... 3,301,542 3,149,484
========= =========
</TABLE>
- --------------------
(1) Does not include the Alabama-5 RSA, South Carolina-7 RSA and South
Carolina-8 RSA where PCW has interim operating authority ("IOA"). PCW has
no subscribers in the South Carolina-7 RSA and South Carolina-8 RSA, but
instead provides roaming access to its own subscribers and others when they
travel in these two service areas, utilizing its existing cell sites.
Construction permits were granted to third parties ("Permittees") for the
Alabama-5 RSA and South Carolina-8 RSA on May 20, 1997. The Permittees are
required to complete construction of their respective RSA within 18 months.
After completing construction, a Permittee may give the Company ten days
prior written notice, at which point the Company would be required to sell
its subscribers to the Permittee at cost. The application for a
construction permit for the South Carolina-7 RSA has been remanded by the
FCC to the Wireless Bureau for further review.
(2) Based on population estimates for 1996 from the 1996 Donnelley Market
Information Service.
COMPANY STRATEGY
The Company's four strategic objectives are to: (1) expand its revenue base
by increasing penetration in existing service areas and encouraging greater
usage among its existing customers, (2) provide high-quality customer service
to create and maintain customer loyalty, (3) enhance performance by
aggressively pursuing opportunities to increase operating efficiencies and (4)
expand its regional wireless communications presence by selectively acquiring
additional interests in cellular telephone systems (including minority
interests). Specifically, the Company strives to achieve these objectives
through implementation of the following:
Aggressive, Direct Marketing. The Company employs a two-tier direct sales
force. A retail sales force handles walk-in traffic at the Company's 32 retail
outlets, and a targeted sales staff solicits certain industries and government
subscribers. PCW's management believes that its internal sales force is more
likely than independent agents to successfully select and screen new
subscribers and select pricing plans that realistically match subscriber means
and needs. In addition, the Company motivates its direct sales force to sell
appropriate rate plans to subscribers, thereby reducing churn, by linking
payments of commissions to subscriber retention. By lowering commissions and
reducing churn, the Company's use of a direct sales force keeps its marketing
costs among the industry's lowest.
4
<PAGE>
Flexible, Value-Oriented Pricing Plans. PCW provides a range of pricing
plans, each of which includes a monthly access fee and a bundle of "free"
minutes. Additional home rate minutes are charged at rates ranging from $0.05
per minute to $0.30 per minute depending on usage plan and time of day. In
addition, the Company offers wide area home rate roaming in the Company's
systems and low flat rate roaming in a six state region in the Southeastern
United States.
PCW believes that an increase in its bundled minute offerings will encourage
greater customer usage. By increasing the number of minutes a customer can use
for one flat rate, subscribers perceive greater value in their cellular service
and become less usage sensitive, i.e., they can increase their cellular phone
usage without seeing large corresponding increases in their cellular bill.
These factors translate into more satisfied customers and lower churn among
existing subscribers and also increase the number of potential customers in the
marketplace.
Adopting State of the Art System Design. The Company's network, combined with
its use of the IS-136 protocol, allows the delivery of full personal
communications services ("PCS") functionality to its digital cellular
customers--primarily caller ID, short message paging and extended battery life.
In addition, the Company's network currently provides for the seamless handoff
from PCS (1900 MHZ) to digital cellular (800 MHZ). The Company believes this
innovation will allow the Company to be the roaming partner of choice for PCS
operators employing TDMA (Time Division Multiple Access) technology. The
Company has already reached an agreement with AT&T with respect to PCS roaming
and expects that other PCS operators may choose, like AT&T, to concentrate PCS
buildout in urban centers rather than the more rural areas in which the Company
concentrates.
Focusing on Customer Service. Customer service is an essential element of the
Company's marketing and operating philosophy. The Company is committed to
attracting new subscribers and retaining existing subscribers by providing
consistently high-quality customer service. In each of its cellular service
areas, the Company maintains a local staff, including a market manager,
customer service representatives, technical and engineering staff, sales
representatives and installation and repair facilities. Each cellular service
area handles its own customer-related functions such as credit evaluations,
customer evaluations, account adjustments and rate plan changes. In addition,
subscribers are able to report cellular telephone service or account problems
to the Company's headquarters 24 hours a day. To ensure high-quality service,
Cellular One Group authorizes a third-party marketing research firm to perform
customer satisfaction surveys of each of its licensees. Licensees must achieve
a minimum satisfaction level in order to continue using the Cellular One
service mark. The Company has repeatedly ranked number one in customer
satisfaction among all Cellular One operators (#1 MSA in 1996, 1995, 1993, and
1992; #1 RSA in 1995).
Aggressive Cost Control Efforts. The Company believes that its monthly
operating costs per subscriber rank among the lowest in the industry. The
Company's management attributes this competitive advantage to a variety of
factors, including the efficiencies associated with its direct sales force, the
Company's low churn experience, extensive use of in-house technical and
engineering staff, maintenance of aggressive fraud control procedures and in-
house billing capabilities, as well as general efforts to reduce corporate
general and administrative expenses. The Company has also realized substantial
savings on its interconnection charges from landline carriers by using its own
microwave and fiber optic network to connect cellular switching equipment to
cell sites without the use of landline carriers.
THE ACQUISITION
Prior to the Merger, Company had no assets, liabilities or operations. The
Company is a wholly owned indirect subsidiary of Price Communications
Corporation ("PCC"), which was incorporated in 1979, and also of Price
Communications Cellular, Inc., the original parent of PriCellular Corporation.
On May 23, 1997, PCC, the Company and Palmer entered into an Agreement and
Plan of Merger (the "Merger Agreement"). The Merger Agreement provided, among
other things, for the merger of the Company
5
<PAGE>
with and into Palmer with Palmer as the surviving corporation (the "Merger").
On October 6, 1997, the Merger was consummated and Palmer changed its name to
"Price Communications Wireless, Inc." Pursuant to the Merger Agreement, PCC
acquired each issued and outstanding share of common stock of Palmer for a
purchase price of $17.50 per share in cash and purchased outstanding options
and rights under employee and director stock purchase plans for an aggregate
price of $486.4 million. In addition, as a result of the Merger, the Company
assumed all outstanding indebtedness of Palmer of approximately $378.0 million
("Palmer Existing Indebtedness"). As a result, the aggregate purchase price for
Palmer (not including transaction fees and expenses) was $864.4 million. The
Company refinanced all of the Palmer Existing Indebtedness concurrently with
the consummation of the Merger.
PCW entered into an agreement (the "Fort Myers Sale Agreement") to sell
Palmer's Fort Myers, Florida MSA covering approximately 382,000 Pops for $168.0
million (the "Fort Myers Sale"). On October 6, 1997, the Fort Myers Sale was
consummated, and generated proceeds to the Company of approximately $166.0
million. The proceeds of the Fort Myers Sale were used to fund a portion of the
acquisition of Palmer.
On October 21, 1997, PCC and the Company entered into an Asset Purchase
Agreement with MJ Cellular Company, L.L.C. (the "Georgia Sale Agreement") which
provided for the sale by the Company, for $25 million, of substantially all of
the assets used or useful in the operation of the non-wireline cellular
telephone system serving the Georgia-1-Whitfield Rural Service Area (Market No.
0371-A) ("Georgia-1"), including the FCC licenses to operate Georgia-1 (the
"Georgia Sale"). The parties expect to consummate the sale of the assets of
Georgia-1 by December 31, 1997. The proceeds from the Georgia Sale will be used
to retire a portion of the debt used to fund the acquisition of Palmer.
In order to fund the Acquisition and pay related fees and expenses, the
Company issued the Old Notes and entered into a syndicated senior loan facility
providing for term loan borrowings in the aggregate principal amount of
approximately $325.0 million and revolving loan borrowings of $200.0 million
(the "New Credit Facility"). On October 6, 1997, the Company borrowed all term
loans available thereunder and approximately $120.0 million of revolving loans.
DLJ Capital Funding, Inc. ("DLJ Capital Funding"), an affiliate of Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), the lead Initial Purchaser,
provided the New Credit Facility, which is syndicated by DLJ Capital Funding.
See "Description of New Credit Facility."
The acquisition of Palmer was funded in part through a $128.2 million equity
contribution from PCC (the "PCC Equity Contribution") which was in the form of
cash and common stock of Palmer. PCC raised $47.5 million of the purchase price
for the Acquisition through an offering by Price Communications Cellular
Holdings, Inc. ("Holdings"), a wholly owned indirect subsidiary of PCC and the
direct parent of the Company, of units consisting of 13 1/2% Senior Secured
Discount Notes due 2007 and warrants to purchase shares of common stock of PCC
(the "Holdings Offering").
6
<PAGE>
The following table sets forth the estimated sources and uses of funds for
the Acquisition and related fees and expenses:
<TABLE>
<CAPTION>
TOTAL SOURCES: (IN MILLIONS)
<S> <C>
New Credit Facility:
Term loan................................................ $325.0
Revolving credit facility................................ 120.0
Old Notes.................................................. 175.0
PCC Equity Contribution.................................... 128.2
Proceeds from Fort Myers Sale.............................. 166.0
------
Total sources.......................................... $914.2
======
TOTAL USES:
Cash consideration for Palmer common stock................. $486.4
Palmer Existing Indebtedness (as of June 30, 1997) ........ 378.0
Estimated transaction fees and expenses.................... 31.2
Excess cash................................................ 18.6
------
Total uses............................................. $914.2
======
</TABLE>
The foregoing table does not reflect any provision for any taxes payable in
connection with the Fort Myers Sale or the Georgia Sale. The Company has a tax
planning strategy which it believes will avoid the payment of the $50.9 million
tax which would otherwise be payable in connection with the Fort Myers Sale and
Georgia Sale. While there can be no assurances that the Company's position will
prevail if challenged, the Company has received a written opinion from a "big-
six" accounting firm (other than Arthur Andersen LLP) that, under existing
laws, it is more likely than not that the Company's position will prevail if
challenged. In order to effect this tax strategy, the partnership that owns the
Fort Myers system will need to incur approximately $169.0 million of
indebtedness. The partnership has no commitments for such financing and there
can be no assurance it will be successful in obtaining such financing.
The foregoing table also does not reflect $1.4 million which was paid to
William J. Ryan as a severance payment pursuant to his employment contract upon
consummation of the Acquisition and approximately $2.6 million of severance
payments which are payable over several years pursuant to existing employment
contracts between Palmer and its other executive officers. The Company has
entered into employment contracts with Mr. Ryan and M. Wayne Wisehart to
continue as officers of the Company. The Company also entered into employment
contracts with other key employees prior to the consummation of the
Acquisition. See "Management."
7
<PAGE>
THE EXCHANGE OFFER
Securities Offered.......... Up to $175,000,000 principal amount of 11 3/4%
Senior Subordinated Exchange Notes due 2007. The
terms of the New Notes and the Old Notes are
identical in all material respects, except that
the offer of the New Notes will have been
registered under the Securities Act and
therefore, the New Notes will not be subjected to
certain transfer restrictions, registration
rights and related liquidated damage provisions
applicable to the Old Notes.
The Exchange Offer.......... The Company is offering, upon the terms and
subject to the conditions of the Exchange Offer,
to exchange $1,000 principal amount of New Notes
for each $1,000 principal amount of Old Notes.
See "The Exchange Offer" for a description of the
procedures for tendering Old Notes. The Exchange
Offer is intended to satisfy obligations of the
Company under the Registration Rights Agreement,
dated July 10, 1997, between the Company and
Donaldson, Lufkin & Jenrette Securities
Corporation, Wasserstein Perella Securities,
Inc., NatWest Capital Markets Limited, Lehman
Brothers, Inc. and PaineWebber Incorporated
(collectively, the "Initial Purchasers").
Tenders, Expiration Date;
Withdrawal.................. The Exchange Offer will expire at 5:00 p.m., New
York City time, on December 12, 1997, or such
later date and time to which it is extended. The
tender of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the
Expiration Date. Any Old Notes not accepted for
exchange for any 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 will
Consequences................ not result in any income, gain or loss to the
Holders or the Company for federal income tax
purposes. See "United States Federal Income Tax
Consequences."
Use of Proceeds............. There will be no proceeds to the Company from the
issuance of the New Notes pursuant to the
Exchange Offer.
Exchange Agent.............. Bank of Montreal Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer.
8
<PAGE>
CONSEQUENCE OF EXCHANGING OLD NOTES
PURSUANT TO THE EXCHANGE OFFER
Based upon interpretations contained in letters issued to third parties by
the staff of the SEC as set forth in the Exchange Offer No-Action Letters, the
Company believes that, generally, any Holder of Old Notes (other than a broker-
dealer, as set forth below, and any Holder who is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) who exchanges Old
Notes for New Notes pursuant to the Exchange Offer may offer such New Notes for
resale, resell such New Notes, or otherwise transfer such New Notes without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided such New Notes are acquired in the ordinary course of
the Holder's business and such Holder has no arrangement or understanding with
any person to participate in a distribution of such New Notes. Eligible Holders
wishing to accept the Exchange Offer must represent to the Company in the
Letter of Transmittal that such conditions have been met and must represent, if
such Holder is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for Old Notes, that neither such
Holder nor the person receiving such New Notes, if other than the Holder, is
engaged in or intends to participate in the distribution of such New Notes.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes must represent that the Old Notes tendered in exchange therefor were
acquired as a result of market-making activities or other trading activities
and must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. See "Plan of Distribution." To comply with the
securities laws of certain jurisdictions, it may be necessary to qualify for
sale or register the New Notes prior to offering or selling such New Notes. The
Company does not currently intend to take any action to register or qualify the
New Notes for resale in any such jurisdictions. If a Holder of Old Notes does
not exchange such Old Notes for New Notes pursuant to the Exchange Offer, such
Old Notes will continue to be subject to the restrictions on transfer contained
in the legend thereon. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. Any Holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of participating, in a
distribution of New Notes could not rely on the position of the staff of the
SEC enunciated in Exxon Capital Holdings Corporation (available May 13, 1988)
or similar no-action letters and, in the absence of an exemption therefrom,
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Failure to
comply with such requirements in such instance may result in such Holder
incurring liability under the Securities Act for which the Holder is not
indemnified by the Company. See "The Exchange Offer--Consequences of Failure to
Exchange" and "Description of Notes--Registration Rights; Liquidated Damages."
9
<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except that the offer of the New Notes will have been registered
under the Securities Act and, therefore, the New Notes will not be subject to
certain transfer restrictions, registration rights and related provisions
applicable to the Old Notes.
Notes Offered............... Up to $175,000,000 aggregate principal amount of
11 3/4% Senior Subordinated Exchange Notes due
2007.
Interest.................... Payable semi-annually on each January 15 and July
15 commencing on January 15, 1998. The New Notes
will bear interest from July 10, 1997. Holders of
Old Notes whose Old Notes are accepted for
exchange will be deemed to have waived the right
to receive any payment in respect of interest on
such Old Notes accrued from July 10, 1997 to the
date of the issuance of the New Notes.
Consequently, Holders who exchange their Old
Notes for New Notes will receive the same
interest payment on January 15, 1998 (the first
interest payment date with respect to the Old
Notes and the New Notes) that they would have
received had they not accepted the Exchange
Offer.
Maturity Date............... July 15, 2007.
Optional Redemption......... The Notes are redeemable, in whole or in part, at
the option of the Company, at any time on or
after July 15, 2002 at the redemption prices set
forth herein, plus accrued and unpaid interest,
if any, to the date of redemption. See
"Description of Notes--Optional Redemption."
Ranking..................... The Notes will be general unsecured obligations
of the Company and will be subordinated in right
of payment to all Senior Indebtedness of the
Company. As of June 30, 1997, on a pro forma
basis after giving effect to the Offering, the
application of the estimated net proceeds
therefrom and the Acquisition, the Company would
have had $445.0 million of outstanding Senior
Indebtedness.
Certain Covenants........... The Indenture imposes certain limitations on the
ability of the Company and its subsidiaries to,
among other things, incur Indebtedness (as
defined), make Restricted Payments (as defined),
effect certain Asset Sales (as defined), enter
into certain transactions with Related Persons
(as defined), merge or consolidate with any other
person or transfer all or substantially all of
their properties and assets. See "Description of
Notes--Certain Covenants."
Change of Control........... Upon the occurrence of a Change of Control (as
defined), each Holder of Notes will have the
right to require the Company to repurchase such
Holder's Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest
thereon, if any, to the repurchase date. A
redemption upon a Change of Control would be an
Event of Default under the terms of the New
Credit Facility. The Company may not have
sufficient funds or financing available to
satisfy its obligations to repurchase the Notes
or meet other debt obligations that may come due
upon a Change of Control.
10
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL AND OPERATING DATA
The following table sets forth summary historical data for Palmer and the
unaudited pro forma and financial data for the Company for the periods and as
of the dates indicated. The unaudited pro forma data is not designed to
represent and does not represent what the Company's financial position or
results of operations actually would have been had the transactions described
herein under "Unaudited Pro Forma Condensed Consolidated Financial Statements"
been completed as of the date or at the beginning of the periods indicated, or
to project the Company's financial position or results of operations at any
future date or for any future period. The following data should be read in
conjunction with "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Unaudited Pro Forma Condensed Consolidated Financial Statements" and the
consolidated financial statements and notes thereto of Palmer included
elsewhere herein.
The following table also sets forth certain summary operating data for Palmer
as of the dates and for the periods indicated.
<TABLE>
<CAPTION>
PRO FORMA
---------------------
SIX
YEAR MONTHS
YEAR ENDED SIX MONTHS ENDED ENDED
DECEMBER 31, ENDED JUNE 30, DECEMBER 31, JUNE 30,
-------------------------- ---------------- ------------ --------
1994(1) 1995(2) 1996(3) 1996 1997 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF
OPERATIONS DATA:
Revenue:
Service................ $61,021 $96,686 $151,119 $72,741 $88,140 $127,334 $ 73,265
Equipment sales and
installation.......... 7,958 8,220 8,624 4,239 5,088 7,026 4,143
------- ------- -------- ------- ------- -------- --------
Total revenue........ 68,979 104,906 159,743 76,980 93,228 134,360 77,408
Engineering, technical
and other
direct expenses........ 12,776 18,184 28,717 14,939 15,554 22,999 11,778
Cost of equipment....... 11,546 14,146 17,944 8,397 11,057 15,179 9,279
Selling, general and
administrative
expenses............... 19,757 30,990 46,892 21,977 27,204 42,665 24,623
Depreciation and
amortization........... 9,817 15,004 25,013 11,872 15,129 35,151 19,793
------- ------- -------- ------- ------- -------- --------
Operating income........ 15,083 26,582 41,177 19,795 24,284 18,366 11,935
Other income (expense):
Interest, net.......... (12,715) (21,213) (31,462) (16,006) (16,113) (60,138) (30,147)
Other, net............. (70) (687) (429) (58) 162 (366) 162
------- ------- -------- ------- ------- -------- --------
Total other expense.. (12,785) (21,900) (31,891) (16,064) (15,951) (60,504) (29,985)
Minority interest share
of income.............. (636) (1,078) (1,880) (1,023) (782) (1,880) (782)
Income taxes (expense)
benefit................ 0 (2,650) (2,724) (948) (3,851) 1,504 (1,737)
------- ------- -------- ------- ------- -------- --------
Net income (loss)....... $ 1,662 $ 954 $ 4,682 $ 1,760 $ 3,700 $(42,514) $(20,567)
======= ======= ======== ======= ======= ======== ========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
----------------------
SIX
YEAR MONTHS
YEAR ENDED SIX MONTHS ENDED ENDED ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
------------------------------- -------------------- ------------ ---------
1994(1) 1995(2) 1996(3) 1996 1997 1996 1997
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Capital expenditures.... $ 22,541 $ 36,564 $41,445 $ 21,639 $ 31,700 -- --
Operating income before
depreciation and
amortization
("EBITDA")(4).......... $ 24,900 $ 41,586 $66,190 $ 31,667 $ 39,413 $ 53,517 $ 31,728
EBITDA margin on service
revenue................ 40.8% 43.0% 43.8% 43.5% 44.7% 42.0% 43.3%
Net cash provided by
operating activities... $ 7,238 $ 27,660 $30,130 $ 15,803 $ 25,572 $ 19,049 $ 16,921
Penetration(5).......... 4.58% 6.41% 7.45% 6.85% 8.29% 7.73% 8.58%
Subscribers at end of
period(6).............. 117,224 211,985 279,816 243,887 325,653 242,204 286,131
Cost to add a net
subscriber(7).......... $ 247 $ 276 $ 407 $ 375 $ 480 $ 445 $ 487
Average monthly service
revenue per
subscriber(8).......... $ 60.02 $ 56.68 $ 52.20 $ 54.05 $ 48.06 $ 50.23 $ 45.73
Average monthly
churn(9)............... 1.55% 1.55% 1.84% 1.63% 1.79% 1.89% 1.78%
Ratio of earnings to
fixed charges(11)...... 1.17(x) 1.21(x) 1.28(x) 1.22(x) 1.50(x)
CONSOLIDATED BALANCE
SHEET DATA:
Cash.................... $ 1,698 $ 1,740 $ 15,160
Working capital
(deficit).............. 296 2,290 (7,252)(10)
Property, plant and
equipment, net......... 132,438 157,596 142,250
Licenses and other
intangibles, net....... 387,067 409,193 809,861
Total assets............ 549,942 597,202 1,017,284
Total debt.............. 343,662 380,321 620,000
Stockholders' equity.... 164,930 168,630 128,155
</TABLE>
- --------
(1) Includes the Georgia Acquisition (as defined herein), which occurred on
October 31, 1994. For the two months ended December 31, 1994, the Georgia
Acquisition resulted in revenues to Palmer of $1,803 and operating loss of
$645.
(2) Includes the GTE Acquisition (as defined herein), which occurred on
December 1, 1995. For the one month ended December 31, 1995, the GTE
Acquisition resulted in additional revenues to Palmer of $2,126 and
additional operating income of $208.
(3) Includes the acquisition of the cellular telephone systems of USCOC (as
defined herein) (Georgia-1 RSA), which occurred on June 20, 1996, and
Horizon (as defined herein) (Georgia-6 RSA), which occurred on July 5,
1996. The acquisition of USCOC and Horizon resulted in revenues to Palmer
of $1,239 and $2,682, respectively, and operating income (loss) of $(278)
and $743, respectively, during such year.
(4) Operating income before depreciation and amortization should not be
considered in isolation or as an alternative to net income (loss),
operating income (loss) or any other measure of performance under
generally accepted accounting principles ("GAAP"). The Company believes
that operating income before depreciation and amortization is viewed as a
relevant supplemental measure of performance in the cellular telephone
industry.
(5) Determined by dividing the aggregate number of subscribers by the
estimated population.
(6) Each billable telephone number in service represents one subscriber.
(7) Determined for a period by dividing (i) all costs of sales and marketing,
including salaries, commissions and employee benefits and all expenses
incurred by sales and marketing personnel, agent commissions, credit
reference expenses, losses on cellular telephone sales, rental expenses
allocated to retail operations, net installation expenses and other
miscellaneous sales and marketing charges, by (ii) the net subscribers
added during such period.
(8) Determined for a period by dividing (i) the sum of the access, airtime,
roaming, long distance, features, connection, disconnection and other
revenues for such period by (ii) the average number of subscribers for
such period, divided by the number of months in such period.
(9) Determined for a period by dividing total subscribers discontinuing
service by the average number of subscribers for such period and dividing
that result by the number of months in such period.
(10) Working capital deficit includes a $50.9 million current tax payable
attributable to the Fort Myers Sale and Georgia Sale. See "Unaudited Pro
Forma Condensed Consolidated Financial Statements."
(11) The ratio of earnings to fixed charges is determined by dividing the sum
of earnings before extraordinary items and accounting changes, interest
expense, taxes and a portion of rent expense representative of interest by
the sum of interest expense and a portion of rent expense representative
of interest. The ratio of earnings to fixed charges is not meaningful for
periods that result in a deficit.
12
<PAGE>
RISK FACTORS
In addition to the other matters described in this Prospectus, Holders of
the Old Notes should carefully consider the following risk factors before
accepting the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The
Company does not intend to register the Old Notes under the Securities Act.
The Company believes that, based upon interpretations contained in letters
issued to third parties by the staff of the SEC as set forth in the Exchange
Offer No-Action Letters, New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by each Holder thereof (other than a broker-dealer, as set forth
below, and any such Holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such Holder's
business and such Holder has no arrangement or understanding with any person
to participate in the distribution of such New Notes. Eligible Holders wishing
to accept the Exchange Offer must represent to the Company in the Letter of
Transmittal that such conditions have been met and must represent, if such
Holder is not a broker-dealer, or is a broker-dealer but will not receive New
Notes for its own account in exchange for Old Notes, that neither such Holder
nor the person receiving such New Notes, if other than the Holder, is engaged
in or intends to participate in the distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must represent that the Old Notes tendered in exchange therefor
were acquired as a result of market-making activities or other trading
activities and must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with the resales of
New Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 90 days
after the Expiration Date (as defined herein), they will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." However, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdiction or an
exemption from registration or qualification is available and is complied
with. The Company does not currently intend to take any action to register or
qualify the New Notes for resale in any such jurisdictions. In addition, the
tender of Old Notes pursuant to the Exchange Offer will reduce the principal
amount of the Old Notes outstanding, which may have an adverse effect upon,
and increase the volatility of, the market price of the Old Notes due to a
reduction in liquidity.
EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and avoid the restrictions on Old
Notes, each Holder of Old Notes must transmit a properly completed Letter of
Transmittal, including all other documents required by such Letter of
Transmittal, to Bank of Montreal Trust Company (the "Exchange Agent") at the
address set forth below under "Exchange Agent" on or prior to the Expiration
Date. In addition, (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Old Notes, if such procedure is available, into the Exchange Agent's account
at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant
to the procedure for book-entry transfer described below, must be received by
the Exchange Agent prior to the Expiration Date or (iii) the Holder must
comply with the guaranteed delivery procedures described below. See "The
Exchange Offer."
13
<PAGE>
LEVERAGE, LIQUIDITY AND ABILITY TO MEET REQUIRED DEBT SERVICE
On a pro forma basis, after giving effect to the Offering and the financing
of the Acquisition, the Company's consolidated ratio of long-term debt to
stockholders' equity would have been 4.69 to 1.00 at June 30, 1997 and its
ratio of EBITDA to interest expense would have been 0.89 to 1.00 and 1.05 to
1.00 for the year ended December 31, 1996 and the six months ended June 30,
1997, respectively. The Company's high degree of leverage could limit
significantly its ability to make acquisitions, withstand competitive
pressures or adverse economic conditions, obtain necessary financing or take
advantage of business opportunities that may arise.
Following the Acquisition, the Company's only committed source of liquidity
is the New Credit Facility, under which $80 million of revolving loans remains
available. The Company expects to have sufficient availability under the New
Credit Facility to meet its liquidity needs for the next 18 months. The
Company intends to use the availability under the New Credit Facility for
general corporate purposes and, if the Company's tax planning strategy is
unsuccessful, to finance the $50.9 million tax payment due with respect to the
Fort Myers Sale and Georgia Sale. See "Unaudited Pro Forma Condensed
Consolidated Financial Statements." Borrowings under the New Credit Facility
are subject to significant conditions, including compliance with certain
financial ratios and the absence of any material adverse change. The Company's
ability to meet its working capital and operational needs and to provide funds
for debt service, capital expenditures and other cash requirements is
dependent upon the availability of financing under the New Credit Facility. In
addition, the Company intends to pursue opportunities to acquire additional
cellular telephone systems which, if successful, will require the Company to
obtain additional equity or debt financing to fund such acquisitions. There
can be no assurances as to the availability or terms of any such financing or
that the terms of the Notes or the New Credit Facility will not restrict or
prohibit any such debt financing. See "Description of New Credit Facility" and
"Description of Notes."
The Company's ability to borrow is also limited by the terms of PCC's
outstanding preferred stock, which limits the ability of PCC and its
restricted subsidiaries, including the Company and its subsidiaries, to incur
additional indebtedness and to make certain restricted payments, including
investments. These limitations are generally more restrictive than those
contained under the "Limitation on Incurrence of Additional Indebtedness" and
"Limitation on Restricted Payments" covenants contained in the Indenture.
There can be no assurances that such restrictions will not have an adverse
effect on the Company's financial condition or ability to implement its
business plan.
The Company's ability to meet its debt service requirements, including those
represented by the Notes, will require significant and sustained growth in the
Company's cash flow. In addition, the Company expects to fund its growth
strategy from cash from operations and borrowings under the New Credit
Facility. There can be no assurance that the Company will be successful in
improving its cash flow by a sufficient magnitude or in a timely manner or in
raising additional equity or debt financing to enable the Company to meet its
debt service requirements or to sustain its growth strategy. In addition, if
the Company is unable to avoid the $50.9 million tax payment due with respect
to the Fort Myers Sale and Georgia Sale, the Company may be required to obtain
additional equity or debt financing. There can be no assurances that the
Company would be successful in procuring any such financing.
NET LOSSES
On a pro forma basis after giving effect to the Offering and the financing
of the Acquisition, the Company would have incurred net losses of
approximately $42.5 million and $20.6 million, respectively, for the year
ended December 31, 1996 and the six months ended June 30, 1997. There can be
no assurance that the Company's future operations will generate sufficient
earnings to pay its obligations. The Company expects to incur net losses for
several years. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SUBORDINATION
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior
Indebtedness of the Company, including all indebtedness under the New Credit
Facility. As of June 30, 1997, on a pro forma basis after giving effect to the
Offering and the financing of the
14
<PAGE>
Acquisition, the Company would have had approximately $445.0 million of Senior
Indebtedness substantially all of which will be secured. By reason of such
subordination, in the event of the insolvency, liquidation, reorganization,
dissolution or other winding-up of the Company or upon a default in payment
with respect to, or the acceleration of, any Senior Indebtedness, the holders
of such Senior Indebtedness and any other creditors of subsidiaries, if any,
must be paid in full before the Holders of the Notes may be paid. If the
Company incurs any additional pari passu debt, the holders of such debt would
be entitled to share ratably with the Holders of the Notes in any proceeds
distributed in connection with any insolvency, liquidation, reorganization,
dissolution or other winding-up of the Company. This may have the effect of
reducing the amount of such proceeds paid to Holders of the Notes.
COMPETITION
Although current policies of the FCC authorize only two licensees to operate
cellular telephone systems in each cellular market, there is, and the Company
expects there will continue to be, significant competition from the other
licensee authorized to serve each cellular market in which the Company
operates, as well as from resellers of cellular service. Competition for
subscribers between cellular licensees is based principally upon the services
and enhancements offered, the technical quality of the cellular telephone
system, customer service, system coverage and capacity and price. The Company
competes with a wireline licensee in each of its cellular markets, some of
which are larger and have access to more substantial capital resources than
the Company.
The Company also faces competition from other existing communications
technologies such as conventional mobile telephone service, specialized mobile
radio ("SMR") and enhanced specialized mobile radio ("ESMR") systems and
paging services. ESMR is a "cellular-like" communications service supplied by
converting analog SMR services into an integrated, digital transmission system
providing for call hand-off, frequency reuse and wide call delivery networks.
The Company also faces limited competition from and may in the future face
increased competition from PCS. It is expected that broadband PCS will involve
a network of small, low-powered transceivers placed throughout a neighborhood,
business complex, community or metropolitan area to provide customers with
mobile and portable voice and data communications. PCS may be capable of
offering, and PCS operators claim they will offer, additional services not
offered by cellular providers. PCS subscribers could have dedicated personal
telephone numbers and would communicate using small digital radio handsets
that could be carried in a pocket or purse. There can be no assurances that
the Company will be able to provide nor that it will choose to pursue,
depending on the economics thereof, such services and features. The Company
currently believes that traditional tested cellular is economically proven
unlike many of these other technologies and therefore does not intend to
pursue such other technologies.
Although the Company believes that the technology, financing and engineering
of these other technologies is not as advanced as their publicity would
suggest, there can be no assurance that one or more of the technologies
currently utilized by the Company in its business will not become obsolete at
some time in the future. See "Business--Competition."
The Company also faces competition from "resellers." The FCC requires all
cellular licensees to provide service to resellers. A reseller provides
wireless service to customers but does not hold an FCC license or own
facilities. Instead, the reseller buys blocks of wireless telephone numbers
and capacity from a licensed carrier and resells service through its own
distribution network to the public.
POTENTIAL FOR REGULATORY CHANGES AND NEED FOR REGULATORY APPROVALS
The licensing, construction, operation, acquisition, assignment and transfer
of cellular telephone systems, as well as the number of licensees permitted in
each market, are regulated by the FCC. Changes in the regulation of cellular
activities could have a material adverse effect on the Company's operations.
In addition, all cellular licenses in the United States are granted for an
initial term of up to 10 years and are subject to renewal. The Company's
cellular licenses expire in the following years with respect to the following
number of service areas: 1997 (four); 1998 (three); 2000 (two); 2001 (four);
2002 (three) and 2006 (one). On September 22, 1997, the Company filed License
Renewal Applications with the FCC for the Savannah, Georgia MSA; the Albany,
Georgia MSA; the Montgomery, Alabama MSA; and the Panama City, Florida MSA.
Although these four licenses have since expired, the Company is permitted to
continue to operate in these areas during the pendency of its renewal
applications. While the Company believes that each of these licenses will be
renewed based upon FCC rules establishing a renewal expectancy in favor of
licensees that have complied with their regulatory
15
<PAGE>
obligations during the initial license period, there can be no assurance that
all of the Company's licenses will be renewed in due course. In the event that
a license is not renewed, the Company would no longer have the right to
operate in the relevant service area. A non-renewal of all licenses that are
currently pending would have a material adverse effect on the Company's
results of operations. See "Business--Regulation."
FLUCTUATIONS IN MARKET VALUE OF LICENSES
A substantial portion of the Company's assets consists of its interests in
cellular licenses. The assignment of interests in such licenses is subject to
prior FCC approval and may also be subject to contractual restrictions, future
competition and the relative supply and demand for radio spectrum. The future
value of the Company's interests in its cellular licenses will depend
significantly upon the success of the Company's business. While there is a
current market for the Company's licenses, such market may not exist in the
future or the values obtainable may be significantly lower than at present. As
a consequence, in the event of the liquidation or sale of the Company's
assets, there can be no assurance that the proceeds 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.
RELIANCE ON USE OF THIRD-PARTY SERVICE MARK
The Company currently uses the registered service mark CELLULAR ONE to
market its services. 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. If these agreements are not renewed upon expiration and the
Company therefore is no longer permitted to use the CELLULAR ONE service mark,
the Company's ability both to attract new subscribers and to retain existing
subscribers could be materially affected. In addition, if for some reason
beyond the Company's control, the name CELLULAR ONE were to suffer diminished
marketing appeal, the Company's ability both to attract new subscribers and
retain existing subscribers could be materially affected. AT&T Wireless
Services, Inc., which has been the single largest user of the CELLULAR ONE
service mark, has significantly reduced its use of the service mark as a
primary service mark. There can be no assurance that such reduction in use by
AT&T Wireless will not have an adverse effect on the marketing appeal of the
brand name.
DEPENDENCE ON KEY PERSONNEL
The Company's affairs are managed by a small number of key management and
operating personnel, the loss of whom could have an adverse impact on the
Company. Robert Price, the Director of the Company and of Holdings, and a
Director, the President, Chief Executive Officer and Treasurer of PCC, also
serves as a Director and Chairman of PriCellular Corporation ("PriCellular"),
another operator of cellular telephone systems. The Company believes that Mr.
Price's positions with the Company and PriCellular complement one another and
benefit both companies because the systems they operate are similar but do not
directly compete with one another. Mr. Price's employment agreement with
PriCellular provides that he may not be an employee of or have an ownership
interest in any company engaged in the operation of cellular telephone systems
in the United States other than PriCellular and that any such other company
may not acquire any additional cellular telephone system within the United
States, in each case, without the unanimous consent of the executive committee
of the Board of Directors of PriCellular. The executive committee of the Board
of Directors of PriCellular has approved the acquisition of Palmer by PCC.
Although the Company and PriCellular historically have not imposed
inconsistent demands on Mr. Price's availability, there can be no assurances
that such conflicts will not arise in the future. Should Mr. Price's
obligations to PriCellular preclude him from devoting time to the Company for
any period, the Company believes that the other members of its existing
management can successfully manage the business affairs of the Company.
The Company entered into employment contracts with William J. Ryan and M.
Wayne Wisehart to remain as officers of the Company and also entered into
employment contracts with other key employees prior to the consummation of the
Acquisition. The success of the Company's operations and expansion strategy
depends on its ability to retain and to expand its staff of qualified
personnel in the future.
16
<PAGE>
RADIO FREQUENCY EMISSION CONCERNS
Media reports have suggested that certain radio frequency ("RF") emissions
from portable cellular telephones may be linked to certain types of cancer. In
addition, recently a limited number of lawsuits have been brought, not
involving the Company, alleging a connection between cellular telephone use
and certain types of cancer. Concerns over RF emissions and interference may
have the effect of discouraging the use of cellular telephones, which could
have an adverse effect upon the Company's business. As required by the Telecom
Act, in August 1996, the FCC adopted new guidelines and methods for evaluating
RF emissions from radio equipment, including cellular telephones. While the
new guidelines 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 the new
standards.
The Company carries $4.0 million in General Liability insurance and $25
million in umbrella liability coverage. This insurance would cover any
liability suits with respect to human exposure to radio frequency emissions.
The Company believes that this coverage is adequate to cover potential
liabilities.
FRAUDULENT CONVEYANCE STATUTES
Various laws enacted for the protection of creditors may apply to the
Company's incurrence of indebtedness and other obligations in connection with
the Acquisition, including the issuance of the Notes. If a court were to find
in a lawsuit by an unpaid creditor or representative of creditors of the
Company that the Company did not receive fair consideration or reasonably
equivalent value for incurring such indebtedness or obligation and, at the
time of such incurrence, the Company (i) was insolvent; (ii) was rendered
insolvent by reason of such incurrence; (iii) was engaged in a business or
transaction for which the assets remaining in the Company constituted
unreasonably small capital; or (iv) intended to incur or believed it would
incur obligations beyond its ability to pay such obligations as they mature,
such court, subject to applicable statutes of limitation, could determine to
invalidate, in whole or in part, such indebtedness and obligations as
fraudulent conveyances or subordinate such indebtedness and obligations to
existing or future creditors of the Company.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction which is being applied. Generally, however, the
Company would be considered insolvent at a particular time if the sum of its
debts was then greater than all of its property at a fair valuation or if the
present fair saleable value of its assets was then less than the amount that
would be required to pay its probable liabilities on its existing debts as
they became absolute and matured. On the basis of its historical financial
information, its recent operating history as discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other factors, the Company's management believes that, after giving effect to
indebtedness incurred in connection with the Acquisition and the other related
financings, the Company will not be rendered insolvent, it will have
sufficient capital for the businesses in which it will be engaged and it will
be able to pay its debts as they mature; however, management has not obtained
any independent opinion regarding such issues. There can be no assurance as to
what standard a court would apply in making such determinations.
EQUIPMENT FAILURE; NATURAL DISASTER
Although the Company carries "business interruption" insurance, a major
equipment failure or a natural disaster affecting any one of the Company's
central switching offices or certain of its cell sites could have a
significant adverse effect on the Company's operations.
LACK OF PUBLIC MARKET
The New Notes are being offered to the Holders of the Old Notes. The Old
Notes were issued on July 10, 1997 to a limited number of investors. The New
Notes are new securities for which there currently is no market. The Company
does not intend to apply for listing of the Notes on any securities exchange
or for quotation through the National Association of Securities Dealers
Automated Quotation System. There can be no assurance that an active trading
market for the New Notes will develop. If a trading market develops for the
New Notes, future trading prices of such securities will depend on many
factors, including prevailing interest rates, the Company's results of
operations and financial condition and the market for similar securities.
17
<PAGE>
THE ACQUISITION
Prior to the Merger, the Company had no assets, liabilities or operations.
The Company is a wholly owned indirect subsidiary of PCC, which was
incorporated in 1979, and also of Price Communications Cellular, Inc., the
original parent of PriCellular Corporation.
On May 23, 1997, PCC, the Company and Palmer entered into an Agreement and
Plan of Merger. The Merger Agreement provided, among other things, for the
merger of the Company with and into Palmer with Palmer as the surviving
corporation. On October 6, 1997, the Merger was consummated and Palmer changed
its name to "Price Communications Wireless, Inc." Pursuant to the Merger
Agreement, PCC acquired each issued and outstanding share of common stock of
Palmer for a purchase price of $17.50 per share in cash and purchased
outstanding options and rights under employee and director stock purchase
plans for an aggregate price of $486.4 million. In addition, as a result of
the Merger, the Company assumed the Palmer Existing Indebtedness of
approximately $378.0 million. As a result, the aggregate purchase price for
Palmer (not including transaction fees and expenses) was $864.4 million. The
Company refinanced all of the Palmer Existing Indebtedness concurrently with
the consummation of the Merger. PCW entered into the Fort Myers Sale Agreement
to sell Palmer's Fort Myers, Florida MSA covering approximately 382,000 Pops
for $168.0 million. On October 6, 1997, the Fort Myers Sale was consummated
and generated approximately $166.0 million of proceeds to the Company. The
proceeds of the Fort Myers Sale were used to fund a portion of the acquisition
of Palmer. On October 21, 1997, PCC and the Company entered into the Georgia
Sale Agreement to sell Palmer's Georgia-I RSA for $25 million. The parties
expect to consummate the Georgia Sale by December 31, 1997. The proceeds from
the Georgia Sale will be used to retire a portion of the debt used to fund the
acquisition of Palmer.
In order to fund the Acquisition and pay related fees and expenses, the
Company issued the Old Notes and entered into the New Credit Facility, which
provides for term loan borrowings in the aggregate principal amount of
approximately $325.0 million and revolving loan borrowings of $200.0 million.
On October 6, 1997, the Company borrowed all term loans available thereunder
and approximately $120.0 million of revolving loans. The remaining revolving
loans will, subject to a borrowing base and other significant conditions,
including the absence of any material adverse change, be available to fund the
working capital requirements of the Company. DLJ Capital Funding, an affiliate
of DLJ, the lead Initial Purchaser, provided the New Credit Facility, which is
syndicated by DLJ Capital Funding. See "Description of New Credit Facility."
The acquisition of Palmer was funded in part through the PCC Equity
Contribution which was in the form of cash and common stock of Palmer. PCC
raised $47.5 million of the purchase price for the Acquisition through an
offering by Holdings, a wholly owned indirect subsidiary of PCC and the direct
parent of the Company, of units consisting of 13 1/2% Senior Secured Discount
Notes due 2007 and warrants to purchase shares of common stock of PCC.
18
<PAGE>
The following table sets forth the estimated sources and uses of funds for
the Acquisition and related fees and expenses:
<TABLE>
<CAPTION>
TOTAL SOURCES: (IN MILLIONS)
<S> <C>
New Credit Facility:
Term loan....................................................... $ 325.0
Revolving credit facility....................................... 120.0
Old Notes......................................................... 175.0
PCC Equity Contribution........................................... 128.2
Proceeds from Fort Myers Sale..................................... 166.0
-------
Total sources................................................. $ 914.2
=======
TOTAL USES:
Cash consideration for Palmer common stock........................ $ 486.4
Palmer Existing Indebtedness (as of June 30, 1997)................ 378.0
Estimated transaction fees and expenses........................... 31.2
Excess cash....................................................... 18.6
-------
Total uses.................................................... $ 914.2
=======
</TABLE>
The foregoing table does not reflect any provision for any taxes payable in
connection with the Fort Myers Sale. The Company has a tax planning strategy
which it believes will avoid the payment of the $50.9 million tax which would
otherwise be payable in connection with the Fort Myers Sale and Georgia Sale.
While there can be no assurances that the Company's position will prevail if
challenged, the Company has received a written opinion from a "big-six"
accounting firm (other than Arthur Andersen LLP) that, under existing laws, it
is more likely than not that the Company's position will prevail if
challenged. In order to effect this tax strategy, the partnership that owns
the Fort Myers system will need to incur approximately $169.0 million of
indebtedness. The partnership has no commitments for such financing and there
can be no assurance it will be successful in obtaining such financing.
The foregoing table also does not reflect $1.4 million which was paid to
William J. Ryan as a severance payment pursuant to his employment contract
upon consummation of the Acquisition and approximately $2.6 million of
severance payments which are payable over several years pursuant to existing
employment contracts between Palmer and its other executive officers. The
Company has entered into employment contracts with Mr. Ryan and M. Wayne
Wisehart to continue as officers of the Company. The Company also entered into
employment contracts with other key employees prior to the consummation of the
Acquisition. See "Management."
19
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. The net proceeds from the sale of the Old Notes, after
deducting expenses of the Offering, are approximately $168,600,000. The net
proceeds of the Offering, together with borrowings by the Company under the
New Credit Agreement, the PCC Equity Contribution and proceeds from the Fort
Myers Sale were used to finance the acquisition and related fees and expenses.
See "Description of Notes."
20
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of June 30, 1997 on (i) an actual basis and (ii) on a pro forma
basis after giving effect to the Acquisition, the Offering and the other
transactions described herein under "Unaudited Pro Forma Condensed
Consolidated Financial Statements." This table should be read in conjunction
with the consolidated financial statements of Palmer, including the notes
thereto, the "Unaudited Pro Forma Condensed Consolidated Financial Statements"
and notes thereto, included elsewhere herein, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "The
Acquisition."
<TABLE>
<CAPTION>
AS OF JUNE 30,
1997
-----------------
(IN THOUSANDS)
ACTUAL PRO FORMA
<S> <C> <C>
Current portion of long-term debt............................ $ -- $ --
Existing long-term debt...................................... -- --
New Credit Facility.......................................... -- 445,000
11 3/4% Senior Subordinated Notes due 2007................... -- 175,000
------- --------
Total long-term debt (including current portion of long-
term debt).............................................. -- 620,000
Stockholders' equity:
Common Stock, $0.01 par value per share, 100 shares
authorized, issued and outstanding........................ -- --
Additional paid-in capital................................... -- 128,155
Retained earnings............................................ -- --
------- --------
Total stockholders' equity............................... -- 128,155
------- --------
Total capitalization..................................... $ -- $748,155
======= ========
</TABLE>
21
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet of
PCW as of June 30, 1997 gives effect to the following transactions as if they
occurred at that date and the related unaudited pro forma condensed
consolidated statements of operations for the year ended December 31, 1996 and
the six month period ended June 30, 1997 give effect to the following
transactions as if they occurred at the beginning of the relevant period:
(a) the acquisition of Palmer
(b) the Ft. Myers Sale (the proceeds of which were used to pay Palmer
Existing Indebtedness)
(c) the issuance and sale of the Old Notes in the Offering
(d) the financing under the New Credit Facility
(e) the PCC Equity Contribution
(f) the Georgia Sale
The Acquisition will be recorded pursuant to the purchase method of
accounting.
The unaudited pro forma condensed consolidated financial statements have
been prepared by PCW's management. The unaudited pro forma data is not
designed to represent and does not represent what PCW's results of operations
or financial position would have been had the above transactions been
completed on or as of the dates assumed, and are not intended to project PCW's
results of operations for any future period or as of any future date. The
unaudited pro forma condensed consolidated financial statements should be read
in conjunction with the audited and unaudited consolidated financial
statements and notes of PCC, the parent company of PCW, and the audited and
unaudited consolidated financial statements and notes of Palmer, included
elsewhere in this Prospectus.
While the Offering was consummated on July 10, 1997, the Acquisition was not
consummated until October 6, 1997. Accordingly, for the three month period
after the closing of the Offering, and prior to the consummation of the
Acquisition, the Company incurred interest expense on the Notes, but was not
entitled to any of the cash flows or earnings of Palmer.
The unaudited pro forma condensed consolidated financial statements do not
reflect this additional interest expense or the accrued liability related
thereto since the unaudited pro forma condensed consolidated statements of
operations assume that such transactions were consummated on January 1, 1996
and the unaudited pro forma condensed consolidated balance sheet assumes that
such transactions were consummated on June 30, 1997. In addition, the pro
forma condensed consolidated financial statements assume the repayment of the
$378.0 million of Palmer Existing Indebtedness and accrued interest on Palmer
Existing Indebtedness as of June 30, 1997. As a result of the Merger, the
Company assumed all Palmer Existing Indebtedness. The Company refinanced all
of the Palmer Existing Indebtedness concurrently with the consummation of the
Merger.
Although the unaudited pro forma condensed balance sheet reflects a $50.9
million current tax payable attributable to the Fort Myers Sale and Georgia
Sale, the Company has a tax planning strategy which it believes will avoid the
payment of such tax. While there can be no assurances that the Company's
position will prevail if challenged, the Company has received a written
opinion from a "big-six" accounting firm (other than Arthur Andersen LLP)
that, under existing laws, it is more likely than not that the Company's
position will prevail if challenged. In order to effect this tax strategy, the
partnership that owns the Fort Myers system will need to incur approximately
$169.0 million of indebtedness. The partnership has no commitments for such
financing and there can be no assurance it will be successful in obtaining
such financing.
22
<PAGE>
In addition, the unaudited pro forma condensed consolidated financial
statements do not reflect $1.4 million which was paid to William J. Ryan as a
severance payment pursuant to his employment contract upon consummation of the
Acquisition and approximately $2.6 million of severance payments which are
payable over several years pursuant to existing employment contracts between
Palmer and its other executive officers. The Company has entered into
employment contracts with Mr. Ryan and M. Wayne Wisehart to continue as
officers of the Company. The Company also entered into employment contracts
with other key employees prior to the consummation of the Acquisition.
23
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS FOR
FOR THE THE ACQUISITION
FT. MYERS SALE FT. MYERS SALE PALMER AS AND THE RELATED PRO FORMA
PALMER AND GEORGIA SALE AND GEORGIA SALE ADJUSTED PCW FINANCINGS PCW
-------- ---------------- ---------------- --------- --- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.. $ 1,740 $ 54 $166,028(a) $167,714 $ $(152,554)(d) $ 15,160
Accounts receivable, net... 22,718 2,494 20,224 20,224
Inventory.................. 3,181 1,002 2,179 2,179
Prepaid expenses and other
current assets............ 2,774 164 25,000 27,610 27,610
-------- ------- -------- -------- --- --------- ----------
Total current assets...... 30,413 3,714 191,028 217,727 (152,554) 65,173
Property, plant and
equipment, net............. 157,596 15,346 142,250 142,250
Cellular licenses, net...... 398,845 34,651 364,194 412,871 (k) 777,065
Deferred costs, net......... 8,621 8,621 22,532 (e) 31,153
Other ...................... 1,727 84 1,643 1,643
-------- ------- -------- -------- --- --------- ----------
Total assets.............. $597,202 $53,795 $191,028 $734,435 $ $ 282,849 $1,017,284
======== ======= ======== ======== === ========= ==========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable and
accrued expenses ......... $ 9,032 $ 254 $ $ 8,778 $ $ $ 8,778
Notes payable.............. 2,321 2,321 (2,321)(d,i)
Current tax payable........ 50,900(b) 50,900 50,900
Other current liabilities.. 16,770 1,236 15,534 (2,787)(d,h) 12,747
-------- ------- -------- -------- --- --------- ----------
Total current liabilities.. 28,123 1,490 50,900 77,533 (5,108) 72,425
Long-term debt.............. 378,000 378,000 242,000 (f) 620,000
Deferred tax liability...... 15,326 15,326 169,277 (g) 184,603
Other long-term
liabilities................ 7,123 (4,978) 12,101 12,101
-------- ------- -------- -------- --- --------- ----------
Total liabilities......... 428,572 (3,488) 50,900 482,960 406,169 889,129
Stockholders' equity........ 168,630 57,283 140,128(c) 251,475 (123,320)(j) 128,155
-------- ------- -------- -------- --- --------- ----------
Total liabilities and
stockholders' equity...... $597,202 $53,795 $191,028 $734,435 $ $ 282,849 $1,017,284
======== ======= ======== ======== === ========= ==========
</TABLE>
24
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
For purposes of determining the pro forma effect of the transactions
described above on the PCW condensed consolidated balance sheet as of June 30,
1997, the following adjustments have been made:
<TABLE>
<C> <S> <C>
(A) CASH AND CASH EQUIVALENTS
Cash proceeds from the Ft. Myers Sale and Georgia Sale....... $ 191,028
=========
(B) CURRENT TAX PAYABLE
Tax payable resulting from net gain on Ft. Myers Sale and
Georgia Sale using a 39% effective tax rate (see the
discussion on page 24 of the Company's tax planning strategy
to avoid the payment of such tax)............................ $ 50,900
=========
(C) STOCKHOLDERS' EQUITY
Represents the proceeds on the Ft. Myers Sale and Georgia
Sale net of related tax payable on the net gain.............. $ 140,128
=========
(D) CASH AND CASH EQUIVALENTS
Proceeds from New Credit Facility............................ $ 445,000
Proceeds from the Offering................................... 175,000
Net equity contributed from PCC.............................. 128,155
Cash used to acquire Palmer outstanding stock and options.... (486,448)
Cash used to retire current portion of Palmer Notes Payable.. (2,321)
Cash used to pay interest accrued through June 30, 1997 on
Palmer Existing Indebtedness................................. (2,787)
Cash used to retire Palmer Existing Indebtedness............. (378,000)
Cash used to pay estimated transaction fees and expenses..... (31,153)
---------
$(152,554)
=========
(E) DEFERRED COSTS, NET
Estimated fees and expenses in connection with the
acquisition of Palmer and the Offering....................... $ 14,422
Estimated fees and expenses in connection with the debt
financings................................................... 16,731
To write off unamortized deferred financing costs at Palmer.. (8,621)
---------
$ 22,532
=========
(F) LONG-TERM DEBT
New Credit Facility.......................................... $ 445,000
The Old Notes................................................ 175,000
Repayment of Palmer Existing Indebtedness.................... (378,000)
---------
$ 242,000
=========
(G) DEFERRED TAX LIABILITY
To record the deferred tax liability arising from the
acquisition of FCC license using a 41% effective tax rate.... $ 169,277
=========
(H) OTHER CURRENT LIABILITIES
To record the repayment of accrued interest on Palmer
Existing Indebtedness........................................ $ (2,787)
=========
(I) NOTES PAYABLE
To record the repayment of Palmer Notes Payable.............. $ (2,321)
=========
</TABLE>
25
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
(J) STOCKHOLDERS' EQUITY
To reflect PCC Equity Contribution................................................... $ 128,155
To eliminate the equity of adjusted Palmer in connection with the acquisition by PCW. (251,475)
---------
$(123,320)
=========
(K) CELLULAR LICENSES, NET
Represents the increase in cellular licenses due to the acquisition of Palmer........ $ 412,871
=========
</TABLE>
26
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
FT. MYERS FOR THE ADJUSTMENTS FOR
SALE AND FT. MYERS THE ACQUISITION
GEORGIA SALE AND PALMER AS AND THE RELATED PRO FORMA
PALMER SALE GEORGIA SALE ADJUSTED PCW FINANCINGS PCW
-------- --------- ------------ --------- ------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $159,743 $25,383 $ $134,360 $ $ $134,360
Cost and expenses:
Cost of cellular
service/operating
expenses ............. 28,717 5,718 22,999 22,999
Cost of equipment...... 17,944 2,765 15,179 15,179
Selling, general and
administrative........ 46,892 6,867 2,640 (l) 42,665 42,665
Depreciation and
amortization (loss)... 25,013 2,114 22,899 12,252 (m) 35,151
-------- ------- ------- -------- ------ -------- --------
Operating income (loss). 41,177 7,919 (2,640) 30,618 (12,252) 18,366
Other expense:
Interest expense, net.. (31,462) (300) (31,162) (28,976)(n) (60,138)
Other expense.......... (429) (63) (366) (366)
-------- ------- ------- -------- ------ -------- --------
Total other expense.. (31,891) (363) (31,528) (28,976) (60,504)
Minority interest share
of income.............. 1,880 1,880 1,880
-------- ------- ------- -------- ------ -------- --------
Income (loss) before
income tax expense..... 7,406 7,556 (2,640) (2,790) (41,228) (44,018)
Income tax expense
(benefit).............. 2,724 2,724 (4,228)(o) (1,504)
-------- ------- ------- -------- ------ -------- --------
Net income (loss)....... $ 4,682 $ 7,556 $(2,640) $ (5,514) $ $(37,000) $(42,514)
======== ======= ======= ======== ====== ======== ========
Deficiency of earnings
to fixed charges....... $ 44,018
</TABLE>
27
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
FOR THE ADJUSTMENTS FOR
FT. MYERS FT. MYERS PALMER THE ACQUISITION
SALE AND SALE AND AS AND THE RELATED PRO FORMA
PALMER GEORGIA SALE GEORGIA SALE ADJUSTED PCW FINANCINGS PCW
------- ------------ ------------ -------- ------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $93,228 $15,820 $ $77,408 $ $ $ 77,408
Cost and expenses:
Cost of cellular
service/operating
expenses.............. 15,554 3,776 11,778 11,778
Cost of equipment...... 11,057 1,778 9,279 9,278
Selling, general and
administrative........ 27,204 4,001 1,420 (l) 24,623 24,623
Depreciation and
amortization.......... 15,129 1,463 13,666 6,127 (m) 19,793
------- ------- ------- ------- ------- -------- --------
Operating income (loss). 24,284 4,802 (1,420) 18,062 (6,127) 11,935
Other income (expense):
Interest income
(expense)............. (16,113) 99 (16,212) (13,935)(n) (30,147)
Other, net............. 162 162 162
------- ------- ------- ------- ------- -------- --------
Total other income
(expense)........... (15,951) 99 (16,050) (13,935) (29,985)
Minority interest share
of income.............. 782 782 782
------- ------- ------- ------- ------- -------- --------
Income (loss) before
income tax expense..... 7,551 4,901 (1,420) 1,230 (20,062) (18,832)
Income tax expense
(benefit).............. 3,851 3,851 (2,116)(o) 1,735
------- ------- ------- ------- ------- -------- --------
Net income (loss)....... $ 3,700 $ 4,901 $(1,420) $(2,621) $ $(17,946) $(20,567)
======= ======= ======= ======= ======= ======== ========
Deficiency of earnings
to fixed charges....... $ 18,832
</TABLE>
28
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
For purposes of determining the pro forma effect of the transactions
described above on the PCW condensed consolidated statements of operations for
the six months ended June 30, 1997 and the year ended December 31, 1996, the
following adjustments have been made:
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
(L) SELLING, GENERAL AND ADMINISTRATIVE
Represents a portion of the operating expenses
(including monthly management fees; property and
equipment acquisitions and expenses, central
billing expenses and central accounts payable
expenses) charged to Ft. Myers Sale and Georgia
Sale by Palmer which may not be eliminated upon
the Ft. Myers Sale and Georgia Sale............... $ 1,420 $ 2,640
======== ========
(M) DEPRECIATION AND AMORTIZATION
Represents amortization of the FCC license over 40
years............................................. $ 5,161 $ 10,322
Represents amortization of the acquisition of
Palmer and Offering costs
over 5 years...................................... 966 1,930
-------- --------
$ 6,127 $ 12,252
======== ========
(N) INTEREST EXPENSE, NET
Interest expense on $445 million of New Credit
Facility at an assumed interest rate of 8.5% per
annum*............................................ $ 18,913 $ 37,825
Interest expense on $175 million of the Notes at an
interest rate of 11.75% per annum................. 10,281 20,563
Represents current amortization expense related to
deferred debt financing costs..................... 875 1,750
Elimination of previously recorded interest (16,134) (31,162)
expense........................................... -------- --------
$ 13,935 $ 28,976
======== ========
--------
*An 1/8% change in the interest rate will increase
or decrease the interest expense per annum on the
bank debt by $533.
(O) INCOME TAX EXPENSE (BENEFIT)
To record deferred tax benefit resulting from the
amortization of the acquired FCC license.......... $ (2,116) $ (4,232)
======== ========
</TABLE>
29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the periods and dates
indicated set forth below have been derived from the audited consolidated
financial statements and the unaudited condensed consolidated financial
statements of Palmer. The condensed consolidated results of operations of
Palmer for the six months ended June 30, 1996 and 1997 are unaudited and not
necessarily indicative of Palmer's results of operations for the full year.
The unaudited condensed consolidated financial data reflects all adjustments
(consisting of normal, recurring adjustments) which are, in the opinion of
management, necessary for a fair summary of Palmer's financial position,
results of operations and cash flows for and as of the end of the periods
presented.
The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Palmer's Consolidated Financial Statements and Notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- ------------------
1992 1993 1994(1) 1995(2) 1996(3) 1996 1997
(IN THOUSANDS, EXCEPT PERCENTAGE AND PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Service................ $ 23,017 $ 35,173 $ 61,021 $ 96,686 $151,119 $ 72,741 $ 88,140
Equipment sales and
installation........... 4,284 6,285 7,958 8,220 8,624 4,239 5,088
--------- -------- -------- -------- -------- -------- --------
Total revenue...... 27,301 41,458 68,979 104,906 159,743 76,980 93,228
--------- -------- -------- -------- -------- -------- --------
Engineering, technical
and other direct
expenses............... 5,395 7,343 12,776 18,184 28,717 14,939 15,554
Cost of equipment....... 5,071 7,379 11,546 14,146 17,944 8,397 11,057
Selling, general and
administrative expenses. 9,458 13,886 19,757 30,990 46,892 21,977 27,204
Depreciation and
amortization............ 11,687 10,689 9,817 15,004 25,013 11,872 15,129
--------- -------- -------- -------- -------- -------- --------
Operating income (loss). (4,310) 2,161 15,083 26,582 41,177 19,795 24,284
--------- -------- -------- -------- -------- -------- --------
Other income (expense):
Interest, net.......... (8,290) (9,006) (12,715) (21,213) (31,462) (16,006) (16,113)
Other, net............. (5) (590) (70) (687) (429) (58) 162
--------- -------- -------- -------- -------- -------- --------
Total other
expense............ (8,295) (9,596) (12,785) (21,900) (31,891) (16,064) (15,951)
--------- -------- -------- -------- -------- -------- --------
Minority interest share
of (income) losses...... 377 83 (636) (1,078) (1,880) (1,023) (782)
Income taxes............ 0 0 0 (2,650) (2,724) (948) (3,851)
--------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ (12,228) $ (7,352) $ 1,662 $ 954 $ 4,682 $ 1,760 $ 3,700
========= ======== ======== ======== ======== ======== ========
OTHER DATA:
Capital expenditures.... $ 3,835 $ 13,304 $ 22,541 $ 36,564 $ 41,445 $ 21,639 $ 31,700
Operating income before
depreciation and
amortization
("EBITDA")(4).......... $ 7,377 $ 12,850 $ 24,900 $ 41,586 $ 66,190 $ 31,667 $ 39,413
EBITDA margin on service
revenue................ 32.1% 36.5% 40.8% 43.0% 43.8% 43.5% 44.7%
Net cash provided by
operating activities... $ 78 $ 9,108 $ 7,238 $ 27,660 $ 30,130 $ 15,803 $ 25,572
Penetration(5).......... 2.20% 3.48% 4.58% 6.41% 7.45% 6.85% 8.29%
Subscribers at end of
period(6).............. 37,209 65,761 117,224 211,985 279,816 243,887 325,653
Cost to add a net
subscriber(7)........... $ 283 $ 203 $ 247 $ 276 $ 407 $ 375 $ 480
Average monthly service
revenue per
subscriber(8).......... $ 68.30 $ 62.69 $ 60.02 $ 56.68 $ 52.20 $ 54.05 $ 48.06
Average monthly
churn(9)................ 1.69% 1.37% 1.55% 1.55% 1.84% 1.63% 1.79%
Ratio of earnings to
fixed charges(10)....... 1.17x 1.21x 1.28x 1.22x 1.50x
CONSOLIDATED BALANCE
SHEET DATA:
Cash.................... $ 443 $ 1,670 $ 2,998 $ 3,436 $ 1,698 $ 1,372 $ 1,740
Working capital
(deficit)............... (740) 799 2,490 (1,435) 296 (8,017) 2,290
Property, plant and
equipment, net......... 17,371 23,918 51,884 100,936 132,438 118,746 157,596
Licenses and other
intangibles, net....... 103,901 114,955 199,265 332,850 387,067 357,810 409,193
Total assets............ 127,867 150,054 273,020 462,871 549,942 501,190 597,202
Total debt.............. 106,811 131,361 245,609 350,441 343,662 292,252 380,321
Stockholders' equity.... 10,659 3,244 4,915 74,553 164,930 170,608 168,630
</TABLE>
30
<PAGE>
(Footnotes from previous page)
- --------
(1) Includes the Georgia Acquisition (as defined herein), which occurred on
October 31, 1994. For the two months ended December 31, 1994, the Georgia
Acquisition resulted in revenues to Palmer of $1,803 and operating loss
of $645.
(2) Includes the GTE Acquisition (as defined herein), which occurred on
December 1, 1995. For the one month ended December 31, 1995, the GTE
Acquisition resulted in revenues to Palmer of $2,126 and operating income
of $208.
(3) Includes the acquisition of the cellular telephone systems of USCOC (as
defined herein) (Georgia-1 RSA), which occurred on June 20, 1996, and
Horizon (as defined herein) (Georgia-6 RSA), which occurred on July 5,
1996. The acquisitions of USCOC and Horizon resulted in revenues to
Palmer of $1,239 and $2,682, respectively, and operating (loss) income of
$(278) and $743, respectively, during such year.
(4) EBITDA should not be considered in isolation or as an alternative to net
income (loss), operating income (loss) or any other measure of
performance under GAAP. The Company believes that operating income before
depreciation and amortization is viewed as a relevant supplemental
measure of performance in the cellular telephone industry.
(5) Determined by dividing the aggregate number of subscribers by the
estimated population.
(6) Each billable telephone number in service represents one subscriber.
(7) Determined for a period by dividing (i) costs of sales and marketing,
including salaries, commissions and employee benefits and all expenses
incurred by sales and marketing personnel, agent commissions, credit
reference expenses, losses on cellular telephone sales, rental expenses
allocated to retail operations, net installation expenses and other
miscellaneous sales and marketing charges for such period, by (ii) the
net subscribers added during such period.
(8) Determined for a period by dividing (i) the sum of the access, airtime,
roaming, long distance, features, connection, disconnection and other
revenues for such period by (ii) the average number of subscribers for
such period divided by the number of months in such period.
(9) Determined for a period by dividing total subscribers discontinuing
service by the average number of subscribers for such period, and
dividing that result by the number of months in such period.
(10) The ratio of earnings to fixed charges is determined by dividing the sum
of earnings before extraordinary items and accounting changes, interest
expense, taxes and a portion of rent expense representative of interest
by the sum of interest expense and a portion of rent expense
representative of interest. The ratio of earnings to fixed charges is not
meaningful for periods that result in a deficit. For the years ended
December 31, 1992 and 1993 the deficit of earnings to fixed charges was
$12,605 and $7,435, respectively.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Prior to the Merger, the Company had no assets, liabilities or operations
and no recent historical results of operations. The following is a discussion
of Palmer's historical results of operations. Palmer's historical results of
operations are not directly indicative of future results of operations because
(i) they include results attributable to Palmer's Fort Myers, Florida business
unit, which was sold in connection with the acquisition of Palmer and (ii)
they reflect a significantly less leveraged capital structure than the Company
possesses after the Acquisition. Principally as a result of interest expense
related to the financing for the Acquisition, the Company expects to incur net
losses for several years. See "The Acquisition." This discussion should be
read in conjunction with "Selected Consolidated Financial Data," "Summary
Historical and Unaudited Pro Forma Financial and Operating Data," "Unaudited
Pro Forma Condensed Consolidated Financial Statements" and Palmer's
Consolidated Financial Statements and related notes thereto.
While the Offering was consummated on July 10, 1997, the Acquisition was not
consummated until October 6, 1997. Accordingly, for the three month period
after the closing of the Offering and prior to the consummation of the
Acquisition, the Company incurred interest expense on the Notes but was not
entitled to any of the cash flows or earnings of Palmer.
OVERVIEW OF PALMER
Palmer's revenues consist of service revenue and equipment sales and
installation. Service revenue includes access charges (generally a monthly
charge), usage charges (based upon per minute usage rates), roaming charges
(fees charged for providing services to subscribers of other cellular
telephone systems when such subscribers or "roamers" place or receive a phone
call within one of Palmer's service areas), long distance charges derived from
long distance calls placed by Palmer's subscribers and other charges,
including, among other things, connection charges for initial activation on
the cellular telephone system, and feature services such as voice mail, call
forwarding and call waiting.
GROWTH IN TOTAL REVENUES
(IN THOUSANDS)
<TABLE>
<S> <C>
1996............................ $159,743
1995............................ $104,906
1994............................ $ 68,979
1993............................ $ 41,458
1992............................ $ 27,301
</TABLE>
Palmer's revenues have grown primarily by increasing the number of its
subscribers, both by improving its penetration rate (determined by dividing
the aggregate number of subscribers by estimated population) in cellular
telephone systems owned by Palmer and by acquiring or constructing new
cellular telephone systems. Palmer's subscribers increased from 22,536 at the
beginning of 1992 to 325,653 as of June 30, 1997. During the same period,
Palmer's penetration rate in its cellular telephone systems increased from
1.45% at the beginning of 1992 to 8.3% as of June 30, 1997. Palmer also made
several acquisitions between 1992 and 1996, as later described.
On average, new subscribers use less airtime and generate less revenue per
subscriber than existing subscribers. Therefore, airtime usage and service
revenue generally do not increase proportionately with increases in numbers of
subscribers over the same period. As a result, although Palmer's total revenue
has increased each year, its average minutes of usage per subscriber and its
average monthly revenue per subscriber have decreased over time as new
subscribers have been added. The Company expects these trends to continue in
its existing cellular telephone systems as its penetration rate increases.
GROWTH IN POPULATION SERVED
(IN THOUSANDS)
<TABLE>
<S> <C>
1996............................... 3,755
1995............................... 3,307
1994............................... 2,561
1993............................... 1,890
1992............................... 1,692
</TABLE>
32
<PAGE>
The Company believes that its cost to add a net subscriber will continue to
be among the lowest in the cellular telephone industry, primarily because of
its in-house direct sales and marketing staff. Although much of the cellular
telephone industry markets through third-party agents, since 1992, Palmer has
sold its products and services almost exclusively through an internal sales
force that works principally out of retail stores in which Palmer offers a
full line of cellular telephone products and services. Palmer's shift to
nearly exclusive use of an internal sales force resulted in significant
decreases in its cost to add a net subscriber during 1992-1993. Starting in
1994, increased losses from Palmer's sales of cellular telephones caused this
downward trend in cost to add a net subscriber slowly to reverse itself. The
Company anticipates that its cost to add a net subscriber will continue to
increase but at a modest rate as savings associated with its nearly exclusive
use of an internal sales force are fully realized, while other components of
its calculation of cost to add a net subscriber continue to increase. In
addition to sales and marketing expenses, Palmer's computation of its cost to
add a net subscriber includes losses on cellular telephone sales, installation
services, credit reference services and an allocation of rental expenses
related to Palmer's retail stores.
Palmer currently has a microwave network in Alabama which connects the
Montgomery, Alabama MSA and the Alabama-8 RSA with the mobile telephone
switching office ("MTSO") in Dothan, Alabama. This microwave network connects
cellular switching equipment to cell sites without utilizing local landline
telephone carriers, thereby reducing or eliminating fees paid to landline
carriers. During 1995, Palmer spent $1.5 million to build additional microwave
connections between Dothan and Montgomery, Alabama, and between Brunswick and
Savannah, Georgia, as well as to complete a network in Fort Myers, Florida.
During 1996, Palmer spent $2.6 million to build a fiber optic network between
Dothan, Alabama and Panama City, Florida. The installation of this fiber optic
network resulted in significant savings to Palmer by the substantial reduction
or elimination of fees paid to landline carriers. In addition, this network
provides Palmer with excess capacity to lease to third parties or trade for
alternate fiber optic routes.
Prior to 1994, Palmer's customer billing was performed by a third-party
vendor. In January 1994, Palmer began performing billing functions in-house,
which significantly reduced customer service costs. The conversion to the in-
house customer billing system reduced annual billing costs per subscriber from
approximately $39 in 1993 to approximately $22 in 1994, $19 in 1995, and $19
in 1996. Since 1993, Palmer spent approximately $2.0 million in capital
expenditures for its in-house billing system. The software utilized for in-
house billing is leased from its previous third-party vendor. Therefore, no
change has occurred in billing function or operation.
In order to compete effectively in the wireless market, the Company plans to
pursue a strategy of increasing its bundled minute offerings. Because of the
relatively fixed cost of providing additional minutes of airtime on the
Company's cellular system, this bundling strategy, while decreasing the
revenue per minute of use, allows the Company to increase its customer base
and corresponding service revenue without negatively affecting its operating
margins.
33
<PAGE>
MARKET OWNERSHIP
The following is a summary of the Palmer ownership interest in the cellular
telephone system in each licensed service area to which Palmer provided service
at December 31, 1996 and June 30, 1997.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
CELLULAR SERVICE AREA 1996 1997
--------------------- ------------ --------
<S> <C> <C>
Albany, Georgia...................................... 82.7% 82.7%
Augusta, Georgia..................................... 100.0 100.0
Columbus, Georgia.................................... 84.9 85.2
Macon, Georgia....................................... 99.1 99.2
Savannah, Georgia.................................... 98.5 98.5
Dothan, Alabama...................................... 92.3 92.5
Montgomery, Alabama.................................. 91.9 92.8
Georgia 1 - RSA...................................... 100.0 100.0
Georgia 6 - RSA...................................... 94.8 95.0
Georgia 7 - RSA...................................... 100.0 100.0
Georgia 8 - RSA...................................... 100.0 100.0
Georgia 9 - RSA...................................... 100.0 100.0
Georgia 10 - RSA..................................... 100.0 100.0
Georgia 12 - RSA..................................... 100.0 100.0
Georgia 13 - RSA..................................... N/A 82.7
Alabama 8 - RSA...................................... 100.0 100.0
Fort Myers, Florida.................................. 99.0 99.0
Panama City, Florida................................. 77.9 78.4
</TABLE>
On February 1, 1997, one of Palmer's majority-owned subsidiaries acquired the
assets of and the license to operate the non-wireline cellular telephone system
serving Georgia Rural Service Area Market No. 383, otherwise known as Georgia-
13 RSA, for a total purchase price of $31.3 million.
PALMER HISTORICAL RESULTS OF OPERATIONS
The following table sets forth the percentage which certain amounts bear to
Palmer's total revenue.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service................ 84.3% 84.8% 88.5% 92.2% 94.6% 94.5% 94.5%
Equipment sales and
installation.......... 15.7 15.2 11.5 7.8 5.4 5.5 5.5
----- ----- ----- ----- ----- -------- --------
Total revenue...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- -------- --------
Operating Expenses:
Engineering, technical
and other direct:
Engineering and
technical (1)....... 10.3 8.8 8.1 7.6 7.9 8.2 8.2
Other direct costs of
services (2)........ 9.4 8.9 10.5 9.7 10.1 11.2 8.5
Cost of equipment (3).. 18.6 17.8 16.7 13.5 11.2 10.9 11.9
Selling, general and
administrative:
Sales and marketing
(4)................. 10.3 9.4 8.8 8.7 8.6 8.2 8.5
Customer service (5). 7.0 7.2 5.6 6.0 5.9 5.6 6.5
General and
administrative (6).. 17.4 16.9 14.2 14.9 14.9 14.8 14.2
Depreciation and
amortization.......... 42.8 25.8 14.2 14.3 15.7 15.4 16.2
----- ----- ----- ----- ----- -------- --------
Total operating
expenses.......... 115.8 94.8 78.1 74.7 74.3 74.3 74.0
----- ----- ----- ----- ----- -------- --------
Operating income (loss). (15.8)% 5.2% 21.9% 25.3% 25.7% 25.7% 26.0%
===== ===== ===== ===== ===== ======== ========
Operating income before
depreciation and
amortization (7)....... 27.0% 31.0% 36.1% 39.6% 41.4% 41.1% 42.2%
===== ===== ===== ===== ===== ======== ========
</TABLE>
34
<PAGE>
- ---------------------
(1) Consists of costs of operating cellular telephone network, including
inter-trunk costs, span-line costs, cell site repairs and maintenance,
cell site utilities, cell site rent, engineers' salaries and benefits and
other operational costs.
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the costs of the cellular telephones and accessories
sold.
(4) Consists primarily of salaries and benefits of sales and marketing
personnel, employee and agent commissions and advertising and promotional
expenses.
(5) Consists primarily of salaries and benefits for customer service
personnel, costs of printing and mailing billings generated in-house in
1994, 1995, and 1996, and for the six months ended June 30, 1996 and 1997,
and fees paid to a third-party vendor of customer service billing prior to
1994.
(6) Includes salaries and benefits of general and administrative personnel and
other overhead expenses.
(7) Operating income before depreciation and amortization should not be
considered in isolation, or as an alternative to net income (loss),
operating income (loss) or any other measure of performance under
generally accepted accounting principles. Palmer believes that operating
income before depreciation and amortization is viewed as a relevant
supplemental measure of performance in the cellular telephone industry.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenue. Service revenues totaled $88.1 million for the first half of 1997,
an increase of 21.2% over $72.7 million for the first half of 1996. This
increase was primarily due to a 36.2% increase in the average number of
subscribers to 305,638 for the first half of 1997 versus 224,333 for the first
half of 1996. The increase in subscribers is the result of internal growth,
which the Company attributes primarily to its strong sales and marketing
efforts, and recent acquisitions.
Average monthly revenue per subscriber decreased 11.1% to $48.06 for the
first half of 1997 from $54.04 for the first half of 1996. This is in part due
to the trend, common in the cellular telephone industry, where, on average,
new subscribers are using less airtime than existing subscribers. Therefore,
service revenues generally do not increase proportionately with the increase
in subscribers. In addition, the decline reflects more competitive rate plans
introduced into Palmer's markets.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased by 20.0% to $5.1 million for
the first half of 1997 compared to $4.2 million for the first half of 1996.
The increase is due to the 20.7% increase in gross subscriber activations in
the first half of 1997 compared to
1996. As a percentage of revenue, equipment sales and installation revenue
remained flat at 5.5% for the first half of 1997 and 1996.
Operating Expenses. Engineering and technical expenses increased by 21.4% to
$7.7 million for the first half of 1997 from $6.3 million in the first half of
1996, due primarily to the increase in subscribers and recent acquisitions. As
a percentage of revenue, engineering and technical expenses remained flat at
8.2% for the first half of 1997 and 1996, respectively. Palmer expects
engineering and technical expenses to decrease as a percentage of revenue due
to its large component of fixed costs. There can be no assurance, however,
that this forward-looking statement will not differ materially from actual
results due to unforeseen engineering and technical expenses.
Other direct costs of services decreased to $7.9 million for the first half
of 1997 from $8.6 million for the first half of 1996 reflecting the decrease
in interconnection costs as a result of Palmer's renegotiation of
interconnection agreements with the local exchange carriers ("LECs") in most
of the markets. As a percentage of revenue, these costs of service declined to
8.5% from 11.2%, reflecting improved interconnection agreements with LECs, as
well as efficiencies gained from the growing subscriber base.
The cost of equipment increased 31.7% to $11.0 million for the first half of
1997 from $8.4 million for the first half of 1996, due primarily to the
increase in gross subscriber activations for the same period. The equipment
sales margin decreased to (117.3%) for the first half of 1997 from (98.1%) for
the first half of 1996. In an effort to address market competition and improve
market share, Palmer sold more telephones below cost in the first half of
1997, on average, than in the same period of 1996.
35
<PAGE>
Sales and marketing costs increased 26.2% to $8.0 million for the first half
of 1997 from $6.3 million for the same period in 1996. This increase is
primarily due to the 20.7% increase in gross subscriber activations and the
resulting increase in commissions. As a percentage of total revenue, sales and
marketing costs increased to 8.5% from 8.2% for the first half of 1997 and
1996, respectively. Palmer's cost to add a net subscriber, including loss on
telephone sales, increased to $480 for the first half of 1997 from $375 for
the first half of 1996. This increase in cost to add a net subscriber was
caused primarily by increased losses from Palmer's sales of cellular
telephones and an increase in commissions and advertising costs.
Customer service costs increased 41.3% to $6.0 million for the first half of
1997 from $4.2 million for the first half of 1996. As a percentage of revenue,
customer service costs increased to 6.5% from 5.6% for the first half of 1997
and 1996, respectively. The increase was due primarily to higher costs for
billing support services.
General and administrative expenditures increased 15.8% to $13.2 million for
the first half of 1997 from $11.4 million for the first half of 1996, due
primarily to the increase in the costs associated with supporting recent
acquisitions. General and administrative expenses decreased as a percentage of
revenue to 14.2% in the first half of 1997 from 14.8% in the first half of
1996. As Palmer continues to add more subscribers, and generates associated
revenue, general and administrative expenses should decrease as a percentage
of total revenues. There can be no assurance, however, that this forward-
looking statement will not differ materially from actual results due to
unforseen general and administrative expenses and other factors.
Depreciation and amortization increased 27.4% to $15.1 million for the first
half of 1997 from $11.9 million for the first half of 1996. This increase was
primarily due to the depreciation and amortization associated with recent
acquisitions and additional capital expenditures. As a percentage of revenue,
depreciation and amortization increased to 16.2% from 15.4% for the first half
of 1997 and 1996, respectively.
Operating income increased 22.7% to $24.3 million in the first half of 1997,
from $19.8 million for the first half of 1996. This improvement in operating
results is attributable primarily to increases in revenue which exceeded
increases in operating expenses.
Net Interest Expense, Income Taxes and Net Income. Net interest expense
remained relatively flat at $16.1 million and $16.0 million for the first half
of 1997 and 1996, respectively.
Income tax expense was $3.9 million in the first half of 1997 and $0.9
million in the first half of 1996. This increase is due primarily to the
increase in income before income taxes in 1997 and the fact that all remaining
net operating loss carry forwards were recognized for financial statement
purposes in 1996.
Net income for the first half of 1997 was $3.7 million, or $0.13 per share,
compared to net income of $1.8 million, or $0.07 per share, for the first half
of 1996. The increase in net income is primarily attributable to increases in
revenue which exceeded increases in operating expenses and income tax expense.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue. Service revenue totaled $151.1 million for 1996, an increase of
$54.4 million or 56.3% over $96.7 million for 1995. This increase was due
primarily to a 69.7% increase in the average number of subscribers to 241,255
in 1996 from 142,147 in 1995. The increase in subscribers is the result of
internal growth, which Palmer attributes primarily to its sales and marketing
efforts, and recent acquisitions. The GTE Acquisition (as defined herein)
accounted for 41,163 subscribers at December 31, 1996. Service revenue
attributable to the cellular telephone systems acquired in the GTE Acquisition
totaled $24.6 million for 1996 as compared to $2.0 million for the one month
ended December 31, 1995.
Average monthly service revenue per subscriber decreased to $52.20 for 1996
from $56.68 for 1995. This decrease occurred because, on average, new
subscribers use less airtime and generate less revenue per subscriber than
existing subscribers as is customary in the cellular telephone industry.
Therefore, airtime usage and service
36
<PAGE>
revenue did not increase in proportion to the increase in subscribers. In
addition, Palmer entered into revised roaming agreements with certain of its
neighboring carriers. These agreements provide for reciprocal lower roaming
rates per minute of use. This resulted in lower roaming revenue for Palmer,
but also resulted in offsetting lower direct costs of services when Palmer's
subscribers were roaming on these neighboring systems.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $8.6 million for 1996 from
$8.2 million for 1995, a 4.9% increase, due primarily to the increase in gross
subscriber activations offset by lower cellular phone prices. While equipment
sales and installation revenue increased slightly for 1996 from 1995, it
decreased as a percentage of total cellular revenue to 5.4% for 1996 from 7.8%
for 1995, reflecting the increased annual revenue base as well as lower
cellular equipment prices charged to customers. Equipment sales and
installation revenue attributable to the cellular telephone systems acquired
in the GTE Acquisition totaled $ 1.0 million for 1996 as compared to $0.1
million for the one month ended December 31, 1995.
Operating Expenses. Engineering and technical expenses increased by 57.5% to
$12.6 million for 1996 from $8.0 million for 1995, due primarily to the
increase in the number of subscribers. As a percentage of revenue, engineering
and technical expenses increased to 7.9% for 1996 from 7.6% for 1995 due to
additional costs incurred for the recent acquisitions and recurring costs
associated with Palmer's system development and expansion. Such development is
done for the purpose of increasing capacity and improving coverage.
Engineering and technical expenses attributable to the cellular telephone
systems acquired in the GTE Acquisition totaled $2.8 million for 1996 as
compared to $0.2 million for the one month ended December 31, 1995.
Other direct costs of services increased 58.3% to $16.1 million for 1996
from $10.2 million for 1995. As a percentage of revenue, other direct costs of
services increased to 10.1% for 1996 from 9.7% for 1995. This increase in
other direct costs of services as a percentage of revenue was due primarily to
Palmer subsidizing more roaming costs for competitive reasons. Other direct
costs of service attributable to the cellular telephone systems acquired in
the GTE Acquisition totaled $1.6 million for 1996 as compared to $0.2 million
for the one month ended December 31, 1995.
Cost of equipment increased 26.8% to $17.9 million for 1996 from $14.1
million for 1995, due primarily to the increase in gross subscriber
activations for the same period. The equipment sales margin decreased to
(108.1%) for 1996 from (72.1%) for 1995. In an effort to address market
competition and improve market share, Palmer sold more telephones below cost
in 1996 than in 1995. The cost of equipment attributable to the cellular
telephone systems acquired in the GTE Acquisition totaled $3.1 million for
1996 as compared to $0.2 million for the one month ended December 31, 1995.
Sales and marketing costs increased 50.2% to $13.7 million for 1996 from
$9.1 million for 1995. This increase is primarily due to the 28.1% increase in
gross subscriber activations and the resulting increase in salaries and
commissions. Sales and marketing costs as a percentage of total revenue
remained relatively flat at 8.6% for 1996 and 8.7% for 1995. Palmer's cost to
add a net subscriber, including losses on cellular telephone sales, increased
to $407 for 1996 from $276 for 1995. This increase in cost to add a net
subscriber was caused primarily by additional advertising and fixed marketing
overhead associated with the systems acquired in the GTE Acquisition, which
are not yet generating the offsetting gains in net subscribers. In addition,
there were increased losses from Palmer's sales of cellular telephones. Sales
and marketing costs attributable to the cellular telephone systems acquired in
the GTE Acquisition totaled $2.8 million in 1996 as compared to $0.2 million
for the one month ended December 31, 1995.
MONTHLY CASH OPERATING COSTS PER SUBSCRIBER
<TABLE>
<S> <C>
1996................................. $29
1995................................. $32
1994................................. $36
1993................................. $40
1992................................. $48
</TABLE>
37
<PAGE>
Customer service costs increased 49.9% to $9.4 million for 1996 from $6.3
million for 1995. As a percentage of revenue, customer service costs remained
relatively flat at 5.9% and 6.0% for 1996 and 1995, respectively. Customer
service costs attributable to the cellular telephone systems acquired in the
GTE Acquisition totaled $1.9 million in 1996 as compared to $0.2 million for
the one month ended December 31, 1995.
General and administrative expenses increased 52.5% to $23.8 million for
1996 from $15.6 million for 1995 and remained flat as a percentage of revenue
at 14.9% for 1996 and 1995. As the Company continues to add more subscribers
and generate associated revenue, general and administrative expenses should
decrease as a percentage of total revenues. The general and administrative
costs attributable to the cellular telephone systems acquired in the GTE
Acquisition totaled $3.4 million for 1996 as compared to $0.4 million for the
one month ended December 31, 1995.
Depreciation and amortization increased 66.7% to $25.0 million for 1996 from
$15.0 million for 1995. This increase is primarily due to the depreciation and
amortization associated with the recent acquisitions and additional capital
expenditures. Depreciation and amortization attributable to the cellular
telephone systems acquired in the GTE Acquisition totaled $6.2 million for
1996 as compared to $0.5 million for the one month ended December 31, 1995.
Operating income for 1996 increased 54.9% to $41.2 million, an increase of
$14.6 million over operating income for 1995. This improvement in operating
results is attributed primarily to increases in revenue which exceeded
increases in operating expenses. Operating income attributable to the cellular
telephone systems acquired in the GTE Acquisition totaled $3.8 million for
1996 as compared to $0.2 million for the one month ended December 31, 1995.
EBITDA
(IN THOUSANDS)
<TABLE>
<S> <C>
1996............................. $66,190
1995............................. $41,586
1994............................. $24,900
1993............................. $12,850
1992............................. $ 7,377
</TABLE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenue. Service revenue totaled $96.7 million for 1995, an increase of
$35.7 million or 58.4% over $61.0 million for 1994. This increase was due
primarily to a 67.8% increase in the average number of subscribers to 142,147
in 1995 from 84,718 in 1994. The increase in subscribers was the result of
internal growth, which Palmer attributes primarily to its sales and marketing
efforts, the Georgia Acquisition (as defined herein) and the GTE Acquisition
(as defined herein). During 1995, Palmer added 13,098 net subscribers in the
Georgia Acquisition, bringing the total subscribers served by those systems to
25,238 at December 31, 1995. Service revenue attributable to the cellular
telephone systems acquired in the Georgia Acquisition totaled $12.3 million
for 1995 as compared to $1.6 million for the two months ended December 31,
1994. The GTE Acquisition increased Palmer's subscribers by 34,904 at December
31, 1995. Service revenue attributable to the cellular telephone systems
acquired in the GTE Acquisition totaled $2.0 million for the one month ended
December 31, 1995, and is included in Palmer's 1995 results of operations.
Average monthly service revenue per subscriber decreased to $56.68 for 1995
from $60.02 for 1994. This decrease occurred because, on average, new
subscribers use less airtime and generate less revenue per subscriber than
existing subscribers as is customary in the cellular telephone industry.
Therefore, airtime usage and service revenue did not increase in proportion to
the increase in subscribers.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $8.2 million for 1995 from
$8.0 million for 1994, a 3.3% increase, due primarily to the increase in
subscriber activations offset by lower cellular phone prices. While equipment
sales and installation revenue increased slightly for 1995 from 1994, it
decreased as a percentage of total cellular revenue to 7.8% for 1995 from
11.5% for 1994, reflecting the increased recurring annual revenue base as well
as lower cellular equipment prices charged to customers. Equipment sales and
installation revenue attributable to the cellular telephone systems acquired
in the Georgia Acquisition totaled $1.1 million for 1995 as compared to $0.2
million for the
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two months ended December 31, 1994. Equipment sales and installation revenue
attributable to the cellular telephone systems acquired in the GTE Acquisition
totaled $0.1 million for the one month ended December 31, 1995 and is included
in Palmer's results of operations for 1995.
Operating Expenses. Engineering and technical expenses increased by 43.2% to
$8.0 million for 1995 from $5.6 million for 1994, due primarily to the
increase in subscribers. As a percentage of revenue, engineering and technical
expenses decreased to 7.6% for 1995 from 8.1% for 1994. Engineering and
technical expenses attributable to the cellular telephone systems acquired in
the Georgia Acquisition totaled $2.4 million for 1995 as compared to $0.3
million for the two months ended December 31, 1994. Engineering and technical
expenses attributable to the cellular telephone systems acquired in the GTE
Acquisition totaled $0.2 million for the one month ended December 31, 1995 and
are included in Palmer's results of operations for 1995.
Other direct costs of services increased 41.7% to $10.2 million for 1995
from $7.2 million for 1994. As a percentage of revenue, other direct costs of
services decreased to 9.7% for 1995 from 10.5% for 1994. This decrease in
other direct costs of services as a percentage of revenue was due primarily to
Palmer improving its roaming agreements with neighboring cellular service
providers, spreading its fixed charges over a larger revenue base, and
bringing its intramarket roaming settlements in-house. Other direct costs of
service attributable to the cellular telephone systems acquired in the Georgia
Acquisition totaled $1.1 million for 1995 as compared to $0.2 million for the
two months ended December 31, 1994. Other direct costs of service attributable
to the cellular telephone systems acquired in the GTE Acquisition totaled $0.2
million for the one month ended December 31, 1995 and are included in Palmer's
results of operations for 1995.
Cost of equipment increased 22.5% to $14.1 million for 1995 from $11.5
million for 1994, due primarily to the increase in gross subscriber
activations for the same period. The equipment sales margin decreased to
(72.1%) for 1995 from (45.1%) for 1994. In an effort to address market
competition and improve market share, Palmer sold more telephones below cost
in 1995 than in 1994. The cost of equipment attributable to the cellular
telephone systems acquired in the Georgia Acquisition totaled $2.4 million for
1995 as compared to $0.3 million for the two months ended December 31, 1994.
The cost of equipment attributable to the cellular telephone systems acquired
in the GTE Acquisition totaled $0.2 million for the one month ended December
31, 1995 and is included in Palmer's results of operations for 1995.
Sales and marketing costs increased 51.5% to $9.1 million for 1995 from $6.0
million for 1994. This increase is primarily due to the 49.1% increase in
gross subscriber activations and the resulting increase in salaries and
commissions. Sales and marketing costs as a percentage of total revenue
remained relatively flat at 8.7% for 1995 and 8.8% for 1994. Palmer's cost to
add a net subscriber, including losses on cellular telephone sales, increased
to $276 for 1995 from $247 for 1994. This increase in cost to add a net
subscriber was caused primarily by increased losses from Palmer's sales of
cellular telephones. Sales and marketing costs attributable to the cellular
telephone systems acquired in the Georgia Acquisition totaled $1.7 million for
1995 as compared to $0.3 million for the two months ended December 31, 1994.
Sales and marketing costs attributable to the cellular telephone systems
acquired in the GTE Acquisition totaled $0.2 million for the one month ended
December 31, 1995 and are included in Palmer's results of operations for 1995.
Customer service costs increased 62.0% to $6.3 million for 1995 from $3.9
million for 1994 and increased as a percentage of total revenue to 6.0% for
1995 from 5.6% for 1994. This increase is primarily due to an increase in
subscribers, to operating costs associated with the newly established regional
customer service call centers in Montgomery, Alabama and Savannah, Georgia and
to non-recurring expenditures incurred in connection with the implementation
of new area codes in Palmer's Alabama and Fort Myers, Florida service areas.
Customer service costs attributable to the cellular telephone systems acquired
in the Georgia Acquisition totaled $0.9 million for 1995 as compared to $0.2
million for the two months ended December 31, 1994. Customer service costs
attributable to the cellular telephone systems acquired in the GTE Acquisition
totaled $0.2 million for the one month ended December 31, 1995 and are
included in Palmer's results of operations for 1995.
General and administrative expenses increased 58.2% to $15.6 million for
1995 from $9.8 million for 1994 and increased as a percentage of total revenue
to 14.9% for 1995 from 14.2% for 1994 due primarily to the increase in the
number of subscribers, as well as the Georgia and GTE Acquisitions. Fixed
general and administrative costs attributable to the acquisitions are incurred
prior to the development of the subscriber base and the generation of
associated revenue. As the Company continues to add more subscribers and
generate
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associated revenue, general and administrative expenses should decrease as a
percentage of total revenues. The general and administrative costs
attributable to the cellular telephone systems acquired in the Georgia
Acquisition totaled $3.2 million for 1995 as compared to $0.4 million for the
two months ended December 31, 1994. The general and administrative costs
attributable to the cellular telephone systems acquired in the GTE Acquisition
totaled $0.4 million for the one month ended December 31, 1995 and are
included in Palmer's results of operations for 1995.
Depreciation and amortization increased 52.8% to $15.0 million for 1995 from
$9.8 million for 1994. This increase is primarily due to the depreciation and
amortization associated with the acquisitions and additional capital
expenditures. Depreciation and amortization attributable to the cellular
telephone systems acquired in the Georgia Acquisition totaled $3.6 million for
1995 as compared to the $0.7 million for the two months ended December 31,
1994. Depreciation and amortization attributable to the cellular telephone
systems acquired in the GTE Acquisition totaled $0.5 million for the one month
ended December 31, 1995 and are included in Palmer's results of operations for
1995.
Operating income for 1995 increased 76.2% to $26.6 million, an increase of
$11.5 million over operating income for 1994. This improvement in operating
results is attributed primarily to increases in revenue which exceeded
increases in operating expenses. Operating income (loss) attributable to the
cellular telephone systems acquired in the Georgia Acquisition totaled $(2.0)
million for 1995 as compared to $(0.6) million for the two months ended
December 31, 1994. Operating income attributable to the cellular telephone
systems acquired in the GTE Acquisition totaled $0.2 million for the one month
ended December 31, 1995 and is included in Palmer's results of operations for
1995.
NET INTEREST EXPENSE, OTHER EXPENSE, INCOME TAX EXPENSE, AND NET INCOME
Net interest expense increased 48.3% to $31.5 million for 1996 from $21.2
million for 1995 due primarily to debt incurred for the recent acquisitions
and the amortization of deferred financing fees related to Palmer's credit
facility. For 1995, net interest expense increased 66.8% to $21.2 million from
$12.7 million for 1994 due primarily to debt incurred for the Georgia
Acquisition and the GTE Acquisition, the amortization of deferred financing
fees related to Palmer's credit facility and increased interest rates.
Other expense was $0.4 million in 1996, $0.7 million in 1995 and $0.1
million in 1994. Other expense consists primarily of the disposal of certain
assets by Palmer and other non-operating expenses.
Income tax expense was $2.7 million for both 1996 and 1995 compared to none
in 1994. The $2.7 million income tax expense in 1995 was a non-recurring
deferred income tax charge related to the difference between the financial
statement and income tax return bases of certain assets and liabilities of
Palmer Cellular Partnership (the "Partnership"), predecessor of Palmer. In
connection with Palmer's initial public offering of securities in March, 1995,
all of the assets and liabilities of the Partnership were exchanged for stock
in Palmer. Due to the exchange, a deferred tax liability was recorded to
reflect the difference between the financial statement and income tax return
bases in these assets and liabilities. See notes 2 and 5 to Palmer's
consolidated financial statements.
Net income for 1996 was $4.7 million, or $0.18 per share of common stock,
compared to net income of $1.0 million, or $0.04 per share of common stock for
1995. The increase in net income is primarily attributable to increases in
revenue which exceeded increases in expenses. Net income for 1994 was $1.7
million, or $0.09 per share of common stock. The decrease in net income
between 1995 and 1994 is primarily attributable to interest expense on debt
incurred for the Georgia Acquisition and the GTE Acquisition, and income tax
expense.
LIQUIDITY AND CAPITAL RESOURCES
Following the Acquisition, the Company's principal sources of liquidity are
cash flow from operations and borrowings under the New Credit Facility. The
Company's principal uses of cash will be debt service requirements, capital
expenditures and working capital.
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The Company will incur substantial indebtedness in connection with the
Acquisition. On a pro forma basis, after giving effect to the Acquisition, the
Company would have had approximately $620 million of indebtedness outstanding
as of June 30, 1997 and its ratio of EBITDA to interest expense would have
been 0.89 to 1.00 and 1.05 to 1.00 for the year ended December 31, 1996 and
the six months ended June 30, 1997.
Palmer's long-term capital requirements consist of funds for capital
expenditures, acquisition and debt service. Historically, Palmer met its
capital requirements primarily through equity contributions, bank and
intercompany debt and, to a lesser extent, through operating cash flow. The
Company expects to meet its capital requirements following the Acquisition
from cash from operations and borrowings under the New Credit Facility.
Following the Acquisition, the Company's only committed source of liquidity is
the New Credit Facility, under which $80 million of revolving loans remains
available. The Company believes that these sources will provide the Company
with adequate capital to satisfy its projected funding requirements for the
next 18 months. The Company intends to use the availability under the New
Credit Facility for general corporate purposes and, if the Company's tax
planning strategy is unsuccessful, to finance the $50.9 million tax payment
due with respect to the Fort Myers Sale and Georgia Sale. However, borrowings
under the New Credit Facility are subject to significant conditions, including
compliance with certain financial ratios and the absence of any material
adverse change. For a description of the New Credit Facility, including a
description of the interest rates applicable to borrowings thereunder and
repayment schedule, see "Description of New Credit Facility."
In 1996, Palmer spent approximately $41.4 million for capital expenditures.
The Company expects to spend $50 million and $25 million to $30 million for
capital expenditures, including the construction of new stores and additional
cell sites, for the years ended December 31, 1997 and 1998, respectively. The
Company expects to use net cash provided by operating activities and
borrowings available under the New Credit Facility to fund such capital
expenditures.
Upon the occurrence of a Change of Control (as defined), each Holder of
Notes will have the right to require the Company to repurchase such Holder's
Notes at 101% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the repurchase date. A redemption upon a Change
of Control would be an Event of Default under the terms of the New Credit
Facility. The Company may not have sufficient funds or financing available to
satisfy its obligations to repurchase the Notes or meet other debt obligations
that may come due upon a Change of Control.
OTHER
Pursuant to the Merger Agreement, PCC acquired all issued and outstanding
shares of common stock of Palmer and outstanding options and rights under
employee and director stock purchase plans for a purchase price of $17.50 per
share in cash.
Following the Merger, the common stock of Palmer ceased to be authorized to
be quoted on the NASDAQ Stock Market and became eligible for termination of
registration pursuant to Section 12(g)(4) of the Securities Exchange Act of
1934 (the "Exchange Act").
ACCOUNTING POLICIES
For financial reporting purposes, Palmer reports 100% of revenues and
expenses for the markets for which it provides cellular telephone service.
However, in several of its markets, Palmer holds less than 100% of the equity
ownership. The minority stockholders' and partners' shares of income or losses
in those markets are reflected in the consolidated financial statements as
"minority interest share of (income) losses," except for losses in excess of
their capital accounts and cash call provisions which are not eliminated in
consolidation. For financial reporting purposes, Palmer consolidates each
subsidiary and partnership in which it has a controlling interest (greater
than 50.0%). From 1992 through 1996, Palmer had controlling interests in each
of its subsidiaries and partnerships.
INFLATION
The Company believes that inflation affects its business no more than it
generally affects other similar businesses.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on December 12, 1997; provided, however, that if the
Company, in its sole discretion, has extended the period of time for which the
Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended.
As of the date of this Prospectus, $175,000,000 aggregate principal amount
of the Old Notes was outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about the date set forth on the cover
page to all Holders of Old Notes at the addresses set forth in the security
register with respect to Old Notes maintained by the Trustee. The Company's
obligations to accept Old Notes for exchange pursuant to the Exchange Offer is
subject to certain conditions as set forth under "Certain Conditions to the
Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance of any Old Notes, by giving oral or written notice of
such extension to the Exchange Agent and notice of such extension to the
Holders as described below. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified below under "Certain Conditions to the Exchange Offer." The
Company will give oral or written notice of any extension, amendment, non-
acceptance or termination to the Holders of the Old Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of
a press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of the State of Delaware or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the SEC thereunder.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to
tender Old Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal, to Bank of Montreal
Trust Company (the "Exchange Agent") at one of the addresses set forth below
under "Exchange Agent" on or prior to the Expiration Date. In addition, (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(The "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the Holder must comply with the guaranteed delivery
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procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust
company having an office or correspondent in the United States (collectively,
"Eligible Institutions"). If Old Notes are registered in the name of a person
other than the person signing the Letter of Transmittal, the Old Notes
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered Holder with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its reasonable discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and
all tenders of any particular Old Notes not properly tendered or to not accept
any particular Old Notes which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right in its sole discretion to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Old Notes either before
or after the Expiration Date (including the right to waive the ineligibility
of any Holder who seeks to tender Old Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with the tenders of Old Notes for exchange must be cured within
such reasonable period of time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
Old Notes for exchange, nor shall any of them incur any liability for failure
to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered Holder or Holders that appear on the
Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by
the Company, proper evidence satisfactory to the Company of its authority to
so act must be submitted.
By tendering, each Holder will represent to the Company that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, (ii) neither the Holder nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, (iii) if the Holder is not
a broker-dealer, or is a broker-dealer but will not receive New Notes for its
own account in exchange for Old Notes, neither the Holder nor any such other
person is engaged in or intends to participate in the distribution of such New
Notes and (iv) neither the Holder nor any such other person is an "affiliate,"
as defined under Rule 405 of the Securities Act, of the Company. If the
tendering Holder is a broker-dealer that
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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 will be required to acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, a properly completed and duly executed Letter of Transmittal
and all other required documents. If any tendered Old Notes are not accepted
for any reason set forth in the terms and conditions of the Exchange Offer or
if certificates representing Old Notes are submitted for a greater principal
amount than the Holder desires to exchange, such unaccepted or non-exchanged
Old Notes will be returned without expense to the tendering Holder thereof
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below, such non-exchanged Old Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the expiration or termination of
the Exchange Offer.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from July 10, 1997, payable semiannually on
January 15 and July 15 of each year, commencing on January 15, 1998, at the
rate of 11 3/4% per annum. Holders of Old Notes whose Old Notes are accepted
for exchange will be deemed to have waived the right to receive any payment in
respect of interest on the Old Notes accrued from July 10, 1997 until the date
of the issuance of the New Notes. Consequently, Holders who exchange their Old
Notes for New Notes will receive the same interest payment on January 15, 1998
(the first interest payment date with respect to the Old Notes and the New
Notes) that they would have received had they not accepted the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer promptly after the date of this Prospectus. Any financial
institution that is a participant in the Book-Entry Transfer Facility's
systems may make book-entry delivery of Old Notes by causing the Book-Entry
Transfer Facility to transfer such Old Notes into the Exchange Agent's account
in accordance with the Book-Entry Transfer Facility's Automated Tender Offer
Program ("ATOP") procedures for transfer. However, the exchange for the Old
Notes so tendered will only be made after timely confirmation of such book-
entry transfer of Old Notes into the Exchange Agent's account, and timely
receipt by the Exchange Agent of an Agent's Message (as such term is defined
in the next sentence) and any other documents required by the Letter of
Transmittal. The term "Agent's Message" means a message, transmitted by the
Book-Entry Transfer Facility and received by the Exchange Agent and forming a
part of a Book-Entry Confirmation, which states that the Book-Entry Transfer
Facility has received an express acknowledgement from a participant tendering
Old Notes that are the subject of such Book-Entry Confirmation that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal, and that the Company may enforce such agreement against such
participant.
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GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the Holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates of all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within five NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes
to be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes are registered, if different from that of the withdrawing
Holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing Holder must also submit the serial numbers of
the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any note of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Old Notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "Procedures for Tendering Old Notes"
above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer, if
at any time before the Expiration Date, such acceptance or issuance would
violate applicable law or any interpretation of the staff of the SEC.
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The foregoing condition is for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any
time to exercise the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with respect
to the Registration Statement of which this Prospectus constitutes a part or
the qualification of the Indenture under the Trust Indenture Act of 1939, as
amended (the "TIA").
EXCHANGE AGENT
Bank of Montreal Trust Company has been appointed as the Exchange Agent for
the Exchange Offer. All executed Letters of Transmittal should be directed to
the Exchange Agent at 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:
Deliver To:
Bank of Montreal Trust Company, Exchange Agent
By Mail, by Overnight Courier or By Hand:
77 Water Street, 4th Floor
New York, New York 10005
Attention: Amy Roberts
Corporate Trust Department
By Facsimile:
(212) 701-7684
Confirm by Telephone:
(212) 701-7653
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by officers and
regular employees of the Company and its affiliates. No additional
compensation will be paid to any such officers and employees who engage in
soliciting tenders. The Company will not make any payment to brokers, dealers,
or others soliciting acceptances of the Exchange Offer. The Company, however,
will pay the Exchange Agent reasonable and customary fees for its services and
will reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
$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
the Company to register New Notes in the name of, or
46
<PAGE>
request that Old Notes not tendered or not accepted in the Exchange Offer to
be returned to, a person other than the registered tendering Holder will be
responsible for the payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The
Company does not intend to register the Old Notes under the Securities Act.
The Company believes that, based upon interpretations contained in letters
issued to third parties by the staff of the SEC as set forth in the Exchange
Offer No-Action Letters, New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by each Holder thereof (other than a broker-dealer, as set forth
below, and any such Holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such Holder's
business and such Holder has no arrangement or understanding with any person
to participate in the distribution of such New Notes. If any Holder has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such Holder (i) could not rely
on the applicable interpretations of the staff of the SEC and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or qualification is
available and is complied with. The Company does not currently intend to take
any action to register or qualify the New Notes for resale in any such
jurisdiction.
47
<PAGE>
BUSINESS
GENERAL
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. At
June 30, 1997, after giving effect to the Acquisition, PCW provided cellular
telephone service to 286,131 subscribers in Georgia, Alabama, Florida and
South Carolina in a total of 16 licensed service areas composed of eight MSAs
and eight RSAs, with an aggregate estimated population of 3.3 million. PCW
sells its cellular telephone service as well as a full line of cellular
products and accessories principally through its network of retail stores. PCW
markets all of its products and services under the nationally recognized
service mark CELLULAR ONE. All information in this section gives effect to the
Acquisition.
MARKETS AND SYSTEMS
The Company's cellular telephone systems serve contiguous licensed service
areas in Georgia, Alabama and South Carolina. PCW also has a cellular service
area in Panama City, Florida. The following table sets forth on a pro forma
basis after giving effect to the Acquisition as of July 18, 1997, with respect
to each service area in which PCW owns a cellular telephone system, the
estimated population, PCW's beneficial ownership percentage, the Net Pops and
the date of initial operation of such system by Palmer or a predecessor
operator.
<TABLE>
<CAPTION>
ESTIMATED DATE SYSTEM
SERVICE AREA(1) POPULATION(2) PERCENTAGE NET POPS OPERATIONAL
<S> <C> <C> <C> <C>
Albany, GA.................... 118,527 86.5% 102,526 4/88
Augusta, GA................... 439,116 100.0 439,116 4/87
Columbus, GA.................. 254,150 85.2 216,518 11/88
Macon, GA..................... 313,686 99.2 311,234 12/88
Savannah, GA.................. 283,878 98.5 279,578 3/88
Georgia-6 RSA................. 199,516 95.0 189,560 4/93
Georgia-7 RSA................. 134,376 100.0 134,376 10/91
Georgia-8 RSA................. 157,451 100.0 157,451 10/91
Georgia-9 RSA................. 119,410 100.0 119,410 9/92
Georgia-10 RSA................ 149,699 100.0 149,699 10/91
Georgia-12 RSA................ 211,799 100.0 211,799 10/91
Georgia-13 RSA................ 147,392 86.5 127,494 10/90
Dothan, AL.................... 136,160 94.6 128,807 2/89
Montgomery, AL................ 318,371 92.8 295,430 8/88
Alabama-8 RSA................. 173,993 100.0 173,993 7/93
--------- ---------
Subtotal.................... 3,155,524 3,034,991
--------- ---------
Panama City, FL............... 146,018 78.4 114,493 9/88
--------- ---------
Total....................... 3,301,542 3,149,484
========= =========
</TABLE>
- --------
(1) Does not include the Alabama-5 RSA, South Carolina-7 RSA and South
Carolina-8 RSA where PCW has IOA. PCW has no subscribers in the South
Carolina-7 RSA and South Carolina-8 RSA, but instead provides roaming access
to its own subscribers and others when they travel in these two service
areas, utilizing its existing cell sites. Construction permits were granted
to Permittees for the Alabama-5 RSA and South Carolina-8 RSA on May 20,
1997. The Permittees are required to complete construction of their
respective RSA within 18 months. After completing construction, a Permittee
may give the Company ten days prior written notice, at which point the
Company would be required to sell its subscribers to the Permittee at cost.
The application for a construction permit for the South Carolina-7 RSA has
been remanded by the FCC to the Wireless Bureau for further review.
(2) Based on population estimates for 1996 from the 1996 Donnelley Market
Information Service.
48
<PAGE>
GEORGIA/ALABAMA
In 1988, PCW acquired controlling interests in the licenses to operate
cellular telephone systems in the four MSAs (Montgomery and Dothan, Alabama
and Columbus and Albany, Georgia) that make up the core of its Georgia/Alabama
cluster. The Company continued to increase its presence in this market by
acquiring additional cellular service areas in 1989 (Macon, Georgia MSA), 1992
(Georgia-9 RSA), 1993 (Alabama-8 RSA), 1994 (Georgia-7 RSA, Georgia-8 RSA,
Georgia-10 RSA and Georgia-12 RSA), 1995 (Savannah, Georgia MSA and Augusta,
Georgia MSA) and 1996 (Georgia-1 RSA and Georgia-6 RSA). The Augusta, Georgia
MSA includes Aiken County in South Carolina. In 1994, PCW also received
interim operating authority from the FCC to provide service in two counties
within the southern portion of the Alabama-5 RSA. In 1995, as a result of the
GTE Acquisition, PCW received interim operating authority from the FCC to
provide service to South Carolina-7 RSA and South Carolina-8 RSA. In the
aggregate, this market (excluding the Alabama-5 RSA, South Carolina-7 RSA and
South Carolina-8 RSA where PCW has only interim operating authority) now
covers a contiguous service area of approximately 38,000 square miles that
includes Montgomery, the state capital of Alabama, prominent resort
destinations in Jekyll Island, St. Simons Island and Sea Island, Georgia, and
over 710 miles of interstate highway, including most of I-95 from Savannah,
Georgia to Jacksonville, Florida. The Company collects substantial roaming
revenue from cellular telephone subscribers from other systems traveling in
this market from nearby population centers such as Atlanta and Birmingham, as
well as from vacation and business traffic in the southeastern United States.
Due in part to the favorable labor environment, moderate weather and
relatively low cost of land, during the last several years there has been an
influx of new manufacturing plants in this market. As of December 31, 1996,
PCW utilized 172 cell sites in this cluster (including three cell sites in
Alabama-5 RSA), 23 of which were constructed by PCW in 1995 and 42 of which
were placed in service in 1996.
PANAMA CITY
The Company acquired control of the non-wireline cellular license for the
Panama City, Florida market in 1991. PCW collects substantial roaming revenue
in this market from subscribers from other systems who visit Panama City, a
popular spring and summer vacation destination. As of December 31, 1996, PCW
utilized 11 cell sites in this market. In 1997, the Company plans to add two
additional cell sites in this market.
OPERATIONS
General
The Company has concentrated its efforts on creating an integrated network
of cellular telephone systems in the southeastern United States, principally
to date in Georgia, Alabama, Florida and South Carolina. At June 30, 1997,
after giving effect to the Acquisition, PCW provided cellular telephone
service to 286,131 subscribers in a total of 16 licensed service areas
composed of eight MSAs and eight RSAs. The Company also participates in the
NACN, a nationwide consortium of non-wireline cellular telephone companies,
with the goal of providing seamless regional and national cellular telephone
service to its subscribers. Participation in the NACN allows seven-digit
dialing access to PCW's subscribers when they travel outside PCW's service
areas, providing them with convenient call delivery throughout large areas of
the United States, Canada, Mexico and Puerto Rico served by other NACN
participants.
49
<PAGE>
The following table sets forth information, at the dates indicated after
giving effect to the Acquisition, regarding PCW's subscribers, penetration
rate, cost to add a net subscriber, average monthly churn rate and average
monthly service revenue per subscriber.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- --------
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Subscribers at end of period (1)... 29,869 54,382 99,626 187,870 245,396 286,131
Penetration at end of period (2)... 2.23% 3.57% 4.54% 6.41% 7.28% 8.58%
Cost to add a net subscriber (3)... $ 272 $ 198 $ 247 $ 275 $ 434 $ 487
Average monthly churn (4).......... 1.58% 1.32% 1.54% 1.51% 1.89% 1.78%
Average monthly service revenue per
subscriber (5).................... $ 59.65 $ 56.70 $ 56.54 $ 53.80 $ 50.37 $ 45.73
</TABLE>
- ---------------------
(1) Each billable telephone number in service represents one subscriber.
Amounts at December 31, 1992 and 1993 include 955 and 2,576 subscribers,
respectively, in the Alabama-7 RSA where the Company had interim operating
authority from June 1991 through July 1994.
(2) Determined by dividing the aggregate number of subscribers by the
estimated population.
(3) Determined for the periods, by dividing (i) all costs of sales and
marketing, including salaries, commissions and employee benefits and all
expenses incurred by sales and marketing personnel, agent commissions,
credit reference expenses, losses on cellular telephone sales, rental
expenses allocated to retail operations, net installation expenses and
other miscellaneous sales and marketing charges for such period including
fees paid for use of the CELLULAR ONE service mark, by (ii) the net
subscribers added during such period.
(4) Determined for the periods, by dividing total subscribers discontinuing
service by the average number of subscribers for such period , and divided
by the number of months in the relevant period.
(5) Determined for the periods by dividing the (i) sum of the access, airtime,
roaming, long distance, features, connection, disconnection and other
revenues for such period by (ii) the average number of subscribers for
such period, divided by the number of months in the relevant period.
SUBSCRIBERS AND SYSTEM USAGE
On a pro forma basis, after giving effect to the Acquisition, the Company's
subscribers have increased from 17,148 at January 1, 1992 to 286,131 at June
30, 1997. Reductions in the cost of cellular telephone services and equipment
at the retail level have led to an increase in cellular telephone usage by
general consumers for non-business purposes. As a result, the Company believes
that there is an opportunity for significant growth in each of its existing
service areas. The Company will continue to broaden its subscriber base for
basic cellular telephone services as well as to increase its offering of
customized services. The sale of custom calling features typically results in
increased usage of cellular telephones by subscribers, thereby further
enhancing revenues. In 1996, cellular telephone service revenues represented
94.8% of PCW's total revenues, with equipment sales and installation
representing the balance.
MARKETING
The Company's marketing strategy is designed to generate continued net
subscriber growth by focusing on subscribers who are likely to generate lower
than average deactivations and delinquent accounts, while simultaneously
maintaining a low cost of adding net subscribers. Management has implemented
its marketing strategy by training and compensating its sales force in a
manner designed to stress the importance of high penetration levels and
minimum costs per net subscriber addition. PCW's sales staff has a two-tier
structure. A retail sales force handles walk-in traffic, and a targeted sales
staff solicits certain industries and government subscribers. PCW's management
believes that its internal sales force is more likely than independent agents
successfully to select and screen new subscribers and select pricing plans
that realistically match subscriber
50
<PAGE>
means and needs. In addition, PCW motivates its direct sales force to sell
appropriate rate plans to subscribers, thereby reducing churn, by linking
payment of commissions to subscriber retention. PCW believes its use of an
internal sales force keeps marketing costs low, both because commissions are
lower and because subscriber retention is higher than if it used independent
agents. After giving effect to the Acquisition, for the six months ended June
30, 1997, the Company's cost to add a net subscriber was $477. The Company
believes its cost to add a net subscriber will continue to be among the lowest
in the cellular telephone industry, principally because of its in-house direct
sales and marketing staff.
The Company also maintains its low churn rate through an after-sale
telemarketing program implemented through its sales force and a telemarketing
service specializing in cellular customer services. This program not only
enhances customer loyalty, which reduces churn, but also increases add-on
sales and customer referrals. The telemarketing program allows the sales staff
to check customer satisfaction as well as to offer additional calling
features, such as voicemail, call waiting and call forwarding.
The Company's sales force works principally out of retail stores in which
PCW offers its cellular products and services. As of June 30, 1997, PCW
maintained 32 retail stores and 4 offices. Retail stores, which range in size
up to 11,000 square feet are fully equipped to handle customer service and the
sale of cellular services, telephones and accessories. Eight of the newer and
larger stores are promoted by PCW as "Superstores," seven of which are located
in PCW's Georgia/Alabama service areas, and one in the Panama City, Florida
service area. Each Superstore has an authorized warranty repair center and
provides cellular telephone installation and maintenance services. Most of
PCW's larger markets currently have at least one Superstore. In addition, to
enhance convenience for its customers, PCW has begun to open smaller stores in
locations such as shopping malls. In 1997, Palmer plans to open three more
stores in its Georgia/Alabama service areas. The Company's stores provide
subscriber-friendly retail environments--extended hours, a large selection of
phones and accessories, an expert sales staff, and convenient locations--which
make the sales process quick and easy for the subscriber.
The Company markets all of its products and services under the name CELLULAR
ONE. The national advertising campaign conducted by Cellular One Group
enhances PCW's advertising exposure at a fraction of what could be achieved by
PCW alone. The Company also obtains substantial marketing benefits from the
name recognition associated with this widely used service mark, both with
existing subscribers traveling outside PCW's service areas and with potential
new subscribers moving into PCW's service areas. In addition, travelers who
subscribe to CELLULAR ONE service in other markets may be more likely to use
PCW's service when they travel in PCW's service areas. Cellular telephones of
non-wireline subscribers are either programmed to select the non-wireline
carrier (such as PCW) when roaming, unless the non-wireline carrier in the
roaming area is not yet operational, or the subscriber dials a special code or
has a cellular telephone equipped with an "A/B" (wireline/non-wireline) switch
and selects the wireline carrier.
Through its membership in NACN and other special networking arrangements,
PCW provides extended regional and national service to its subscribers,
thereby allowing them to make and receive calls while in other cellular
service areas without dialing special access codes. This service distinguishes
PCW's call delivery features from those of many of its competitors.
PRODUCTS AND SERVICES
In addition to providing high-quality cellular telephone service in each of
its markets, PCW also offers various custom-calling features such as
voicemail, call forwarding, call waiting, three-way conference calling and no
answer and busy transfer. Several rate plans are presented to prospective
subscribers so that they may choose the plan that will best fit their expected
calling needs. Generally, these rate plans include a high user plan, a medium
user plan, a basic plan and an economy plan. Most rate plans combine a fixed
monthly access fee, per minute usage charges and additional charges for
custom-calling features in a package that offers value to
51
<PAGE>
the subscriber while enhancing airtime use and revenues for PCW. In general,
rate plans which include a higher monthly access fee typically include a lower
usage rate per minute. An ongoing review of equipment and service pricing is
maintained to ensure PCW's competitiveness. As appropriate, revisions to
pricing of service plans and equipment are made to meet the demands of the
local marketplace.
The following table sets forth a breakdown of PCW's revenues from the sale
of its services and equipment for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenue:
Access and usage (1)... $11,821 $20,324 $37,063 $61,607 $105,007 $50,424 $58,936
Roaming (2)............ 2,231 3,075 5,844 11,157 13,099 6,458 9,012
Long distance (3)...... 992 1,309 2,218 3,634 6,632 3,142 3,935
Other (4).............. 680 1,230 2,745 2,585 2,596 1,395 1,382
------- ------- ------- ------- -------- ------- -------
Total service
revenue............. $15,724 $25,938 $47,870 $78,983 $127,334 $61,419 $73,265
Equipment sales and
installation (5)....... 3,558 5,238 6,381 6,830 7,026 3,455 4,131
------- ------- ------- ------- -------- ------- -------
Total................ $19,282 $31,176 $54,251 $85,813 $134,360 $64,874 $77,396
======= ======= ======= ======= ======== ======= =======
</TABLE>
- ---------------------
(1) Access and usage revenues include monthly access fees for providing
service and usage fees based on per minute usage rates.
(2) Roaming revenues are fees charged for providing services to subscribers of
other systems when such subscribers or "roamers" place or receive a
telephone call within one of PCW's service areas.
(3) Long distance revenue is derived from long distance telephone calls placed
by PCW's subscribers.
(4) Other revenue includes, among other things, connect fees charged to
subscribers for initial activation on the cellular telephone system and fees
for feature services such as voicemail, call forwarding and call waiting.
(5) Equipment sales and installation revenue includes revenue derived from the
sale of cellular telephones and fees for the installation of such
telephones.
Reciprocal agreements between each of PCW's cellular telephone systems and
the cellular telephone systems of other operators allow their respective
subscribers to place calls in most cellular service areas throughout the
country. Roamers are charged usage fees which are generally higher than a
given cellular telephone system's regular usage fees, thereby resulting in a
higher profit margin on roaming revenue. Roaming revenue is a substantial
source of incremental revenue for PCW. For 1996, roaming revenues accounted
for 10.7% of the Company's service revenues and 10.1% of the Company's total
revenue. This level of roaming revenue is due in part to the fact that the
Company's market in Panama City, Florida is a regional shopping and vacation
destination and a number of the Company's cellular telephone systems in the
Georgia and Alabama market are located along major interstate travel
corridors.
In order to develop the market for cellular telephone service, PCW provides
retail distribution of cellular telephones and maintains inventories of
cellular telephones. PCW negotiates volume discounts for the purchase of
cellular telephones and, in many cases, passes such discounts on to its
customers. The Company believes that earning an operating profit on the sale
of cellular telephones is of secondary importance to offering cellular
telephones at competitive prices to potential subscribers. To respond to
competition and to enhance subscriber growth, Palmer has historically sold
cellular telephones below cost.
The Company is currently developing several new services which it believes
will provide additional revenue sources. Packet-switching technology will
allow data to be transmitted much more quickly and efficiently than the
current circuit-switching technology. Packet-switching uses the intervals
between voice traffic on cellular channels to send packets of data instead of
tying up dedicated cellular channels. The packets of information, which may be
transmitted using several different channels, are subsequently reassembled and
directed to the correct party at the receiving end. It is expected that the
development of this technology will make it possible for
52
<PAGE>
cellular carriers to offer a broad range of cost-effective wireless data
services, including facsimile and electronic mail transmissions, point-of-sale
credit authorizations, package tracking, remote meter reading, alarm
monitoring and communications between laptop computer units and local area
computer networks or other computer databases. During 1996 Palmer began to
implement the use of microcells. Microcells are low powered transmitters,
typically constructed on a pole or the roof of a building, which provide
reduced radius service within a specific area, such as large office buildings,
underground facilities or areas shielded by topographical obstructions.
Microcell service could be used, for instance, to provide wireless service
within an office environment that was also integrated with wireless service to
the home.
CUSTOMER SERVICE
The Company is committed to attracting new subscribers and retaining
existing subscribers by providing consistently high-quality customer service.
In each of its cellular service areas, PCW maintains a local staff, including
a store manager, customer service representatives, technical and engineering
staff, sales representatives and installation and repair facilities. Each
cellular service area handles its own customer-related functions such as
customer activations, account adjustments and rate plan changes. Local offices
and installation and repair facilities enable PCW to better service customers,
schedule installations and repairs and monitor the technical quality of the
cellular service areas.
In addition, subscribers are able to report cellular telephone service or
account problems to PCW 24 hours a day. Through the use of sophisticated
monitoring equipment, technicians at the Company's headquarters are able to
monitor the technical performance of its service areas.
To ensure high-quality customer service, the Cellular One Group authorizes a
third-party marketing research firm to perform customer satisfaction surveys
of each of its licensees. Licensees must achieve a minimum customer
satisfaction level in order to be permitted to continue using the CELLULAR ONE
service mark. In 1996, PCW was awarded the #1 MSA and #2 RSA rankings in
CELLULAR ONE's National Customer Satisfaction Survey. PCW has held number one
rankings in four out of the last five years. PCW believes it has achieved this
first place ranking through effective implementation of its direct sales and
customer service support strategy.
The Company has implemented a new software package to combat cellular
telephone service fraud. This new software system can detect counterfeit
cellular telephones while they are being operated and enables PCW to terminate
service to the fraudulent user of the counterfeit cellular telephone. The
Company also helps protect itself from fraud with pre-call customer validation
and subscriber profiles specifically designed to combat the fraudulent use of
subscriber accounts.
NETWORKS
The Company strives to provide its subscribers with virtually seamless
coverage throughout its cellular service market areas, thereby permitting
subscribers to travel freely within this region and have their calls and
custom calling features, such as voicemail, call waiting and call forwarding,
follow them automatically without having to notify callers of their location
or to rely on special access codes. The Company has been able to offer
virtually seamless coverage by implementing a switch interconnection plan to
mobile telephone switching offices ("MTSO") located in adjoining markets.
PCW's equipment is built by NORTEL, formerly Northern Telecom, Inc. ("NTI"),
and interconnection between MTSOs has been achieved using NTI's internal
software and hardware.
Through its participation in NACN since 1992 and other special networking
arrangements, PCW has pursued its goal of offering seamless regional and
national cellular service to its subscribers. NACN is the largest wireless
telephone network system in the world--linking non-wireline cellular operators
throughout the United States and Canada. Membership in NACN has aided PCW in
integrating its cellular telephone systems within its region and has permitted
PCW to offer cellular telephone service to its subscribers throughout a large
portion of
53
<PAGE>
the United States, Canada, Mexico and Puerto Rico. NACN has provided PCW with
a number of distinct advantages: (i) lower costs for roaming verification,
(ii) increased roaming revenue, (iii) more efficient roaming service and (iv)
integration of Palmer's markets with over 4,600 cities in more than 40 states
in the United States, Canada, Mexico and Puerto Rico.
SYSTEM DEVELOPMENT AND EXPANSION
The Company develops its service areas by adding channels to existing cell
sites and by building new cell sites. Such development is done for the purpose
of increasing capacity and improving coverage in direct response to projected
subscriber demand. Projected subscriber demand is calculated for each cellular
service area on a cell by cell basis. These projections involve a traffic
analysis of usage by existing subscribers and an estimation of the number of
additional subscribers in each such area. In calculating projected subscriber
demand, PCW builds into its design assumptions a maximum call "blockage" rate
of 2.0% (percentage of calls that are not connected on first attempt at peak
usage time during the day).
The following table sets forth, by market, at the dates indicated, the
number of PCW's operational cell sites.
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
------------------------------------ -----------
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Georgia/Alabama............. 28(1) 39(1) 70(2) 121(3) 172(4) 191(5)
Panama City, FL............. 4 7 7 9 11 11
--- --- --- --- --- ---
Total..................... 32(1) 46(1) 77(2) 130(3) 183(4) 202(5)
=== === === === === ===
</TABLE>
- ---------------------
(1) Includes two cell sites in the Alabama-7 RSA where Palmer had IOA from
June 1991 through June 1994.
(2) Includes one cell site in the Alabama-5 RSA where Palmer has IOA for two
counties of such RSA and 17 existing cell sites that were purchased in the
Georgia Acquisition.
(3) Includes two existing cell sites in the Alabama-5 RSA where Palmer has IOA
for two counties of such RSA and 28 existing cell sites that were purchased
in the GTE Acquisition.
(4) Includes three existing cell sites in the Alabama-5 RSA where Palmer has
IOA for two counties of such RSA and 17 existing cell sites that were
purchased in the Horizon and USCOC acquisitions. See "--Acquisitions."
(5) Includes two existing cell sites in the Alabama-5 RSA where Palmer has
IOA.
The Company estimates that in 1996 the capacity of its existing cellular
telephone systems increased 42.0%. During 1996, PCW spent $38.5 million and,
based on projected growth in subscriber demand, expects to spend approximately
$35 million in 1997 in order to build out its cellular service areas, install
an additional microwave network and implement certain digital radio
technology. The Company has constructed 34 cell sites to date in 1997 and
plans to construct 7 additional cell sites with respect to its existing
cellular systems during 1997 to meet projected subscriber demand and improve
the quality of service. Cell site expansion is expected to enable the Company
to continue to add subscribers, enhance use of its cellular telephone systems
by existing subscribers, increase services used by subscribers of other
cellular telephone systems due to the larger geographic area covered by the
cellular telephone network and further enhance the overall efficiency of the
network. The Company believes that the increased cellular telephone coverage
will have a positive effect on market penetration and subscriber usage.
Microwave networks enable PCW to connect switching equipment and cell sites
without making use of local landline telephone carriers, thereby reducing or
eliminating fees paid to landline carriers. During 1996, PCW spent $1.0
million to build additional microwave connections. In addition, in 1996 PCW
spent $2.6 million to build a fiber optic network between Dothan, Alabama and
Panama City, Florida. The installation of this network resulted in savings to
PCW from a reduction in fees paid to telephone companies for landline charges,
as well as giving PCW the ability to lease out a significant portion of
capacity.
54
<PAGE>
DIGITAL CELLULAR TECHNOLOGY
Over the next decade, it is expected that cellular telephones will gradually
convert from analog to digital technology. This conversion is due in part to
capacity constraints in many of the largest cellular markets, such as Los
Angeles, New York and Chicago. As carriers reach limited capacity levels,
certain calls may be unable to be completed, especially during peak hours.
Digital technology increases system capacity and offers other advantages over
analog technology, including improved overall average signal quality, improved
call security, potentially lower incremental costs for additional subscribers
and the ability to provide data transmission services. The conversion from
analog to digital technology is expected to be an industry-wide process that
will take a number of years. The exact timing and overall costs of such
conversion are not yet known.
The Company began offering TDMA (Time Division Multiple Access) standard
digital service during 1997. This digital network allows PCW to offer advanced
cellular features and services such as caller-ID, short message paging and
extended battery life. Where cell sites are not yet at their maximum capacity
of radio channels, PCW is adding digital channels to the network incrementally
based on the relative demand for digital and analog channels. Where cell sites
are at full capacity, analog channels are being removed and redeployed to
expand capacity elsewhere within the network and replaced in such cell sites
by digital channels. The implementation of digital cellular technology over a
period of several years will involve modest incremental expenditures for
switch software and possible significant cost reductions as a result of
reduced purchases of radio channels and a reduced requirement to split
existing cells. However, as indicated above, the extent of any implementation
of digital radio channels and the amount of any cost savings ultimately to be
derived therefrom will depend primarily on subscriber demand. In the ordinary
course of business, equipment upgrades at the cell sites have involved
purchasing dual mode radios capable of using both analog and digital
technology.
The benefits of digital radio channels can only be achieved if subscribers
purchase cellular telephones that are capable of transmitting and receiving
digital signals. Currently, such telephones are more costly than analog
telephones. The widespread use of digital cellular telephones is likely to
occur only over a substantial period of time and there can be no assurance
that this technology will replace analog cellular telephones. In addition,
since most of PCW's existing subscribers currently have cellular telephones
that exclusively utilize analog technology, it will be necessary to continue
to support, and if necessary increase, the number of analog radio channels
within the network for many years.
ACQUISITIONS
The Company will continue to evaluate expansion through acquisitions of both
(i) contiguous cellular properties and other strategically located RSAs and
small to mid-sized MSAs and (ii) minority interests in its existing cellular
properties. In evaluating acquisition targets, the Company considers, among
other things, demographic factors, including population size and density,
geographic proximity to existing service areas, traffic patterns, cell site
coverage and required capital expenditures.
PCI entered the cellular telephone business in 1987, when it constructed a
cellular telephone system for the Fort Myers, Florida MSA. PCI acquired
control of this system in March 1988 and rapidly expanded its cellular
telephone holdings, acquiring control of the non-wireline cellular licenses
for the Columbus and Albany, Georgia and Dothan and Montgomery, Alabama MSAs
in 1988.
In 1991, Palmer acquired control of the non-wireline cellular license for
the Panama City, Florida MSA. In 1992 and 1993, Palmer acquired two non-
wireline cellular licenses for RSAs contiguous to Palmer's MSAs in Georgia and
Alabama: the Georgia-9 RSA in June 1992 and the Alabama-8 RSA in April 1993.
The Georgia-9 RSA acquisition added the geographic territory between the
Columbus, Macon and Albany, Georgia MSAs to Palmer's service area coverage.
The Alabama-8 RSA expanded Palmer's service areas around three MSAs served by
Palmer, covering a substantial portion of the geographic territory between the
Montgomery, Alabama,
55
<PAGE>
Columbus, Georgia and Dothan, Alabama MSAs and the Georgia-9 RSA. In 1993,
Palmer also increased its majority position in its MSAs in Albany, Georgia and
in Dothan and Montgomery, Alabama, through the purchase of certain minority
interests for an aggregate purchase price of $2.9 million.
During 1994, Palmer continued to acquire minority interests in six of its
MSAs for an aggregate purchase price of $3.1 million. Also, on October 31,
1994, Palmer acquired the cellular telephone systems of Southeast Georgia
Cellular Limited Partnership ("SGC") and Georgia 12 Cellular Limited
Partnership ("Georgia 12" and together with SGC, the "Georgia Partnerships")
for an aggregate purchase price of $91.7 million (the "Georgia Acquisition").
The assets acquired by Palmer from SGC included the non-wireline cellular
telephone systems for the Georgia-7 RSA, Georgia-8 RSA and Georgia-10 RSA. The
assets acquired by Palmer from Georgia 12 included the non-wireline cellular
telephone system located in the Georgia-12 RSA. The cellular telephone systems
in the acquired RSAs serve a geographic territory in southeast Georgia that is
adjacent to Palmer's Georgia-9 RSA and Macon, Georgia MSA.
In December 1995, Palmer acquired interests in cellular telephone systems by
purchasing Georgia Metronet, Inc. ("GMI") and Augusta Metronet, Inc. ("AMI"
and together with GMI, the "GTE Companies") for an aggregate purchase price of
$158.4 million (the "GTE Acquisition"). The assets acquired by Palmer in the
GTE Acquisition included the non-wireline cellular telephone system located in
the Savannah MSA and Augusta MSA, respectively. The cellular telephone systems
in the newly-acquired MSAs serve a geographic territory in eastern Georgia and
a portion of South Carolina that is adjacent to Palmer's existing markets in
the Georgia-8 RSA and Georgia-12 RSA. In addition, Palmer also acquired the
IOA to provide cellular service to the southern portions of the South
Carolina-7 RSA and South Carolina-8 RSA, respectively, which serve a
geographic territory that is adjacent to Palmer's existing markets in the
Georgia-8 RSA as well as the Savannah, and Augusta, Georgia MSAs. In addition,
during 1995, Palmer acquired additional minority interests in six of its MSAs
for an aggregate purchase price of $2.0 million.
On June 20, 1996, Palmer acquired the cellular telephone system of USCOC of
Georgia RSA #1, Inc. ("USCOC") for an aggregate purchase price of $31.6
million. The assets acquired by Palmer from USCOC included the cellular
telephone system in the Georgia-1 RSA. The cellular telephone system in the
acquired RSA serves a geographic territory of northwest Georgia between
Chattanooga and Atlanta.
On July 5, 1996, two of Palmer's majority-owned subsidiaries acquired the
cellular telephone system of Horizon Cellular Telephone Company of Spalding,
L.P. ("Horizon") for an aggregate purchase price of $36.0 million. The assets
acquired by Palmer from Horizon include the cellular telephone system in the
Georgia-6 RSA. The cellular telephone system in the acquired RSA serves a
geographic territory of west central Georgia adjacent to Palmer's Macon and
Columbus, Georgia MSAs.
On February 1, 1997, a majority-owned subsidiary of Palmer acquired the
cellular telephone system serving the Georgia-13 RSA from Mobile
Communications Systems L.P. for a total purchase price of $31.3 million. The
cellular telephone system in the acquired RSA serves a geographic territory of
southwest Georgia adjacent to Palmer's Albany, Georgia and Dothan, Alabama
MSAs.
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<PAGE>
COMPETITION
The cellular telephone service industry in the United States is highly
competitive. Cellular telephone systems compete principally on the basis of
services and enhancements offered, the technical quality of the cellular
system, customer service, coverage capacity and price of service and
equipment. Currently, the Company's primary competition in each of its service
areas is the other cellular licensee--the wireline carrier. The table below
lists the wireline competitor in each of the Company's existing service areas:
<TABLE>
<CAPTION>
MARKET WIRELINE COMPETITOR
<S> <C>
Albany, GA................ ALLTEL
Augusta, GA............... ALLTEL
Columbus, GA.............. Public Service Cellular
Macon, GA................. BellSouth
Savannah, GA.............. ALLTEL
Georgia-6 RSA............. BellSouth and Intercel(1)
Georgia-7 RSA............. Cellular Plus and BellSouth(1)
Georgia-8 RSA............. ALLTEL
Georgia-9 RSA............. ALLTEL and Public Service Cellular(1)
Georgia-10 RSA............ Cellular Plus and ALLTEL(1)
Georgia-12 RSA............ ALLTEL
Georgia-13 RSA............ ALLTEL
Dothan, AL................ BellSouth
Montgomery, AL............ ALLTEL
Alabama-8 RSA............. ALLTEL
Panama City, FL........... 360(degrees) Communications Company (formerly
Sprint Cellular)
</TABLE>
- ---------------------
(1) The wireline service area has been subdivided into two service areas by
the purchasers of the authorization for the RSA.
The Company also faces limited competition from and may in the future face
increased competition from broadband PCS. Broadband PCS involves a network of
small, low-powered transceivers placed throughout a neighborhood, business
complex, community or metropolitan area to provide customers with mobile and
portable voice and data communications. PCS subscribers communicate using
digital radio handsets.
The FCC allocated 120 MHZ of spectrum for licensed broadband PCS. The
allocations for licensed PCS services are split into six blocks of
frequencies--blocks "A" and "B" being two 30 MHZ allocations for each of the
51 Major Trading Areas ("MTAs") throughout the United States; block "C" being
one 30 MHZ allocation in each of 493 Basic Trading Areas ("BTAs") in the
United States; and blocks "D," "E" and "F" being three 10 MHZ allocations in
each of the BTAs. The FCC has concluded the auction of all broadband PCS
frequency blocks.
The Company also faces competition from other existing communications
technologies such as conventional mobile telephone service, SMR and ESMR
systems and paging services.
In addition, the FCC has licensed operators to provide mobile satellite
service in which transmissions from mobile units to satellites would augment
or replace transmissions to land-based stations. Although such a system is
designed primarily to serve remote areas and is subject to transmission delays
inherent in satellite communications, a mobile satellite system could augment
or replace communications with segments of land-based cellular systems. Based
on current technologies, however, satellite transmission services are not
expected to be competitively priced with cellular telephone services.
In order to grow and compete effectively in the wireless market, PCW plans
to follow a strategy of increasing its bundled minute offerings. By increasing
the number of minutes a customer can use for one flat rate, subscribers
perceive greater value in their cellular service and become less usage
sensitive, i.e., they can
57
<PAGE>
increase their cellular phone usage without seeing large corresponding
increases in their cellular bill. These factors translate into more satisfied
customers, greater customer usage and lower churn among existing subscribers.
The perceived greater value also increases the number of potential customers
in the marketplace. PCW believes that this strategy will enable it to increase
its share of the wireless market.
SERVICE MARKS
CELLULAR ONE is a registered service mark with the U.S. Patent and Trademark
Office. The service mark is owned by Cellular One Group, a Delaware general
partnership of Cellular One Marketing, Inc., a subsidiary of Southwestern Bell
Mobile Systems, Inc., together with Cellular One Development, Inc., a
subsidiary of AT&T and Vanguard Cellular Systems, Inc. The Company uses the
CELLULAR ONE service mark to identify and promote its cellular telephone
service pursuant to licensing agreements with Cellular One Group (the
"Licensor"). In 1996, PCW paid $219,000 in licensing and advertising fees
under these agreements. Licensing and advertising fees are determined based
upon the population of the licensed areas. The licensing agreements require
PCW to provide cellular telephone service to its customers, and to maintain a
certain minimum overall customer satisfaction rating in surveys commissioned
by the Licensor. PCW's customer satisfaction ratings have consistently far
exceeded this required minimum. The licensing agreements which PCW has entered
into are for five-year terms.
REGULATION
As a provider of cellular telephone services, PCW is subject to extensive
regulation by the federal government.
The licensing, construction, operation, acquisition and transfer of cellular
telephone systems in the United States are regulated by the FCC pursuant to
the Communications Act of 1934, as amended (the "Communications Act"). The FCC
has promulgated rules governing the construction and operation of cellular
telephone systems and licensing and technical standards for the provision of
cellular telephone service ("FCC Rules"). For cellular licensing purposes, the
United States is divided into MSAs and RSAs. In each market, the frequencies
allocated for cellular telephone use are divided into two equal blocks
designated as Block A and Block B. Block A licenses were initially reserved
for non-wireline companies, such as Palmer, while Block B licenses were
initially reserved for entities affiliated with a local wireline telephone
company. Under current FCC Rules, a Block A or Block B license may be
transferred with FCC approval without restriction as to wireline affiliation,
but generally, no entity may own any substantial interest in both systems in
any one MSA or RSA. The FCC may prohibit or impose conditions on sales or
transfers of licenses.
Initial operating licenses are generally granted for terms of up to 10
years, renewable upon application to the FCC. Licenses may be revoked and
license renewal applications denied for cause after appropriate notice and
hearing. Palmer's cellular licenses expire in the following years with respect
to the following number of service areas: 1997 (four); 1998 (three); 2000
(two); 2001 (four); 2002 (three) and 2006 (one). On September 22, 1997, the
Company filed License Renewal Applications with the FCC for the Savannah,
Georgia MSA; the Albany, Georgia MSA; the Montgomery, Alabama MSA; and the
Panama City, Florida MSA. Although these four licenses have since expired, the
Company is permitted to continue to operate in these areas during the pendency
of its renewal applications. The FCC has issued a decision confirming that
current licensees will be granted a renewal expectancy if they have complied
with their obligations under the Communications Act during their license terms
and provided substantial public service. A potential challenger will bear a
heavy burden to demonstrate that a license should not be renewed if the
licensee's performance merits a renewal expectancy. The Company believes that
the licenses controlled by the Company will be renewed in a timely manner.
However, in the event that a license is not renewed, the Company would no
longer have the right to operate in the relevant service area. A non-renewal
of all licenses that are currently pending would have a material adverse
effect on the Company's result of operations.
Under FCC rules, each cellular licensee was given the exclusive right to
construct one of two cellular telephone systems within the licensee's MSA or
RSA during the initial five-year period of its authorization. At
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<PAGE>
the end of such five-year period, other persons are permitted to apply to
serve areas within the licensed market that are not served by the licensee.
Current FCC Rules provide that competing "unserved area" applications are to
be resolved through the auction process. Palmer and PCW have no material
unserved areas in any of their cellular telephone systems that have been
licensed for more than five years.
The Company also regularly applies for FCC authority to use additional
frequencies, to modify the technical parameters of existing licenses, to
expand its service territory and to provide new services. The Communications
Act requires prior FCC approval for acquisitions by PCW of other cellular
telephone systems licensed by the FCC and transfers by Palmer of a controlling
interest in any of its licenses or construction permits, or any rights
thereunder. Although there can be no assurance that any future requests for
approval or applications filed by the Company will be approved or acted upon
in a timely manner by the FCC, based upon its experience to date, the Company
has no reason to believe such requests or applications would not be approved
or granted in due course.
The Communications Act prohibits the holding of a common carrier license
(such as PCW's cellular licenses) by a corporation of which more than 20% of
the capital stock is owned directly or beneficially by aliens. Where a
corporation such as PCW controls another entity that holds an FCC license,
such corporation may not have more than 25% of its capital stock owned
directly or beneficially by aliens, in each case, if the FCC finds that the
public interest would be served by such prohibitions. Failure to comply with
these requirements may result in the FCC issuing an order to Palmer requiring
divestiture of alien ownership to bring PCW into compliance with the
Communications Act. In addition, fines or a denial of renewal, or revocation
of the license are possible.
From time to time, legislation which could potentially affect the Company,
either beneficially or adversely, may be proposed by federal and state
legislators. On February 8, 1996, the Telecommunications Act of 1996 (the
"Telecom Act") was signed into law, revising the Communications Act to
eliminate unnecessary regulation and to increase competition among providers
of communications services. The Company cannot predict the future impact of
this or other legislation on its operations.
The major provisions of the Telecom Act potentially affecting Palmer are as
follows:
Interconnection. The Telecom Act requires state public utilities commissions
and/or the FCC to implement policies that mandate cost-based reciprocal
compensation between cellular carriers and local exchange carriers ("LEC") for
interconnection services.
On August 8, 1996, the FCC released its First Report and Order in the matter
of Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996 ("FCC Order") establishing the rules for the
costing and provisioning of interconnection services and the offering of
unbundled network elements by incumbent local exchange carriers. The FCC Order
established procedures for Palmer's renegotiation of interconnection
agreements with the incumbent local exchange carrier in each of Palmer's
markets. LECs and state regulators filed appeals of the FCC Order, which have
been consolidated in the US Court of Appeals for the Eighth Circuit. The Court
has temporarily stayed the effective date of the pricing rules until more
permanent relief can be fashioned.
The Company is currently negotiating with the incumbent local exchange
carriers and has already renegotiated certain interconnection agreements with
LECs in most of the Company's markets. These negotiations have resulted in a
substantial decrease in interconnection expenses incurred by PCW.
Facilities siting for personal wireless services. The siting and
construction of cellular transmitter towers, antennas and equipment shelters
are often subject to state or local zoning, land use and other regulation.
Such regulation may require zoning, environmental and building permit
approvals or other state or local certification. The Telecom Act provides that
state and local authority over the placement, construction and modification of
personal wireless services (including cellular and other commercial mobile
radio services and unlicensed wireless services) shall not prohibit or have
the effect of prohibiting personal wireless services or unreasonably
59
<PAGE>
discriminate among providers of functionally equivalent services. In addition,
local authorities must act on requests made for siting in a reasonable period
of time and any decision to deny must be in writing and supported by
substantial evidence. Appeals of zoning decisions that fail to comply with the
provisions of the Telecom Act can be made on an expedited basis to a court of
competent jurisdiction, which can be either federal district or state court.
PCW anticipates that, as a result the Telecom Act, it will more readily
receive local zoning approval for proposed cellular base stations. In
addition, the Telecom Act codified the Presidential memorandum on the use of
federal lands for siting wireless facilities by requiring the President or his
designee to establish procedures whereby federal agencies will make available
their properties, rights of ways and other easements at a fair and reasonable
price for service dependent upon federal spectrum.
Environmental effect of radio frequency emissions. The Telecom Act provides
that state and local authorities cannot regulate personal wireless facilities
based on the environmental effects of radio frequency emissions if those
facilities comply with the federal standard.
Universal service. The Telecom Act also provides that all communications
carriers providing interstate communications services, including cellular
carriers, must contribute to the federal universal service support mechanisms
that the FCC will establish. The FCC implemented this provision of the Telecom
Act in a "Report and Order" released May 8, 1997 in the matter of "Federal-
State Joint Board on Universal Service," which also provides that any cellular
carrier is potentially eligible to receive universal service support.
The Communications Act preempts state and local regulation of the entry of,
or the rates charged by, any provider of cellular service.
EMPLOYEES
At June 30, 1997 Palmer had 565 full-time employees (excluding Fort Myers
and Georgia-1), none of whom is represented by a labor organization.
Management considers its relations with employees to be good.
PROPERTIES
For each market served by the Company's operations, the Company maintains at
least one sales or administrative office and operates a number of cell
transmitter and antenna sites. As of June 30, 1997, the Company had
approximately 31 leases for retail stores used in conjunction with its
operations and 3 leases for administrative offices. PCW also had approximately
123 leases to accommodate cell transmitters and antennas as of July 8, 1997.
LEGAL PROCEEDINGS
Neither the Company nor Palmer is currently involved in any pending legal
proceedings likely to have a material adverse impact on the Company.
60
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
William J. Ryan.... 65 President and Chief Executive Officer
M. Wayne Wisehart.. 50 Vice President, Treasurer, Chief Financial Officer
K. Patrick Meehan.. 39 Vice President--General Counsel and Secretary
Robert Price....... 64 Director
</TABLE>
EXECUTIVE OFFICERS
The following is a biographical summary of the experience of the executive
officers of Palmer who continue as executive officers of the Company. The
Company has entered into employment contracts with William J. Ryan and M.
Wayne Wisehart to remain as officers of the Company and has entered into
employment contracts with other key employees prior to the consummation of the
Acquisition.
WILLIAM J. RYAN, President and Chief Executive Officer. Mr. Ryan served as
Chief Executive Officer and President of PCI from 1984 until July 1995. Mr.
Ryan was Chief Operating Officer and President of PCI from 1982 to 1984. Mr.
Ryan has over 40 years of communications and telecommunications experience. He
joined PCI in 1970 following that company's acquisition of certain radio and
cable properties which Mr. Ryan had partially owned and operated since 1955.
In his capacity as Chief Executive Officer, Mr. Ryan has successfully led the
Company through 18 acquisitions of cellular telephone systems. Mr. Ryan is a
director of the Cellular Telecommunications Industry Association, the founding
chairman of Cable Television Advertising Bureau, Inc. and a former president
of the Florida Cable Association, the Florida Broadcasters Association and the
Southern Cable Association.
M. WAYNE WISEHART, Vice President, Treasurer and Chief Financial Officer.
Mr. Wisehart served as Chief Financial Officer of PCI from 1982 until July
1995. He was promoted to Treasurer of PCI in 1983 and to Vice President in
1987. Mr. Wisehart has over 15 years of communications and telecommunications
experience. In his capacity as Chief Financial Officer of PCI, he was
instrumental in the financial management and direction of the Company. Prior
to joining PCI, Mr. Wisehart served as Treasurer of the Des Moines Register &
Tribune Company of Des Moines, Iowa, for approximately five years. He began
his career in 1972 with Peat, Marwick, Mitchell & Co. in St. Louis, Missouri,
where he became a Certified Public Accountant. Mr. Wisehart then served as a
tax specialist for three years with General Dynamics Corporation in St. Louis,
Missouri.
K. PATRICK MEEHAN, Vice President-General Counsel and Secretary. Mr. Meehan
served as Vice President/General Counsel and Assistant Secretary of PCI from
1991 until July 1995. As an attorney with the law firm of Leibowitz & Spencer
in Miami, Florida, from 1985 to May 1991, Mr. Meehan represented clients
before the FCC and handled corporate transactions involving broadcast, paging
and cellular telephone companies. He is a 1985 graduate of the Columbus School
of Law and The Institute for Communications Law Studies at The Catholic
University of America in Washington, D.C. Mr. Meehan is a member of the
Florida Bar, the District of Columbia Bar and the American Bar Association.
DIRECTOR
ROBERT PRICE has been a Director of the Company and Holdings since 1997. Mr.
Price has served concurrently as a Director and the Chief Executive Officer,
President and Treasurer of PCC since 1979. Mr. Price has been a Director of
PriCellular since 1990. Mr. Price was the President and Assistant Treasurer of
PriCellular from 1990 until May 1997 and has served as Chairman of PriCellular
since May 1997. In 1992 PCC filed for protection from creditors pursuant to
Chapter 11 of the United States Bankruptcy Code. The Company's
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<PAGE>
Amended Plan of Reorganization was confirmed on June 11, 1992 and became
effective on December 30, 1992. Mr. Price, an attorney, is a former General
Partner of Lazard Freres & Co. He has served as an Assistant United States
Attorney, practiced law in New York and served as Deputy Mayor of New York
City. In the early sixties, Mr. Price served as President and Director of
Atlantic States Industries, a corporation owning weekly newspapers and four
radio stations. After leaving public office, Mr. Price became Executive Vice
President of The Dreyfus Corporation and an Investment Officer of The Dreyfus
Fund. In 1972 he joined Lazard Freres & Co. Mr. Price has served as a Director
of Holly Sugar Corporation, Atlantic States Industries, The Dreyfus
Corporation, Graphic Scanning Corp. and Lane Bryant, Inc., and is currently a
member of The Council on Foreign Relations. Mr. Price serves as the
Representative of the Majority Leader and President Pro Tem of the New York
Senate and as a member on the Board of Directors of the Municipal Assistance
Corporation for the City of New York and as a Member of the Board of Trustees
of the City University of New York. Mr. Price is also a Director and president
of TLM Corporation.
DIRECTOR COMPENSATION
Directors are not paid fees.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation paid to the executive officers of Palmer for the year ended
December 31, 1996.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------ ------------------
NAME AND PRINCIPAL SECURITIES ALL OTHER
POSITION YEAR SALARY($) BONUS($) UNDERLYING OPTIONS COMPENSATION
------------------ ---- --------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
William J. Ryan, Presi-
dent and 1996 $339,731 $ 34,000 $31,422(1)
Chief Executive Officer 1995 $331,651 $119,880 130,000 $55,356
Robert G. Engelhardt,
Executive 1996 $251,538 $ 25,200 $18,726(2)
Vice President and Sec-
retary 1995 $239,019 $ 57,600 120,000 $26,073
M. Wayne Wisehart, Vice
President, 1996 $152,211 $ 15,250 $23,559(3)
Treasurer and Chief Fi-
nancial Officer 1995 $145,256 $ 34,800 75,000 $33,417
Leon J. Hensen, Senior
Vice 1996 $173,173 $ 13,880 $16,798(4)
President-General Man-
ager 1995 $163,862 $ 39,188 75,000 $22,764
K. Patrick Meehan, Vice
President- 1996 $124,423 $ 12,500 $19,386(5)
General Counsel and As-
sistant Secretary 1995 $109,936 $ 26,400 65,000 $15,108
</TABLE>
- --------
(1) Includes the following: PCI 401(k) Profit Sharing Plan and Trust ("401(k)
Plan") contributions of $9,500, auto allowance of $7,415 (including
insurance and license), tax services of $5,228, club dues of $5,535 and
medical reimbursements of $3,744.
(2) Includes the following: 401(k) Plan contributions of $9,500, auto
allowance of $6,744 (including insurance and license), tax services of
$850, club dues of $1,051 and medical reimbursements of $581.
(3) Includes the following: 401(k) Plan contributions of $9,500, auto
allowance of $6,798 (including insurance and license), tax services of $0,
club dues of $7,261 and medical reimbursements of $0.
(4) Includes the following: 401(k) Plan contributions of $9,078, auto
allowance of $6,501 (including insurance and license), tax services of $0,
club dues of $1,219 and medical reimbursements of $0.
(5) Includes the following: 401(k) Plan contributions of $9,500, auto
allowance of $6,975 (including insurance and license), tax services of
$275, club dues of $1,218 and medical reimbursements of $1,418.
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<PAGE>
STOCK OPTIONS
During 1996, no stock options were granted to or exercised by the executive
officers of Palmer. The following table provides information regarding the
value of all unexercised options held at December 31, 1996 by the executive
officers of Palmer.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996(1)
------------------------- -------------------------
NAME UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
---- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
William J. Ryan............. 86,666 43,334 $ 0 $ 0
Robert G. Engelhardt........ 80,000 40,000 $ 0 $ 0
M. Wayne Wisehart........... 50,000 25,000 $ 0 $ 0
Leon J. Hensen.............. 50,000 25,000 $ 0 $ 0
K. Patrick Meehan........... 43,333 21,667 $ 0 $ 0
</TABLE>
- --------
(1) Based on a per share price of $10.375 on February 18, 1997.
EMPLOYMENT AGREEMENTS
In 1995, the Company entered into employment agreements (the "Palmer
Agreements") with each of Messrs. Ryan and Engelhardt, for an initial term of
three years, and Wisehart, Hensen and Meehan, for an initial term of two
years. Each Palmer Agreement had an automatic one-year renewal on each
anniversary date thereof. Base salaries under the Palmer Agreements for 1996
were $340,000, $252,000, $152,500, $173,500 and $125,000, respectively. Each
Palmer Agreement specified that if the executive officer is terminated by the
Company without cause (as defined therein), or if the executive officer
terminates the agreement for good reason (as defined therein, including if the
employment of the executive officer is terminated within one year of a change
in control of the Company), the Company will pay to the executive officer the
full base salary and benefits which would otherwise have been paid to such
officer during a fixed term (three years for Messrs. Ryan and Engelhardt; two
years for Messrs. Wisehart, Hensen and Meehan) (to be paid at the time such
payments are due). The Compensation Committee of the Board of Directors
approved 1997 base salaries under the Palmer Agreements as follows: $340,000
for Mr. Ryan; $178,500 for Mr. Hensen; $160,000 for Mr. Wisehart; and $140,000
for Mr. Meehan.
Pursuant to the change of control provision described above, approximately
$4.0 million of payments became payable under such contracts at the time of
the Merger. Approximately $1.4 million was paid on the effective date of the
Merger to Mr. Ryan as a severance payment pursuant to his existing employment
contract and approximately $2.6 million of severance payments are payable over
several years pursuant to existing employment contracts between Palmer and its
other executive officers. The Company has entered into employment contracts
with Mr. Ryan and Mr. Wisehart to continue as officers of the Company and has
entered into employment contracts with other key employees prior to the
consummation of the Acquisition (the "Price Agreements").
In 1997, the Company entered into an employment agreement with Mr. Ryan (the
"Ryan Agreement") for a term ending on December 31, 1999. The Ryan Agreement
contains an option to engage Mr. Ryan as a consultant for a period of one year
after December 31, 1999 at an annual salary equal to 50% of his base salary.
The base salary under the Ryan Agreement for 1997 is $500,000, plus an annual
bonus based upon the Company's financial performance. The Ryan Agreement
specifies that if Mr. Ryan is terminated by the Company other than for Cause
(as defined therein), disability or death or if Mr. Ryan terminates the
agreement for Good Reason (as defined therein), the Company will pay to Mr.
Ryan the full base salary and benefits which would otherwise have been paid to
Mr. Ryan, as well as a pro-rated bonus, through December 31, 1999 (to be paid
at the time such payments are due).
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<PAGE>
In 1997, the Company entered into an employment agreement with Mr. Wisehart
(the "Wisehart Agreement") for an initial term ending on December 31, 1999.
The Wisehart Agreement has an automatic one-year renewal on each anniversary
date thereof. The base salary under the Wisehart Agreement for 1997 is
$300,000, plus an annual bonus based upon the Company's financial performance.
The Wisehart Agreement specifies that if Mr. Wisehart is terminated by the
Company other than for Cause (as defined therein), disability or death or if
Mr. Wisehart terminates the agreement for Good Reason (as defined therein),
the Company will pay to Mr. Wisehart the full base salary and benefits which
would otherwise have been paid to Mr. Wisehart, as well as a pro-rated bonus,
until two years after the date of termination (to be paid at the time such
payments are due).
The Wisehart and Ryan Agreements each contain a confidentiality provision
and provide that the executive officer may not during employment or for a
period of one year following termination of employment induce or attempt to
induce any employee of the Company to render services for any other person,
firm or corporation.
In 1997, the Company entered into an employment agreement with Mr. Meehan
(the "Meehan Agreement") for an initial term ending on December 31, 1998. The
Meehan Agreement has an automatic one-year renewal on each anniversary date
thereof. The base salary under the Meehan Agreement for 1997 is $180,000. The
Meehan Agreement specifies that if Mr. Meehan is terminated by the Company
other than for Cause (as defined therein), disability or death or if Mr.
Meehan terminates the agreement for Good Reason (as defined therein), the
Company will pay to Mr. Meehan the full base salary and benefits which would
otherwise have been paid to Mr. Meehan until one year after the date of
termination (to be paid at the time such payments are due).
The Price Agreements provide that for one year following termination of
employment, the executive officer will not, in any state in which the Company
is engaged or plans to engage in business, (i) compete with the Company on
behalf of the executive officer or any third party, (ii) participate as a
director, agent, representative, stockholder or partner or have any direct or
indirect financial interest in any enterprise which engages in the business in
which the Company is engaged, or (iii) participate as an employee or officer
in any enterprise in which such officer's responsibilities relate to the
cellular business or any other business in which the Company is engaged;
provided, however, that ownership by such officer of less than 5% of the
outstanding stock of any corporation listed on a national securities exchange
conducting any such business will not be deemed a violation of such non-
competition provision.
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<PAGE>
PRINCIPAL STOCKHOLDERS
All of the Company's issued and outstanding capital stock is owned by
Holdings which is an indirect wholly owned subsidiary of PCC. The following
table sets forth certain information with respect to the beneficial ownership
of the common stock of PCC as of August 8, 1997 by (i) each person or group
known to the Company who beneficially owns more than five percent of PCC
common stock and (ii) all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
CLASS OF NUMBER OF PERCENTAGE
STOCK SHARES (1) OF CLASS
NAME OF BENEFICIAL OWNER -------- ---------- ----------
<S> <C> <C> <C>
Robert Price.............. Common Stock 866,758 17.3%
Series A Preferred Stock(2) 728,133 100%
Series B Preferred Stock(3) 364,066 100%
William J. Ryan........... -- -- --
M. Wayne Wisehart......... -- -- --
K. Patrick Meehan......... -- -- --
NatWest Capital Markets
Limited.................. PIK Preferred Stock(4) 1,129,000 100%
All directors and officers
as a
group (5 persons)........ Common Stock 866,758 17.3%
Series A Preferred Stock 728,133 100%
Series B Preferred Stock 364,066 100%
</TABLE>
- ---------------------
(1) Under the applicable rules of the Securities and Exchange Commission, each
person or entity is deemed to be a beneficial owner with the power to vote
and direct the disposition of these shares.
(2) The Series A Preferred Stock votes with the Common Stock on a share for
share basis.
(3) The Series B Preferred Stock votes with the Common Stock and is entitled
to one-half vote per share.
(4) The PIK Preferred Stock does not have voting rights (other than as
required by law).
DESCRIPTION OF NEW CREDIT FACILITY
The New Credit Facility is provided by a syndicate of banks, financial
institutions and other "accredited investors" (as defined in Regulation D
under the Securities Act; each such bank, financial institution and accredited
investor being a "Lender" and, collectively, the "Lenders") led by Donaldson,
Lufkin & Jenrette Securities Corporation, as arranger and DLJ Capital Funding,
as syndication agent. The New Credit Facility includes a $325.0 million term
loan facility and a $200.0 million revolving credit facility, which provides
for loans and under which letters of credit may be issued and a portion of
which will be made available as a swingline facility. The term loan facility
is comprised of tranche A term loans of up to $100.0 million, which have a
maturity of eight years, and tranche B term loans of up to $225.0 million,
which have a maturity of nine years. The revolving credit facility will
terminate eight years after the closing date of the New Credit Facility
(October 6, 1997, the "Closing Date").
The New Credit Facility bears interest, at the Company's option, at the
alternate base rate or the reserve adjusted Euro-Dollar rate plus, in each
case, applicable margins of (i) in the case of tranche A term loans and
revolving loans (x) 2.50% for Euro-Dollar rate loans and (y) 1.50% for base
rate loans and (ii) in the case of tranche B term loans (x) 2.75% for Euro-
Dollar rate loans and (y) 1.75% for base rate loans. After the occurrence and
during the continuation of an event of default under the New Credit Agreement,
interest shall accrue at the rate for loans bearing interest at the rate
determined by reference to the base rate plus an additional 2.00% per annum
and shall be payable on demand.
The Company will pay commitment fees in an amount equal to 0.50% per annum
on the daily average unused portion of the revolving credit facility. Such
fees shall be payable quarterly in arrears and upon the maturity or
termination of the revolving credit facility.
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<PAGE>
Beginning six months after the Closing Date, the applicable margins for the
tranche A term loans and revolving loans will be determined based on the ratio
of consolidated total debt to consolidated EBITDA of the Company and its
subsidiaries (as defined in the New Credit Facility).
The Company will pay a letter of credit fee calculated at a rate per annum
equal to the applicable margin for Euro-Dollar rate loans under the revolving
credit facility, which shall be shared by all Lenders, and an additional 0.25%
per annum, which shall be retained by the Lender issuing the letter of credit,
which percentage shall be multiplied by the amount available from time to time
for drawing under such letter of credit.
The New Credit Facility is subject to the following amortization schedule:
<TABLE>
<CAPTION>
REVOLVING
TRANCHE A TRANCHE B CREDIT
YEAR TERM LOANS TERM LOANS FACILITY
(%) (%) (%)
<S> <C> <C> <C>
1...................................... 0.0 1.0 0.0
2...................................... 0.0 1.0 0.0
3...................................... 10.0 1.0 10.0
4...................................... 12.5 1.0 12.5
5...................................... 15.0 1.0 15.0
6...................................... 17.5 1.0 17.5
7...................................... 20.0 1.0 20.0
8...................................... 25.0 1.0 25.0
9...................................... 92.0
----- ----- -----
100.0 100.0 100.0
</TABLE>
The New Credit Facility is subject to mandatory prepayment: (i) with the net
after-tax cash proceeds of the sale or other disposition of any property or
assets of the Company or any of its subsidiaries in excess of $5 million per
year, subject to certain exceptions, (ii) with 50% of the net cash proceeds
received from the issuance of equity securities of Holdings, or any of its
subsidiaries, (iii) with the net cash proceeds received from certain issuances
of debt securities by Holdings or any of its subsidiaries, (iv) with 50% of
excess cash flow (as defined in the New Credit Facility) for each fiscal year,
payable within 90 days after the end of the applicable fiscal year. All
mandatory prepayment amounts shall be applied first to the prepayment of the
term loan facility and thereafter to the prepayment of the revolving credit
facility.
Holdings and all existing or future subsidiaries of the Company are
guarantors of the New Credit Facility. The Company's obligations under the New
Credit Facility are secured by: (i) all existing and after-acquired personal
property of the Company and the subsidiary guarantors, including a pledge of
all of the stock of all existing or future subsidiaries of the Company, (ii)
first-priority perfected liens on all existing and after-acquired real
property fee and leasehold interests of the Company and the subsidiary
guarantors, subject to customary permitted liens (as defined in the New Credit
Facility), (iii) a pledge by Holdings of the stock of the Company and (iv) a
negative pledge on all assets of the Company and its subsidiaries.
The New Credit Facility contains customary covenants and restrictions on the
Company's ability to engage in certain activities, including, but not limited
to: (i) limitations on other indebtedness, liens, investments and guarantees,
(ii) restrictions on dividends and redemptions and payments on subordinated
debt and (iii) restrictions on mergers and acquisitions, sales of assets and
leases.
The New Credit Facility also contains financial covenants requiring the
Company to maintain a minimum total debt service coverage test, a minimum
EBITDA test, a minimum interest coverage test, a minimum fixed charge coverage
test and a maximum leverage test.
Borrowing under the New Credit Facility is subject to significant
conditions, including compliance with certain financial ratios and the absence
of any material adverse change. See "Risk Factors--Leverage, Liquidity and
Ability to Meet Required Debt Service."
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<PAGE>
DESCRIPTION OF NOTES
GENERAL
The New Notes will be issued under the Indenture, dated as of July 10, 1997,
by and among the Company and Bank of Montreal Trust Company, as trustee (the
"Trustee"), which has been filed as an exhibit to the Registration Statement
of which this Prospectus constitutes a part. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by
reference to the TIA. 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 the Indenture.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Indenture. Wherever particular provisions of
the Indenture are referred to in this summary, such provisions are
incorporated by reference as a part of the statements made and such statements
are qualified in their entirety by such reference.
The terms of the New Notes are identical in all material respects to the
terms of the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes and except that, if the Exchange
Offer is not consummated by January 6, 1998, Holders that have complied with
their obligations under the Registration Rights Agreement will be entitled,
subject to certain exceptions, to liquidated damages in an amount equal to
$0.05 per week per $1,000 principal amount of Old Notes held by such Holder
until April 6, 1998 and up to $0.25 per week per $1,000 principal amount of
Old Notes thereafter until the consummation of the Exchange Offer.
The Notes are general obligations of the Company and are subordinated in
right of payment to all Senior Indebtedness. As of June 30, 1997, on a pro
forma basis after giving effect to the Offering, the application of the
estimated net proceeds therefrom and the Acquisition described herein under
"Unaudited Pro Forma Condensed Consolidated Financial Statements," the Company
would have had $445.0 million aggregate principal amount of Senior
Indebtedness outstanding and no other Indebtedness other than the Notes. The
Company conducts significant operations through its subsidiaries and,
therefore, the Notes are effectively subordinated to all liabilities
(including trade payables) of the Company's subsidiaries. The Notes are issued
only in fully registered form, without coupons, in denominations of $1,000 and
integral multiples thereof.
The Notes will mature on July 15, 2007. The Notes bear interest at the rate
of 11 3/4% per annum from July 10, 1997 or from the most recent Interest
Payment Date to which interest has been paid or provided for, payable semi-
annually on January 15 and July 15 of each year, commencing January 15, 1998
to the Persons in whose names such Notes are registered at the close of
business on the January 1 or July 1 preceding such Interest Payment Date.
The Indenture does not contain provisions which would afford Holders of the
Notes protection in the event of a decline in the Company's credit quality
resulting from highly leveraged or other similar transactions involving the
Company.
Principal of, premium, liquidated damages, if any, and interest on the Notes
is payable, and, subject to the following provisions, the Notes may be
presented for registration of transfer or exchange, at the office or agency of
the Company maintained for such purpose, which office or agency shall be
maintained in the Borough of Manhattan of The City of New York. At the option
of the Company, payment of interest may be made by check mailed to the Holders
of the Notes at the addresses set forth upon the registry books of the
Company. No service charge will be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Until otherwise designated by the Company, the Company's office or agency will
be the corporate trust office of the Trustee presently located at 77 Water
Street, 4th Floor, New York, New York 10005, c/o Corporate Trust Department.
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<PAGE>
SUBORDINATION
The Indenture provides that no payment may be made by or on behalf of the
Company on account of the principal of, premium, if any, or interest on the
Notes (including any repurchase of any Notes) or on account of any other
monetary obligation for the payment of money due on the Notes, including the
redemption provisions of the Notes, for cash or property (other than Junior
Securities issued in connection with a reorganization pursuant to the
bankruptcy laws of any jurisdiction), (i) upon the maturity of any Senior
Indebtedness by lapse of time, acceleration (unless waived) or otherwise,
unless and until all principal of, premium, if any, and interest (and with
respect to the Credit Agreement, any other obligations) on such Senior
Indebtedness are first paid in full in cash or Cash Equivalents (or, with
respect to Senior Indebtedness other than the Credit Agreement, such payment
is duly provided for), or otherwise to the extent such holders expressly
acknowledge satisfaction of amounts due by settlement other than in cash or
Cash Equivalents, or (ii) in the event of default in the payment of any
principal of, premium, if any, or interest on Senior Indebtedness of the
Company when it becomes due and payable, whether at maturity, a scheduled
payment date, or at a date prepayment is required or by declaration or
otherwise (a "Payment Default"), unless and until such Payment Default has
been cured or waived or otherwise has ceased to exist.
Upon (i) the happening of an event of default (other than a Payment Default)
that permits the holders of Senior Indebtedness (or a trustee or agent on
behalf of such holders) to declare such Senior Indebtedness to be due and
payable and (ii) written notice of such event of default given to the Trustee
by the holders (or a trustee, agent or other representative of such holders)
of an aggregate of at least $25.0 million principal amount outstanding of any
Designated Senior Indebtedness (a "Payment Notice"), then, unless and until
such event of default has been cured or waived or otherwise has ceased to
exist, no payment may be made by or on behalf of the Company on account of the
principal of, premium, if any, or interest on the Notes, or to repurchase any
of the Notes, or on account of any other obligation for the payment of money
in respect of the Notes, including the redemption provisions of the Notes, in
any such case (other than payments made with Junior Securities issued in
connection with a reorganization pursuant to the bankruptcy laws of any
jurisdiction). Notwithstanding the foregoing, unless the Senior Indebtedness
in respect of which such event of default exists has been declared due and
payable in its entirety within 179 days after the Payment Notice is delivered
as set forth above (the "Payment Blockage Period") and such declaration has
not been rescinded or waived, at the end of the Payment Blockage Period, the
Company shall be required, unless the provisions described in the immediately
preceding paragraph are then applicable, to pay all sums not paid to the
Holders of the Notes during the Payment Blockage Period, due to the foregoing
prohibitions and to resume all other payments as and when due on the Notes.
Any number of Payment Notices may be given; provided, however, that (i) not
more than one Payment Notice shall be given within a period of any 360
consecutive days, and (ii) no default that existed upon the date of such
Payment Notice or the commencement of such Payment Blockage Period (whether or
not such event of default relates to the same issue of Senior Indebtedness)
shall be made the basis for the commencement of any other Payment Blockage
Period (it being acknowledged that any subsequent action, or any breach of any
financial covenant for a period commencing after the expiration of such
Payment Blockage Period that, in either case, would give rise to a new event
of default, even though it is a breach pursuant to any provision under which a
prior event of default previously existed, shall constitute a new event of
default for this purpose).
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company (other than Junior Securities issued in
connection with a reorganization pursuant to the bankruptcy laws of any
jurisdiction) shall be received by the Trustee or the Holders at a time when
such payment or distribution is prohibited by the foregoing provisions, such
payment or distribution shall be held in trust for the benefit of the holders
of such Senior Indebtedness, and shall be paid or delivered by the Trustee or
such Holders, as the case may be, to the holders of such Senior Indebtedness
remaining unpaid (or, with respect to Senior Indebtedness other than the
Credit Agreement, unprovided for) or to their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness may have been
issued, ratably according to the aggregate principal amounts remaining unpaid
on account of such Senior Indebtedness held or represented by each, for
application to the payment of all such Senior Indebtedness remaining unpaid,
to the extent necessary to pay (or, with respect to Senior Indebtedness other
than the Credit
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<PAGE>
Agreement to provide for the payment) of all such Senior Indebtedness in full,
or otherwise to the extent holders expressly acknowledge satisfaction of
amounts due after giving effect to any concurrent payment or distribution to
the holders of such Senior Indebtedness.
Upon any distribution of assets of the Company upon any dissolution, winding
up, total or partial liquidation or reorganization of the Company, whether
voluntary or involuntary, in bankruptcy, insolvency, receivership or a similar
proceeding or upon assignment for the benefit of creditors or any marshalling
of assets or liabilities, (i) the holders of all Senior Indebtedness of the
Company will first be entitled to receive payment in full in cash or Cash
Equivalents (or, with respect to Senior Indebtedness other than the Credit
Agreement to have such payment duly provided for), or, with respect to any
holder, otherwise to the extent such holder(s) expressly acknowledge
satisfaction of amounts due in settlement other than in cash or Cash
Equivalents (it being acknowledged that approval of a plan of reorganization
in a bankruptcy proceeding shall not constitute satisfaction of amounts due in
settlement), before the Holders are entitled to receive any payment on account
of the principal of, premium, if any, and interest on the Notes (other than
Junior Securities issued in connection with a reorganization pursuant to the
bankruptcy laws of any jurisdiction) and (ii) any payment or distribution of
assets of the Company of any kind or character from any source, whether in
cash, property or securities (other than with Junior Securities issued in
connection with a reorganization pursuant to the bankruptcy laws of any
jurisdiction) to which the Holders or the Trustee on behalf of the Holders
would be entitled, except for the subordination provisions contained in the
Indenture, will be paid by the liquidating trustee or agent or other Person
making such a payment or distribution directly to the holders of such Senior
Indebtedness or their representative to the extent necessary to make payment
in full on all such Senior Indebtedness remaining unpaid, after giving effect
to any concurrent payment or distribution to the holders of such Senior
Indebtedness.
No provision contained in the Indenture or the Notes affects the obligation
of the Company, which is absolute and unconditional, to pay, when due,
principal of, premium, if any, and interest on the Notes. The Subordination
provisions of the Indenture and the Notes do not prevent the occurrence of any
Default or Event of Default under the Indenture or limit the rights of the
Trustee or any Holder to pursue any other rights or remedies with respect to
the Notes.
As a result of the foregoing subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or any assignment for the benefit of the creditors of the Company
or a marshalling of assets or liabilities of the Company, Holders of the Notes
may receive ratably less than other such creditors.
The Company conducts significant portions of its operations through its
subsidiaries. Accordingly, the Company's ability to meet its cash obligations
is dependent upon the ability of its subsidiaries to make cash distributions
to the Company. Furthermore, any right of the Company to receive the assets of
any of its subsidiaries upon any such subsidiary's liquidation (and the
consequent right of the Holders of the Notes to participate in the
distribution of the proceeds of those assets) effectively will be subordinated
by operation of law to the claims of such subsidiary's creditors (including
trade creditors) and holders of its preferred stock, except to the extent that
the Company is itself recognized as a creditor or preferred stockholder of
such subsidiary, in which case the claims of the Company would still be
subordinate to any indebtedness or preferred stock of such subsidiary senior
in right of payment to that held by the Company. As a result of the
subordination provisions described above, in the event of the liquidation,
bankruptcy, reorganization, insolvency, receivership or similar proceeding or
any assignment for the benefit of the creditors of the Company or a
marshalling of assets or liabilities of the Company, Holders of the Notes may
receive ratably less than other such creditors or interest holders.
OPTIONAL REDEMPTION
The Company will not have the right to redeem any Notes prior to July 15,
2002. On or after July 15, 2002, the Company will have the right to redeem all
or any part of the Notes in cash at the redemption prices (expressed as a
percentage of the aggregate principal amount thereof) set forth below, in each
case including accrued and
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<PAGE>
unpaid interest, if any, to the applicable Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date) if redeemed during the 12-month period beginning July 15 of the years
indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002........................................................... 105.875%
2003........................................................... 104.406%
2004........................................................... 102.938%
2005........................................................... 101.469%
2006 and thereafter............................................ 100.000%
</TABLE>
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis or in such other manner as
it deems appropriate and fair. The Notes may be redeemed in part in multiples
of $1,000 only.
The Notes will not have the benefit of a sinking fund.
Subject to the following, notice of any redemption will be sent, by first-
class mail, at least 30 days and not more than 60 days prior to the date fixed
for redemption to the Holder of each Note to be redeemed to such Holder's last
address as then shown upon the books of the Registrar. Any notice which
relates to a Note to be redeemed in part only must state the portion of the
principal amount to be redeemed and must state that on and after the date
fixed for redemption, upon surrender of such Note, a new Note or Notes in a
principal amount equal to the unredeemed portion thereof will be issued. On
and after the date fixed for redemption, interest will cease to accrue on the
portions of the Notes called for redemption.
Notwithstanding the Optional Redemption provisions above, prior to July 10,
2002, in the event that the Company or Parent consummates one or more
offerings of their Qualified Capital Stock on or before the third anniversary
of the date of issuance of the Notes, the Company may at its option, use all
or a portion of the cash contributed to it from such offerings to redeem up to
35% of the original aggregate principal amount of the Notes at a cash
redemption price equal to 111.75% of the principal amount of the Notes plus
accrued and unpaid interest thereon, if any, to the redemption date; provided
that at least 65% of the original aggregate principal amount of the Notes
remains outstanding thereafter.
CERTAIN COVENANTS
Transactions not Subject to Covenants. Notwithstanding anything to the
contrary in the Indenture, the following transactions shall not be prohibited
by the Indenture (regardless of the form or substance of the transaction or
series of transactions effecting the same):
(i) the Merger, including, without limitation, (A) payments made by the
Company to fund (x) the cash consideration payable in the Merger
(including, whether or not required by the Merger Agreement, pursuant to
statutory appraisal rights and any settlement thereof) to security holders
of Palmer and (y) fees and expenses incurred in connection with the Merger,
(B) the Incurrence, as a result of the Merger, of any Indebtedness of
Palmer or any subsidiary of Palmer, which Indebtedness was in existence
immediately prior to the Merger and not incurred in contemplation thereof,
(C) the assumption or the suffering to exist of any consensual encumbrance
or restriction on the ability of Palmer or any Subsidiary thereof to pay
dividends or make other distributions on the Capital Stock of any
Subsidiary or to pay or satisfy any obligation to Palmer or any of its
Subsidiaries or to otherwise transfer assets or make or pay loans or
advances to Palmer or any of its Subsidiaries, which encumbrance or
restriction was contained in an instrument that was in effect immediately
prior to the Merger and not put into place in contemplation thereof and (D)
the Incurrence or the suffering to exist of any Lien upon any of the
property or assets of Palmer or any of its
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<PAGE>
Subsidiaries which Liens were in existence immediately prior to the
effectiveness of the Merger and not imposed in contemplation thereof; and
(ii) any transaction involving FMT Ltd. (the partnership that holds the
system serving Ft. Myers) or any subsidiary of FMT Ltd. or any of their
assets or the Company's partnership interest in FMT Ltd. (each "FMT-Related
Assets") provided that, in the case of this clause (ii), no such
transaction shall (a) in and of itself cause or result in an increase in
the consolidated Indebtedness of the Company and its Restricted
Subsidiaries on and after the 45th day after the Merger Date from that
existing immediately prior to such transaction, (b) cause or result in the
sale of any asset of the Company other than FMT-Related Assets, (c) cause
or result in the imposition of any Lien on any property or assets of the
Company or any of its Restricted Subsidiaries other than solely upon an
FMT-Related Asset, (d) cause or result in the imposition of any encumbrance
or restriction on the ability of any Restricted Subsidiary of the Company
(other than FMT Ltd. or any subsidiary thereof) to pay dividends or make
other distributions on the Capital Stock of any Restricted Subsidiary of
the Company or pay or satisfy any obligation to the Company or any of its
Restricted Subsidiaries or otherwise transfer assets or make or pay loans
or advances to the Company or any of its Restricted Subsidiaries, (e) cause
or result in any dividend or distribution by the Company or any Investment
in any Person except a Restricted Subsidiary or a Subsidiary of FMT Ltd. or
(f) cause or result in the Incurrence of any Indebtedness of the Company
ranking senior to the Notes but junior to any Senior Indebtedness;
provided, however, that prior to the 45th day after the Merger Date the
Company's consolidated Indebtedness may increase as a result of such
transaction by no more than $169 million (plus accrued interest thereon).
Notwithstanding the foregoing provisions of this covenant, neither the
Company nor any of its Restricted Subsidiaries (other than FMT Ltd. or any
of its Subsidiaries) shall make any Investment in FMT Ltd. or any of its
Subsidiaries.
In addition, the Merger shall not constitute a Change of Control and no
transaction described in clause (ii), above, shall be taken into account in
any calculation under "--Limitation on Restricted Payments."
Repurchase of Notes at the Option of the Holder Upon a Change of Control
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such Holder's option,
pursuant to an irrevocable and unconditional offer by the Company (the "Change
of Control Offer"), to require the Company to repurchase all or any part
(equal to $1,000 principal amount or an integral multiple thereof) of such
Holder's Notes, on a date (the "Change of Control Purchase Date") that is no
later than 45 Business Days after the occurrence of such Change of Control at
a cash price (the "Change of Control Purchase Price") equal to 101% of the
aggregate principal amount thereof, together with any accrued and unpaid
interest to the Change of Control Purchase Date. The Indenture provides that,
prior to the commencement of a Change of Control Offer, but in any event
within 30 days following any Change of Control, the Company covenants to, if
at such time the terms of the Credit Agreement require repayment upon a Change
of Control, (i) repay in full and terminate all commitments and Indebtedness
under the Credit Agreement or, (ii)(A) offer to repay in full and terminate
all commitments and all Indebtedness under the Credit Agreement and (B) repay
the Indebtedness owed to each such lender that has accepted such offer or
(iii) obtain the requisite consents under the Credit Agreement to waive the
provisions of this sentence. The Company's failure to comply with the
preceding sentence shall constitute an Event of Default described in clause
(iii) and not in clause (ii) under "Events of Default," below. The Change of
Control Offer shall be made within 20 Business Days following a Change of
Control and shall remain open for 20 Business Days following its commencement
(the "Change of Control Offer Period"). Upon expiration of the Change of
Control Offer Period, the Company shall purchase all Notes properly tendered
in response to the Change of Control Offer.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest) of all Notes so tendered and (iii) deliver to the Trustee Notes so
accepted together with an Officers' Certificate listing the Notes or portions
thereof being purchased by the Company. The Paying Agent promptly will deliver
to the Holders of Notes so accepted payment in an amount equal to the Change
of Control Purchase Price (together
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with any accrued and unpaid interest), and the Trustee will promptly
authenticate and mail or deliver to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered. Any Notes not so
accepted will be promptly mailed or delivered by the Company to the Holder
thereof. The Company will announce publicly the results of the Change of
Control Offer on or as soon as practicable after the Change of Control
Purchase Date.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company or its Parent, and, thus, the removal
of incumbent management. The Change of Control purchase feature resulted from
negotiations between the Company, its Parent and the Initial Purchasers and is
not the result of any intention on the part of the Company or its Parent or
their management to discourage the acquisition of the Company or its Parent.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under
the Exchange Act and the rules thereunder and all other applicable Federal and
state securities laws and the Company may modify a Change of Control Offer to
the extent necessary to effect such compliance.
Limitation on Incurrence of Additional Indebtedness
The Indenture provides that after the Issue Date the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
issue, create, incur, assume, guarantee or otherwise directly or indirectly
become liable for (including as a result of an acquisition), or otherwise
become responsible for, contingently or otherwise (individually or
collectively, to "Incur" or, as appropriate, an "Incurrence"), any
Indebtedness. Neither the accrual of interest (including the issuance of "pay
in kind" securities or similar instruments in respect of such accrued
interest) pursuant to the terms of Indebtedness Incurred in compliance with
this covenant, nor the accretion of original issue discount, nor the mere
extension of the maturity of any Indebtedness shall be deemed to be an
Incurrence of Indebtedness.
Notwithstanding the foregoing, if there exists no Default or Event of
Default immediately prior and subsequent thereto, the Company may incur
Indebtedness if the Company's Annualized Operating Cash Flow Ratio, after
giving effect to the Incurrence of such Indebtedness, would have been less
than 8 to 1.
In addition, if there exists no Default or Event of Default immediately
prior and subsequent thereto, the foregoing limitations will not apply to the
Incurrence of (i) Indebtedness by the Company or any of its Restricted
Subsidiaries constituting Existing Indebtedness, reduced by repayments of and
permanent reductions in commitments in satisfaction of the Net Cash Proceeds
application requirement set forth in the "Limitation on Asset Sales and Sales
of Subsidiary Stock" covenant and by repayments and permanent reductions in
amounts outstanding pursuant to scheduled amortization and mandatory
prepayments in accordance with the terms thereof, (ii) Indebtedness, in an
aggregate principal amount not in excess of $525,000,000, permitted under the
Credit Agreement, reduced by (a) repayments of and permanent reductions in
commitments in satisfaction of the Net Cash Proceeds application requirement
set forth in the "Limitation on Asset Sales and Sales of Subsidiary Stock"
covenant and (b) an amount equal to the aggregate amount of Indebtedness
Incurred pursuant to clause (x), below, so long as such amounts Incurred
pursuant to clause (x) remain outstanding; provided that, if there exists a
Default or an Event of Default immediately prior or subsequent thereto, the
Company and its Restricted Subsidiaries may Incur Indebtedness pursuant to
this clause (ii) so long as the proceeds from such Incurrence are not used
directly to pay any amounts owing in respect of any Indebtedness, including,
without limitation, principal, interest and commitment fees, other than with
respect to the Notes and the Holdings Securities, (iii) Indebtedness by the
Company evidenced by the Notes, (iv) (A) Permitted Acquisition Indebtedness by
the Company that satisfies the provisions of clause (x) of the definition
thereof or (B) Permitted Acquisition Indebtedness by any Restricted Subsidiary
that satisfies the provisions of clause (y) of the definition thereof, (v)
Indebtedness between the Company and any Restricted Subsidiary of the Company
or between Restricted Subsidiaries of the Company, provided that, in the case
of Indebtedness of the Company, such obligations shall be unsecured and
subordinated in all respects to the Holders' rights pursuant to the Notes, and
the date of any event that causes a Restricted Subsidiary no longer to be a
Restricted Subsidiary shall be an Incurrence Date
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with respect to such Indebtedness, (vi) 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 $15,000,000, provided that in the case of Purchase Money
Indebtedness, such Indebtedness shall not constitute less than 75% nor more
than 100% of the cost (determined in accordance with GAAP) to the Company or
such Restricted Subsidiary of the property purchased or leased with the
proceeds thereof, (vii) Indebtedness of the Company or any Restricted
Subsidiary arising from agreements providing for indemnification, adjustment
of purchase price or similar obligations, or from guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of the
Company or its Restricted Subsidiaries pursuant to such agreements, in any
case Incurred in connection with the disposition of any business, assets or
Restricted Subsidiary of the Company to the extent none of the foregoing
results in the obligation to repay an obligation for money borrowed by any
Person and are limited in aggregate amount to no greater than 10% of the fair
market value of such business, assets or Restricted Subsidiary so disposed of,
(viii) any guarantee by any Restricted Subsidiary of any Senior Indebtedness
Incurred in compliance with this covenant, (ix) Indebtedness of the Company or
any Restricted Subsidiary under standby letters of credit or reimbursement
obligations with respect thereto issued in the ordinary course of business and
consistent with industry practices limited in aggregate amount to $5,000,000
at any one time outstanding, (x) Indebtedness of the Company (other than
Indebtedness permitted by clauses (i) through (ix) or (xi) hereof) not to
exceed $100,000,000 at any one time outstanding and (xi) Refinancing
Indebtedness Incurred to extend, renew, replace or refund Indebtedness
permitted under clauses (i) (as so reduced in amount), (ii) (as so reduced in
amount), (iii), (iv) and (xi) of this paragraph.
Indebtedness of any Person that is not a Restricted Subsidiary of the
Company (or that is a Non-Recourse Restricted Subsidiary designated to be a
Restricted Subsidiary, but no longer a Non-Recourse Restricted Subsidiary),
which Indebtedness is outstanding at the time such Person becomes such a
Restricted Subsidiary of the Company or is merged with or into or consolidated
with the Company or a Restricted Subsidiary of the Company shall be deemed to
have been Incurred, as the case may be, at the time such Person becomes such a
Restricted Subsidiary of the Company, or is merged with or into or
consolidated with the Company or a Restricted Subsidiary of the Company.
Limitation on Restricted Payments
The Indenture provides that after the Issue Date the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
make any Restricted Payment, if, immediately prior or after giving effect
thereto (a) a Default or an Event of Default would exist, (b) the Company's
Annualized Operating Cash Flow Ratio for the Reference Period would exceed 8.5
to 1, or (c) the aggregate amount of all Restricted Payments made by the
Company and its Restricted Subsidiaries, including such proposed Restricted
Payment (if not made in cash, then the fair market value of any property used
therefor, as determined in good faith by the Board of Directors) from and
after the Issue Date and on or prior to the date of such Restricted Payment,
shall exceed the sum of (i) the amount determined by subtracting (x) 2.0 times
the aggregate Consolidated Interest Expense of the Company for the period
(taken as one accounting period) from the Issue Date to the last day of the
last full fiscal quarter prior to the date of the proposed Restricted Payment
(the "Computation Period") from (y) Operating Cash Flow of the Company for the
Computation Period, plus (ii) the aggregate Net Proceeds (other than with
respect to the PCC Equity Contribution) received by the Company from the sale
(other than to a Subsidiary of the Company) of its Qualified Capital Stock
after the Issue Date and on or prior to the date of such Restricted Payment,
plus (iii) to the extent not otherwise included in clauses (i) or (ii), above,
an amount equal to the net reduction in Investments in Unrestricted
Subsidiaries resulting from payments of dividends, repayment of loans or
advances, or other transfers of assets, in each case to the Company or any
Wholly Owned Restricted Subsidiary of the Company from Unrestricted
Subsidiaries, or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company and any Restricted
Subsidiary in such Unrestricted Subsidiary.
Notwithstanding the foregoing paragraph, the provisions set forth in clause
(b) or (c) of the immediately preceding paragraph will not prohibit (i) the
use of an aggregate of $10,000,000 to be used for Restricted
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Payments not otherwise permitted by this "Limitation on Restricted Payments"
covenant, (ii) the distribution of amounts to Holdings sufficient to pay the
scheduled interest or dividends, as applicable, owed by Holdings on the
Holdings Securities as such interest or dividends become due and payable and
so long as (A) Holdings is the direct Parent of the Company owning 100% of the
capital stock of the Company and (B) such Holdings Securities contain no
scheduled requirement for the payment of cash interest or dividends, as
applicable, until at least five years from the date of their original issuance
and (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 notwithstanding the foregoing paragraph, the
provisions set forth in clause (a), (b) or (c) of the immediately preceding
paragraph will not prohibit (iv) 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, or (v)
the redemption, defeasance, repurchase or other acquisition or retirement of
any Indebtedness or Capital Stock of the Company or its Restricted
Subsidiaries either in exchange for or out of the Net Proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Qualified Capital Stock (in the case of any redemption, defeasance, repurchase
or other acquisition or retirement of any Junior Indebtedness or Capital Stock
of the Company or its Restricted Subsidiaries) or Junior Indebtedness (in the
case of any redemption, defeasance, repurchase or other acquisition or
retirement of any Indebtedness of the Company or its Restricted Subsidiaries)
of the Company.
In determining the aggregate amount expended for Restricted Payments in
accordance with clause (c) of the first paragraph of this description of the
"Limitations on Restricted Payments" covenant, 100% of the amounts expended
under clauses (i) through (v) of the immediately preceding paragraph shall be
deducted.
Limitation on Layering Indebtedness
The Indenture provides that the Company will not incur or suffer to exist
any Indebtedness that is subordinate in right of payment to any other
Indebtedness of the Company, unless, by its terms, such Indebtedness is
subordinate in right of payment to, or ranks pari passu with, the Notes.
Limitation on Restricting Subsidiary Dividends
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, with respect to securities issued directly
thereby or with respect to which they are obligors, directly or indirectly,
create, assume or suffer to exist any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary of the Company to pay dividends or
make other distributions on the Capital Stock of any Restricted Subsidiary of
the Company or pay or satisfy any obligation to the Company or any of its
Restricted Subsidiaries or otherwise transfer assets or make or pay loans or
advances to the Company or any of its Restricted Subsidiaries, except
encumbrances and restrictions existing under (i) the Indenture and the Notes,
(ii) any Existing Indebtedness, (iii) the Credit Agreement, (iv) any
applicable law or any governmental or administrative regulation or order, (v)
Refinancing Indebtedness permitted under the Indenture, provided that the
restrictions contained in the instruments governing such Refinancing
Indebtedness are no more restrictive in the aggregate than those contained in
the instruments governing the Indebtedness being refinanced immediately prior
to such refinancing, (vi) restrictions with respect solely to a Restricted
Subsidiary of the Company imposed pursuant to a binding agreement which has
been entered into for the sale or disposition of all or substantially all of
the Capital Stock or assets of such Restricted Subsidiary, provided such
restrictions apply solely to the Capital Stock or assets being sold of such
Restricted Subsidiary, (vii) restrictions contained in any agreement relating
to the financing of the acquisition of a Person or real or tangible personal
property after the Issue Date which are not applicable to any Person or
property, other than the Person or property so acquired and which either
(A) were not put in place in anticipation of or in connection with such
acquisition or (B) constituted Permitted Acquisition Indebtedness of a Person
satisfying the provisions of clause (y) of the definition thereof or (viii)
any agreement (other than those referred to in clause (vii)) of a Person
acquired by the Company or a Restricted Subsidiary of the Company, which
restrictions existed at the time of acquisition and were not put in place in
anticipation of or in connection with such 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
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nor (b) Liens on assets securing Senior Indebtedness, shall in and of
themselves be considered a restriction on the ability of the applicable
Restricted Subsidiary to transfer such agreement or assets, as the case may
be.
Limitation on Transactions with Related Persons
The Indenture provides that, after the Issue Date, the Company will not, and
will not permit any of its Restricted Subsidiaries or Unrestricted
Subsidiaries to, enter into any contract, agreement, arrangement or
transaction with any Related Person (each a "Related Person Transaction"), or
any series of Related Person Transactions, except for transactions made in
good faith, the terms of which are (i) fair and reasonable to the Company or
such Subsidiary, as the case may be, and (ii) are at least as favorable as the
terms which could be obtained by the Company or such Subsidiary, as the case
may be, in a comparable transaction made on an arm's length basis with Persons
who are not Related Persons.
Without limiting the foregoing, (a) any Related Person Transaction or series
of Related Person Transactions with an aggregate value in excess of $1,000,000
must first be approved by a majority of the Board of Directors of the Company
who are disinterested in the subject matter of the transaction pursuant to a
Board Resolution, and (b) with respect to any Related Person Transaction or
series of Related Person Transactions with an aggregate value in excess of
$5,000,000, the Company must first obtain a favorable written opinion from an
independent financial advisor of national reputation as to the fairness from a
financial point of view of such transaction to the Company or such Subsidiary,
as the case may be.
Notwithstanding the foregoing, the following shall not constitute Related
Person Transactions: (i) reasonable and customary payments on behalf of
directors, officers or employees of the Company or any of its Restricted
Subsidiaries, or in reimbursement of reasonable and customary payments or
reasonable and customary expenditures made or incurred by such Persons, as
directors, officers or employees, (ii) any contract, agreement, arrangement,
or transaction solely between or among the Company and any of its Restricted
Subsidiaries or between or among Restricted Subsidiaries of the Company, (iii)
any Restricted Payment of the type described by clauses (i) and (ii) of the
definition thereof made to all stockholders on a pro rata basis and not
prohibited by the "Limitation on Restricted Payments" covenant, (iv) any loan
or advance by the Company or a Restricted Subsidiary to employees of the
Company or a Restricted Subsidiary in the ordinary course of business, in an
aggregate amount at any one time outstanding not to exceed $500,000 and (v)
any payment pursuant to a tax-sharing agreement between the Company and any
other Person with which the Company is required or permitted to file a
consolidated tax return or with which the Company is or could be part of a
consolidated group for tax purposes, which payments are not in excess of the
tax liabilities attributable solely to the Company and its Restricted
Subsidiaries (as a consolidated group).
Limitation on Asset Sales and Sales of Subsidiary Stock
The Indenture provides that after the Issue Date the Company will not, and
will not permit any of its Restricted Subsidiaries to, in one or a series of
related transactions, convey, sell, transfer, assign or otherwise dispose of,
directly or indirectly, any of its property, businesses or assets, including
by merger or consolidation, and including any sale or other transfer or
issuance of any Capital Stock of any Restricted Subsidiary of the Company,
whether by the Company or a Restricted Subsidiary (an "Asset Sale"), unless
(1) (a) within 360 days after the date of such Asset Sale, an amount equal to
the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied to
the optional redemption of the Notes in accordance with the terms of the
Indenture and other Indebtedness of the Company ranking on a parity with the
Notes from time to time outstanding with similar provisions requiring the
Company to make an offer to purchase or to redeem such Indebtedness with the
proceeds from asset sales, pro rata in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an
original issue discount) of the Notes and such other Indebtedness then
outstanding or to the repurchase of the Notes and such other Indebtedness
pursuant to an irrevocable, unconditional offer (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) (the "Asset Sale Offer") to repurchase such
Indebtedness at a purchase price (the "Asset Sale Offer Price") of 100% of the
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principal amount thereof in the case of the Notes or 100% of the principal
amount of such other Indebtedness (or accreted value in the case of
Indebtedness issued with an original issue discount) plus, in each case,
accrued interest to the date of payment, made within 330 days of such Asset
Sale, or (b) within 330 days of such Asset Sale, the Asset Sale Offer Amount
is (i) invested (or committed, pursuant to a binding commitment subject only
to reasonable, customary closing conditions, to be invested, and in fact is so
invested, within an additional 90 days) in tangible assets and property (other
than notes, obligations or securities), which in the good faith reasonable
judgment of the Board of Directors of the Company are of a type used in a
Related Business, or Capital Stock of a Person (which, if such Person becomes
a Subsidiary of the Company by virtue of such Asset Sale, shall initially be
designated a Restricted Subsidiary) all or substantially all of whose assets
and property (in the good faith reasonable judgment of the Board of Directors
of the Company) are of a type used in a Related Business ( provided that, with
respect to such Capital Stock, all of the requirements of the last proviso of
clause (v) of the following paragraph shall have been satisfied) or (ii) used
to retire permanently Senior Indebtedness or Indebtedness of a Restricted
Subsidiary, (2) with respect to any transaction or related series of
transactions of securities, property or assets with an aggregate fair market
value in excess of $1,000,000, at least 75% of the value of consideration for
the assets disposed of in such Asset Sale (excluding (a) Senior Indebtedness
(and any Refinancing Indebtedness issued to refinance any such Indebtedness)
or the Indebtedness of any Restricted Subsidiary assumed by a transferee which
assumption permanently reduces the amount of Indebtedness outstanding on the
Issue Date and permitted to have been Incurred pursuant to the covenant
"Limitation on Incurrence of Additional Indebtedness" (including that in the
case of a revolver or similar arrangement that makes credit available, such
commitment is permanently reduced by such amount), (b) Purchase Money
Indebtedness secured exclusively by the assets subject to such Asset Sale
which is assumed by a transferee and (c) marketable securities that are
promptly converted into cash or Cash Equivalents) consists of cash or Cash
Equivalents, provided that any cash or Cash Equivalents received within 12
months following any such Asset Sale upon conversion of any property or assets
(other than in the form of cash or Cash Equivalents) received in consideration
of such Asset Sale shall be applied promptly in the manner required of Net
Cash Proceeds of any such Asset Sale as set forth above, (3) no Default or
Event of Default shall occur or be continuing after giving effect to, on a pro
forma basis, such Asset Sale, unless such Asset Sale is in consideration
solely of cash or Cash Equivalents and such consideration is applied
immediately to the permanent reduction of the principal amount of Indebtedness
outstanding pursuant to the Credit Agreement, and (4) the Board of Directors
of the Company determines in good faith that the Company or such Restricted
Subsidiary, as applicable, would receive fair market value in consideration of
such Asset Sale. The Indenture provides that an Asset Sale Offer may be
deferred until the accumulated Net Cash Proceeds from Asset Sales not applied
to the uses set forth in (1) (b) above exceeds $5,000,000 and that each Asset
Sale Offer shall remain open for 20 Business Days following its commencement
and no longer, except as otherwise required by applicable law (the "Asset Sale
Offer Period"). Upon expiration of the Asset Sale Offer Period, the Company
shall apply the Asset Sale Offer Amount, plus an amount equal to accrued
interest to the purchase of all Indebtedness properly tendered (on a pro rata
basis as described above if the Asset Sale Offer Amount is insufficient to
purchase all Indebtedness so tendered) at the Asset Sale Offer Price (together
with accrued interest).
Notwithstanding the foregoing provisions of the prior paragraph:
(i) the Company and its Restricted Subsidiaries may, in the ordinary
course of business, convey, sell, lease, transfer, assign or otherwise
dispose of assets acquired and held for resale in the ordinary course of
business;
(ii) the Company and its Restricted Subsidiaries may convey, sell, lease,
transfer, assign or otherwise dispose of assets pursuant to and in
accordance with the "Limitation on Mergers, Sales or Consolidations";
(iii) the Company and its Restricted Subsidiaries may sell or dispose of
damaged, worn out or other obsolete property in the ordinary course of
business so long as such property is no longer necessary for the proper
conduct of the business of the Company or such Restricted Subsidiary, as
applicable;
(iv) the Company and its Restricted Subsidiaries may convey, sell, lease,
transfer, assign or otherwise dispose of assets to the Company or any of
its Restricted Subsidiaries; and
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(v) the Company and its Restricted Subsidiaries may, in the ordinary
course of business (or, if otherwise than in the ordinary course of
business, upon receipt of a favorable written opinion by an independent
financial advisor of national reputation as to the fairness from a
financial point of view to the Company or such Restricted Subsidiary of the
proposed transaction), exchange all or a portion of its property,
businesses or assets for property, businesses or assets which, or Capital
Stock of a Person all or substantially all of whose assets, are of a type
used in a Related Business (provided that such Person shall initially be
designated a Restricted Subsidiary if such Person becomes a Subsidiary of
the Company by virtue of such Asset Sale), or a combination of any such
property, businesses or assets, or Capital Stock of such a Person and cash
or Cash Equivalents; provided that (i) there shall not exist immediately
prior or subsequent thereto a Default or an Event of Default, (ii) a
majority of the independent directors of the Board of Directors of the
Company shall have approved a resolution of the Board of Directors that
such exchange is fair to the Company or such Restricted Subsidiary, as the
case may be, and (iii) any cash or Cash Equivalents received pursuant to
any such exchange shall be applied in the manner applicable to Net Cash
Proceeds from an Asset Sale as set forth pursuant to the provisions of the
immediately preceding paragraph of this covenant; and provided, further,
that any Capital Stock of a Person received in an Asset Sale pursuant to
this clause (v) shall be owned directly by the Company or a Restricted
Subsidiary and, when combined with the Capital Stock of such Person already
owned by the Company and its Restricted Subsidiaries, shall constitute a
majority of the voting power and Capital Stock of such Person, unless (A)
(i) the Company has received a binding commitment from such Person (or the
direct or indirect parent of such Person) that such Person (or the direct
or indirect parent of such Person) will distribute to the Company in cash
an amount equal to the Company's Annualized Operating Cash Flow (determined
as of the date of such Asset Sale) attributable to the property, business
or assets of the Company and its Restricted Subsidiaries exchanged in
connection with such Asset Sale during each consecutive 12-month period
subsequent to such Asset Sale (unless and until the Company shall have sold
all of such Capital Stock, provided that the provisions of clause (B)
below, if applicable, shall have been satisfied), (ii) immediately after
such Asset Sale the aggregate number of Net Pops of the wireless
communications systems in which the Company or any of its Restricted
Subsidiaries has ownership interests ("Company Systems") that are owned
directly by a Person or Persons a majority of whose voting power and
Capital Stock is owned directly or indirectly by the Company is no less
than 80% of the aggregate number of Net Pops of Company Systems immediately
prior to such Asset Sale and (iii) upon consummation of such Asset Sale, on
a pro forma basis, the ratio of such Person's Annualized Operating Cash
Flow to the product of Consolidated Interest Expense for the Reference
Period multiplied by four (but excluding from Consolidated Interest Expense
all amounts that are not required to be paid in cash on a current basis)
shall be at least 1 to 1, or (B) in the case of Capital Stock of a Person
that is not a Subsidiary of the Company owned by the Company or a
Restricted Subsidiary that is exchanged (the "Exchanged Capital Stock") for
Capital Stock of another Person all or substantially all of whose assets
are of a type used in a Related Business, either (i) the Exchanged Capital
Stock shall not have been acquired prior to such Asset Sale in reliance
upon clause (A) of this proviso or (ii) the requirements of subclauses (A)
(i) (based on the original guaranteed cash flow) and (A) (iii) shall be
satisfied with respect to any Capital Stock acquired in consideration of
the Exchanged Capital Stock.
Restricted Payments that are made in compliance with, and are counted
against amounts available to be made as Restricted Payments pursuant to clause
(c) of, the "Limitation on Restricted Payments" covenant, without giving
effect to clause (i) of the second paragraph thereof, shall not be deemed to
be Asset Sales.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the
Exchange Act and the rules and regulations thereunder and all other applicable
Federal and state securities laws.
Limitations on Liens
The Indenture provides that the Company will not and will not permit any
Restricted Subsidiary, directly or indirectly, to Incur or suffer to exist any
Lien (other than Permitted Liens) upon any of its property or assets, whether
now owned or hereafter acquired.
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Limitation on Status as Investment Company
The Indenture prohibits the Company and its Restricted Subsidiaries from
becoming "investment companies" (as that term is defined in the Investment
Company Act of 1940, as amended), or from otherwise becoming subject to
regulation under the Investment Company Act.
Limitation on Merger, Sale or Consolidation
The Indenture provides that the Company will not consolidate with or merge
with or into another Person, or sell, lease, convey, transfer or otherwise
dispose of all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions,
to another Person or group of affiliated Persons, unless (i) either (a) the
Company is the continuing entity or (b) the resulting, surviving or transferee
entity is a corporation organized under the laws of the United States, any
state thereof or the District of Columbia and expressly assumes by
supplemental indenture all of the obligations of the Company in connection
with the Notes and the Indenture; (ii) no Default or Event of Default shall
exist or shall occur immediately after giving effect on a pro forma basis to
such transaction; (iii) (A) immediately after giving effect to such
transaction on a pro forma basis, the consolidated resulting surviving or
transferee entity would immediately thereafter be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Annualized Operating Cash
Flow Ratio provision set forth in the second paragraph of the "Limitation on
Incurrence of Additional Indebtedness" covenant or (B), if the requirement of
clause (A) is not satisfied, (x) any Indebtedness of the resulting surviving
or transferee entity in excess of the amount of the Company's Indebtedness
immediately prior to such transaction is Permitted Acquisition Indebtedness
and (y) the requirement of clause (A) is not satisfied solely due to the
Incurrence of such Permitted Acquisition Indebtedness; and (iv) the Company
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, if applicable, confirming compliance with the requirements of this
covenant.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the Company is merged
or to which such transfer is made, shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Indenture
with the same effect as if such successor corporation had been named therein
as the Company, and the Company shall be released from the obligations under
the Notes and the Indenture.
Limitation on Lines of Business
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries shall directly or indirectly engage in any line or lines of
business activity other than that which, in the reasonable, good faith
judgment of the Board of Directors of the Company, is a Related Business.
Restriction on Sale and Issuance of Subsidiary Stock
The Indenture provides that the Company will not sell, and will not permit
any of its Restricted Subsidiaries to issue or sell, any shares of Capital
Stock of any Restricted Subsidiary of the Company to any Person other than the
Company or a Wholly Owned Restricted Subsidiary of the Company, except for
shares of common stock with no preferences or special rights or privileges and
with no redemption or prepayment provisions ("Special Rights"); provided that,
in the case of a Restricted Subsidiary that is a partnership or joint venture
partnership (a "Restricted Partnership") the Company or any of its Restricted
Subsidiaries may sell or such Restricted Partnership may issue or sell Capital
Stock of such Restricted Partnership with Special Rights no more favorable
than those held by the Company or such Restricted Subsidiary in such
Restricted Partnership.
REPORTS
The Indenture provides that whether or not the Company is subject to the
reporting requirements of Section 13 or 15 (d) of the Exchange Act, the
Company shall deliver to the Trustee and to each Holder, within 15 days
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after it is or would have been required to file such with the Commission,
annual and quarterly financial statements substantially equivalent to
financial statements that would have been included in reports filed with the
Commission, if the Company were subject to the requirements of Section 13 or
15(d) of the Exchange Act, including, with respect to annual information only,
a report thereon by the Company's certified independent public accountants as
such would be required in such reports to the Commission, and in each case,
together with a management's discussion and analysis of financial condition
and results of operations which would be so required.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure by the Company
to pay any installment of interest on the Notes as and when the same becomes
due and payable and the continuance of any such failure for 30 days, (ii) the
failure by the Company to pay all or any part of the principal, or premium, if
any, on the Notes when and as the same becomes due and payable at maturity,
redemption, by acceleration or otherwise, including, without limitation,
payment of the Change of Control Purchase Price or the Asset Sale Offer Price,
(iii) the failure by the Company to observe or perform any other covenant or
agreement contained in the Notes or the Indenture and, subject to certain
exceptions, the continuance of such failure for a period of 30 days after
written notice is given to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least 25% in aggregate principal amount of
the Notes outstanding, (iv) certain events of bankruptcy, insolvency or
reorganization in respect of the Company or any of its Significant Restricted
Subsidiaries, (v) the failure to pay at final stated maturity (giving effect
to any applicable grace periods and any extensions thereof) the principal
amount of any Indebtedness of the Company or any Restricted Subsidiary of the
Company or the acceleration of the final stated maturity of any Indebtedness
if the aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to pay
principal at final maturity or which has been accelerated, aggregates
$15,000,000 or more at any time, and (vi) final unsatisfied judgments not
covered by insurance aggregating in excess of $5,000,000, at any one time
rendered against the Company or any of its Restricted Subsidiaries and not
stayed, bonded or discharged within 60 days. The Indenture will provide that
if a default occurs and is continuing, the Trustee must, within 90 days after
the occurrence of such default, give to the Holders notice of such default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv) above) relating to the Company or any
Restricted Subsidiary, then in every such case, unless the principal of all of
the Notes shall have already become due and payable, either the Trustee or the
Holders of 25% in aggregate principal amount of the Notes then outstanding, by
notice in writing to the Company (and to the Trustee if given by Holders) (an
"Acceleration Notice"), may declare all principal and accrued interest thereon
to be due and payable 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 the Company and the representative of the holders of the Indebtedness under
the Credit Agreement of the Acceleration Notice, but only if such Event of
Default is then continuing. If an Event of Default specified in clause (iv)
above, relating to the Company or any significant Restricted Subsidiary
occurs, all principal and accrued interest thereon will be immediately due and
payable on all outstanding Notes without any declaration or other act on the
part of Trustee or the Holders. The Holders of a majority in aggregate
principal amount of Notes generally are authorized to rescind such
acceleration if all existing Events of Default, other than the non-payment of
the principal of, premium, if any, and interest on the Notes which have become
due solely by such acceleration, have been cured or waived.
The Indenture provides that 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
first paragraph under "--Events of Default and Remedies," the declaration of
acceleration of the Notes shall be automatically annulled if the holders of
all Indebtedness described in clause (v) (without any payment to any holders
of any such Indebtedness) 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
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Notes would not conflict with any judgment or decree of a court of competent
jurisdiction and (ii) all 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 the Notes at the
time outstanding may waive on behalf of all the Holders any default, except a
default in the payment of principal of or interest on any Note not yet cured,
or a default with respect to any covenant or provision which cannot be
modified or amended without the consent of the Holder of each outstanding Note
affected. Subject to the provisions of the Indenture relating to the duties of
the Trustee, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request, order or direction of any
of the Holders, unless such Holders have offered to the Trustee reasonable
security or indemnity. Subject to all provisions of the Indenture and
applicable law, the Holders of a majority in aggregate principal amount of the
Notes at the time outstanding will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may, at its option and at any time,
elect to have its obligations discharged with respect to the outstanding Notes
("Legal Defeasance"). Such Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented, and
the Indenture shall cease to be of further effect as to all outstanding Notes,
except as to (i) rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments
are due from the trust funds; (ii) the Company's obligations with respect to
such Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes, and the maintenance of an office
or agency for payment and money for security payments held in trust; (iii) the
rights, powers, trust, duties, and immunities of the Trustee, and the
Company's obligations in connection therewith; and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to have the obligations of the Company released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, U.S. Legal Tender, non-callable government
securities or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on such Notes on the
stated date for payment thereof or on the redemption date of such principal or
installment of principal of, premium, if any, or interest on such Notes, and
the Holders of Notes must have a valid, perfected, exclusive security interest
in such trust; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from,
or there has been published by the Internal Revenue Service, a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
Federal income tax law, in each case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of such Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
such Legal Defeasance, and will be subject to Federal income tax in the same
amount, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to such Trustee confirming
that the Holders of such Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will
be subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance had
not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing
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on the date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a
default under the Indenture or any other material agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound; (vi) the Company shall have
delivered to the Trustee an Officers' Certificate stating that the deposit was
not made by the Company with the intent of preferring the Holders of such
Notes over any other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Company or
others; and (vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that all conditions precedent provided for or relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company and the Trustee to
enter into a supplemental indenture for certain limited purposes without the
consent of the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding,
the Company and the Trustee are permitted to amend or supplement the Indenture
or any supplemental indenture or modify the rights of the Holders; provided
that no such modification may, without the consent of each Holder affected
thereby: (i) change the Stated Maturity of any Note, or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest
thereon or any premium payable upon the redemption thereof, or change the
place of payment where, or the coin or currency in which, any Note or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption Date), or
reduce the Change of Control Purchase Price or the Asset Sale Offer Price or
alter the security or redemption provisions or the provisions of the
"Repurchase of Notes at the Option of the Holder Upon a 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. With the consent of Holders
of two-thirds of the outstanding aggregate principal amount of the Notes, the
Company and the Trustee are permitted to change the Change of Control Purchase
Date or the Asset Sale Offer Period.
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company or any
successor entity shall have any personal liability in respect of the
obligations of the Company under the Indenture or the Notes by reason of his
or its status as such stockholder, employee, officer or director.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms contained in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person or (ii) any officer,
director, or controlling stockholder of such other Person. For purposes of
this definition, the term "control" means (a) the power to direct the
management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
contract, or otherwise, or without limiting the foregoing, the beneficial
ownership of 10% or more of the voting power of the voting common equity
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of such Person (on a fully diluted basis) or of warrants or other rights to
acquire such equity (whether or not presently exercisable).
"Annualized Operating Cash Flow" on any date, means with respect to any
Person the Operating Cash Flow for the Reference Period multiplied by four.
"Annualized Operating Cash Flow Ratio" on any date (the "Transaction Date")
means, with respect to any Person and its Subsidiaries, the ratio of (i)
consolidated Indebtedness of such Person and its Subsidiaries on the
Transaction Date (after giving pro forma effect to the Incurrence of such
Indebtedness) divided by (ii) the aggregate amount of Annualized Operating
Cash Flow of such Person (determined on a pro forma basis after giving effect
to all acquisitions or dispositions of businesses made by such Person and its
Subsidiaries from the beginning of the Reference Period through the
Transaction Date as if such acquisition or disposition had occurred at the
beginning of such Reference Period); provided, that for purposes of such
computation, in calculating Annualized Operating Cash Flow and consolidated
Indebtedness, (a) the transaction giving rise to the need to calculate the
Annualized Operating Cash Flow Ratio will be assumed to have occurred (on a
pro forma basis) on the first day of the Reference Period; (b) the incurrence
of any Indebtedness during the Reference Period or subsequent thereto and on
or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to retire Indebtedness or to acquire businesses)
will be assumed to have occurred (on a pro forma basis) on the first day of
such Reference Period; (c) Consolidated Interest Expense attributable to any
Indebtedness (whether existing or being incurred) bearing a floating interest
rate shall be computed as if the rate in effect on the Transaction Date had
been the applicable rate for the entire period; and (d) all members of the
consolidated group of such Person on the Transaction Date that were acquired
during the Reference Period shall be deemed to be members of the consolidated
group of such Person for the entire Reference Period. When the foregoing
definition is used in connection with the Company and its Restricted
Subsidiaries, references to a Person and its Subsidiaries in the foregoing
definition shall be deemed to refer to the Company and its Restricted
Subsidiaries.
"Capitalized Lease Obligations" means obligations under a lease that are
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations, as determined in accordance with
GAAP.
"Capital Stock" means, with respect to any Person, any capital stock of such
Person and shares, interests, participations or other ownership interests
(however designated) of any Person and any rights (other than debt securities
convertible into capital stock), warrants and options to purchase any of the
foregoing, including (without limitation) each class of common stock and
preferred stock of such Person if such Person is a corporation and each
general and limited partnership interest of such Person if such Person is a
partnership.
"Cash Equivalents" means (i) Securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) in each case maturing within
one year after the date of acquisition, (ii) time deposits and certificates of
deposit and commercial paper issued by the parent corporation of any domestic
commercial bank of recognized standing having capital and surplus in excess of
$500 million and commercial paper issued by others rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition and (iii) investments
in money market funds substantially all of whose assets comprise securities of
the types described in clauses (i) and (ii) above.
"Change of Control" means (i) any sale, transfer or other conveyance,
whether direct or indirect, of a majority of the fair market value of the
assets of the Company or Parent, on a consolidated basis, in one transaction
or a series of related transactions, if, immediately after giving effect to
such transaction, any "person" or "group" (as such terms are used for purposes
of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable),
other than an Excluded Person or Excluded Group, is or becomes the "beneficial
owner" (as such term is used in Rule 13d-3 promulgated pursuant to the
Exchange Act), directly or indirectly,
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of more than 50% of the equity of the transferee, (ii) any person or "group"
(as such terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable), other than an Excluded Person or
Excluded Group, is or becomes the "beneficial owner" (as such term is used in
Rule 13d-3 promulgated pursuant to the Exchange Act), directly or indirectly,
of more than 50% of the equity of the Company or Parent then outstanding
normally entitled to vote in elections of directors, or (iii) during any
period of 12 consecutive months after the Issue Date, individuals who at the
beginning of any such 12-month period constituted the Board of Directors of
the Company or Parent (together with any new directors whose election by such
Board or whose nomination for election by the shareholders of the Company or
Parent was approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company or
Parent then in office.
"Consolidated Interest Expense" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case in
accordance with GAAP) of (a) interest expensed or capitalized, paid, accrued,
or scheduled to be paid or accrued (including, in accordance with the
following sentence, interest attributable to the Capitalized Lease
Obligations) of such Person and its consolidated Subsidiaries during such
period, including (i) original issue discount and non-cash interest payments
or accruals on any Indebtedness, (ii) the interest portion of all deferred
payment obligations, and (iii) all commissions, discounts and other fees and
charges owed with respect to bankers' acceptances and letters of credit
financings and currency and Interest Swap and Hedging Obligations, in each
case to the extent attributable to such period, and (b) the amount of
dividends accrued or payable by such Person or any of its consolidated
Subsidiaries in respect of Preferred Stock (other than by Restricted
Subsidiaries of such Person to such Person or such Person's Wholly Owned
Subsidiaries). For purposes of this definition, (x) interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined by the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP and (y) interest expense
attributable to any Indebtedness represented by the guaranty by such Person or
a Subsidiary of such Person of an obligation of another Person shall be deemed
to be the interest expense attributable to the Indebtedness guaranteed. When
the foregoing definition is used in connection with the Company and its
Restricted Subsidiaries, references to a Person and its Subsidiaries in the
foregoing definition shall be deemed to refer to the Company and its
Restricted Subsidiaries.
"Consolidated Net Income" of any Person for any period means the net income
(or loss) of such Person and its consolidated Subsidiaries for such period,
determined (on a consolidated basis) in accordance with GAAP, adjusted to
exclude (only to the extent included in computing such net income (or loss)
and without duplication) (i) all extraordinary gains and losses and gains and
losses that are nonrecurring (including as a result of Asset Sales outside the
ordinary course of business), (ii) the net income, if positive, of any Person,
that is not a Subsidiary in which such Person or any of its Subsidiaries has
an interest, except to the extent of the amount of dividends or distributions
actually paid to such Person or a Subsidiary of such Person that both (x) are
actually paid in cash to such Person or a Subsidiary of such Person during
such period and (y) when taken together with all other dividends and
distributions paid during such period in cash to such Person or a Subsidiary
of such Person, are not in excess of such Person's pro rata share of such
other Person's aggregate net income earned during such period, (iii), except
as provided in the definition of "Annualized Operating Cash Flow Ratio," the
net income (or loss) of any Subsidiary acquired in a pooling of interests
transaction for any period prior to the date of such acquisition and (iv) the
net income, if positive, of any Subsidiary of such Person to the extent that
the declaration or payment of dividends or similar distributions is not at the
time permitted by operation of the terms of its charter or any agreement or
instrument applicable to such Subsidiary. When the foregoing definition is
used in connection with the Company and its Restricted Subsidiaries,
references to a Person and its Subsidiaries in the foregoing definition shall
be deemed to refer to the Company and its Restricted Subsidiaries.
"Credit Agreement" means, the Credit Agreement described under "Description
of New Credit Facility," or any other senior loan facility syndicated by DLJ
Capital Funding in lieu thereof, together with the related documents thereto
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or
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otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring or adding
Restricted Subsidiaries of the Issuer as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders. There can only be one such credit facility or loan
agreement designated to be the "Credit Agreement" at any one time. Any
Indebtedness Incurred pursuant to the second paragraph of the "Limitation on
Additional Indebtedness" covenant may be Incurred pursuant to the terms of the
Credit Agreement, provided that such Indebtedness so Incurred shall be deemed
to have been Incurred pursuant to the Credit Agreement for all purposes of the
Indenture other than with respect to the "Limitation on Additional
Indebtedness" covenant and clause (3) of the first paragraph of the
"Limitation on Asset Sales and Sales of Subsidiary Stock" covenant.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect
against fluctuation in currency values.
"Default" means any event or condition that is, or after notice or passage
of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means, so long as it is in effect, the
Credit Agreement and, thereafter, any Senior Indebtedness designated by the
Company to be "Designated Senior Indebtedness".
"Disqualified Capital Stock" means, with respect to any Person, Capital
Stock of such Person that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the
happening of any event or the passage of time would be, required to be
redeemed or repurchased (including at the option of the holder thereof) by
such Person or any of its Subsidiaries, in whole or in part, on or prior to
the Stated Maturity of the Notes; provided that Capital Stock will not be
deemed to be Disqualified Capital Stock if it may only be so redeemed or
repurchased solely in consideration of Qualified Capital Stock of the Company
or Parent.
"Eligible Investments" means United States Treasury Bills maturing no later
than the Business Day preceding December 31, 1997.
"Excluded Group" means a "group" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) that includes one or more Excluded Persons;
provided that the voting power of the Capital Stock of the Company or Parent
"beneficially owned" (as such term is used in Rule 13d-3 promulgated under the
Exchange Act) by such Excluded Persons (without attribution to such Excluded
Persons of the ownership by other members of the "group") represents a
majority of the voting power of the Capital Stock "beneficially owned" (as
such term is used in Rule 13d-3 promulgated under the Exchange Act) by such
group.
"Excluded Person" means members of the Price family who owned Capital Stock
of the Parent on the Issue Date and any Affiliate of any of the foregoing that
is wholly owned by any of the foregoing.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence and outstanding on the Issue Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board ("FASB") or, if FASB ceases to exist,
any successor thereto; provided, however, that for purposes of determining
compliance with covenants in the Indenture, "GAAP" means such generally
accepted accounting principles as in effect as of the Issue Date.
"Holder" means a Person in whose name a Note is registered. The Holder of a
Note will be treated as the owner of such Note for all purposes.
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"Indebtedness" of any Person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of such Person, (i) in respect of
borrowed money (whether or not the recourse of the lender is to the whole of
the assets of such Person or only to a portion thereof), (ii) evidenced by
bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except (other than accounts, payable or other obligations to trade creditors
which have remained unpaid for greater than 90 days past their original due
date or to financial institutions, which obligations are not being contested
in good faith and for which appropriate reserves have been established) those
incurred in the ordinary course of its business that would constitute
ordinarily a trade payable to trade creditors, (iv) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks, (v) for the
payment of money relating to a Capitalized Lease Obligation, or (vi) evidenced
by a letter of credit or a reimbursement obligation of such Person with
respect to any letter of credit; (b) all obligations of such Person under
Interest Swap and Hedging Obligations; (c) all liabilities of others of the
kind described in the preceding clauses (a) or (b) that such Person has
guaranteed or that is otherwise its legal liability or which are secured by
any assets or property of such Person and all obligations to purchase, redeem
or acquire any Capital Stock; (d) all Disqualified Capital Stock of such
Person and all Preferred Stock of such Person's Subsidiaries; and (e) any and
all deferrals, renewals, extensions, refinancing and refundings (whether
direct or indirect) of, or amendments, modifications or supplements to, any
liability of the kind described in any of the preceding clauses (a), (b), (c),
or (d) or this clause (e), whether or not between or among the same parties;
provided that the outstanding principal amount at any date of any Indebtedness
issued with original issue discount is the face amount of such Indebtedness
less the remaining unamortized portion of the original issue discount of such
Indebtedness at such date.
"Interest Swap and Hedging Obligations" means any obligations of any Person
pursuant to any interest rate swaps, caps, collars and similar arrangements
providing protection against fluctuations in interest rates. For purposes of
the Indenture, the amount of such obligations shall be the amount determined
in respect thereof as of the end of the then most recently ended fiscal
quarter of such Person, based on the assumption that such obligation had
terminated at the end of such fiscal quarter, and in making such
determination, if any agreement relating to such obligation provides for the
netting of amounts payable by and to such Person thereunder or if any such
agreement provides for the simultaneous payment of amounts by and to such
Person, then in each such case, the amount of such obligations shall be the
net amount so determined, plus any premium due upon default by such Person.
"Investment" by any Person in any other Person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise)
by such Person (whether for cash, property, services, securities or otherwise)
of capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities of such other Person or any agreement to make
any such acquisition; (b) the making by such Person of any deposit with, or
advance, loan or other extension of credit to, such other Person (including
the purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such other
Person) or any commitment to make any such advance, loan or extension; (c) the
entering into by such Person of any guarantee of, or other contingent
obligation with respect to, Indebtedness or other liability of such other
Person; (d) the making of any capital contribution by such Person to such
other Person; and (e) the designation by the Board of Directors of the Company
of any Person to be an Unrestricted Subsidiary. For purposes of the
"Limitation on Restricted Payments" covenant, (i) "Investment" shall include
and be valued at the fair market value of the net assets of any Restricted
Subsidiary at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any
Investment shall be the fair market value of such Investment plus the fair
market value of all additional Investments by the Company or any of its
Restricted Subsidiaries at the time any such Investment is made; provided
that, for purposes of this sentence, the fair market value of net assets in
excess of $5,000,000 shall be as determined by an independent appraiser of
national reputation.
"Issue Date" means the time and date of the first issuance of the Notes
under the Indenture.
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"Junior Indebtedness" means Indebtedness of the Company that (i) requires no
payment of principal prior to or on the date on which all principal of and
interest on the Notes is paid in full and (ii) is subordinate and junior in
right of payment to the Notes in all respects.
"Junior Securities" of any Person means securities (including Capital Stock
but excluding Disqualified Capital Stock) issued by such Person to a Holder on
account of the Notes that (i) has a Weighted Average Life and maturity or
mandatory redemption obligation, if any, longer than, or occurring after the
final maturity date of, all Designated Senior Indebtedness of such Person
outstanding on the date of issuance of such Junior Securities, (ii) by their
terms or by law are subordinated to Designated Senior Indebtedness of such
Person outstanding on the date of issuance of such Junior Securities at least
to the same extent as the Notes and (iii) are not secured by any assets or
property of the Company or any of its Subsidiaries. As used herein,
"Designated Senior Indebtedness of such Person outstanding on the date of
issuance of such Junior Securities" shall include securities issued in
connection with a reorganization pursuant to the bankruptcy laws of any
jurisdiction to Persons which held "Designated Senior Indebtedness" in such
reorganization proceeding.
"Lien" means any mortgage, lien, pledge, charge, security interest, or other
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement and any lease deemed to constitute a security interest and any
option or other agreement to give any security interest).
"Maturity Date" means, when used with respect to any Note, the date
specified on such Note as the fixed date on which the final installment of
principal of such Note is due and payable (in the absence of any acceleration
thereof pursuant to the provisions of the Indenture regarding acceleration of
Indebtedness or any Change of Control Offer, Proceeds Purchase Offer or Asset
Sale Offer).
"Merger" means the merger of the Company with and into Palmer.
"Merger Date" means the time and date of the consummation of the Merger.
"Net Cash Proceeds" means the aggregate amount of cash and Cash Equivalents
received by the Company and its Restricted Subsidiaries in respect of an Asset
Sale (including upon the conversion to cash and Cash Equivalents of (A) any
note or installment receivable at any time, or (B) any other property as and
when any cash and Cash Equivalents are received in respect of any property
received in an Asset Sale but only to the extent such cash and Cash
Equivalents are received within one year after such Asset Sale), less the sum
of (i) all reasonable out-of-pocket fees, commissions and other expenses
incurred in connection with such Asset Sale, including the amount (estimated
in good faith by the Board of Directors of the Company) of income, franchise,
sales and other applicable taxes required to be paid by the Company or any
Restricted Subsidiary of the Company in connection with such Asset Sale and
(ii) the aggregate amount of cash so received which is used to retire any
existing Senior Indebtedness of the Company or Indebtedness of its Restricted
Subsidiaries, as the case may be, which is required to be repaid in connection
with such Asset Sale or is secured by a Lien on the property or assets of the
Company or any of its Restricted Subsidiaries, as the case may be.
"Net Pops" of any Person with respect to any System means the Pops of the
MSA or RSA served by such System multiplied by the direct and/or indirect
percentage interest of such Person in the entity licensed or designated to
receive an authorization by the Federal Communications Commission to construct
or operate a System in that MSA or RSA.
"Net Proceeds" means the aggregate net proceeds (including the fair market
value of non-cash proceeds constituting equipment or other assets of a type
generally used in a Related Business an amount reasonably determined by the
Board of Directors of the Company for amounts under $5,000,000 and by a
financial advisor or appraiser of national reputation for equal or greater
amounts) received by a Person from the sale of Qualified Capital Stock (other
than to a Subsidiary of such Person) after payment of out-of-pocket expenses,
commissions and discounts incurred in connection therewith.
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"Obligation" means any principal, premium, interest (including interest
accruing subsequent to a bankruptcy or other similar proceeding whether or not
such interest is an allowed claim enforceable against the Company in a
bankruptcy case under Federal bankruptcy law), penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable
pursuant to the terms of the documentation governing any Indebtedness.
"Operating Cash Flow" of any Person means (a), with respect to any period,
the Consolidated Net Income of such Person for such period, plus (b) the sum,
without duplication (and only to the extent such amounts are deducted from net
revenues in determining such Consolidated Net Income), of (i) the provisions
for income taxes for such period for such Person and its consolidated
Subsidiaries, (ii) depreciation, amortization and other non-cash charges of
such Person and its consolidated Subsidiaries and (iii) Consolidated Interest
Expense of such Person for such period, determined, in each case, on a
consolidated basis for such Person and its consolidated Subsidiaries in
accordance with GAAP, less (c) the amount of all cash payments made during
such period by such Person and its Subsidiaries to the extent such payments
relate to non-cash charges that were added back in determining Operating Cash
Flow for such period or for any prior period. When the foregoing definition is
used in connection with the Company and its Restricted Subsidiaries,
references to a Person and its Subsidiaries in the foregoing definition shall
be deemed to refer to the Company and its Restricted Subsidiaries.
"Parent" shall mean PCC or any directly or indirectly wholly owned
subsidiary of PCC that directly or indirectly wholly owns the Company.
"Permitted Acquisition Indebtedness" means, with respect to any Person,
Indebtedness Incurred in connection with the acquisition of property,
businesses or assets which, or Capital Stock of a Person all or substantially
all of whose assets, are of a type generally used in a Related Business;
provided that, in the case of the Company or its Restricted Subsidiaries, as
applicable, (x) (i) the Company's Annualized Operating Cash Flow Ratio, after
giving effect to such acquisition and such Incurrence on a pro forma basis, is
no greater than such ratio prior to giving pro forma effect to such
acquisition and such Incurrence, (ii) the Company's consolidated Senior
Indebtedness, divided by the Net Pops of the Company and its Restricted
Subsidiaries, in each case giving pro forma effect to the acquisition and such
Incurrence, does not exceed $120, (iii) the Company's consolidated
Indebtedness divided by the Net Pops of the Company and its Restricted
Subsidiaries does not exceed $160 as a result of the acquisition and such
Incurrence and (iv) after giving effect to such acquisition and such
Incurrence the acquired property, businesses or assets or such Capital Stock
is owned directly by the Company or a Wholly Owned Restricted Subsidiary of
the Company or (y) (i) under the terms of such Indebtedness and pursuant to
applicable law, no recourse could be had for the payment of principal,
interest or premium with respect to such Indebtedness or for any claim based
thereon against the Company or any Person that constituted a Restricted
Subsidiary immediately prior to the consummation of such acquisition or any of
their property or assets, (ii) the obligor of such Indebtedness shall have,
immediately after giving effect to such acquisition and such Incurrence on a
pro forma basis, a ratio of Annualized Operating Cash Flow as of the date of
the acquisition to the product of Consolidated Interest Expense for the
Reference Period multiplied by four (but excluding from Consolidated Interest
Expense all amounts that are not required to be paid in cash on a current
basis) of at least 1 to 1 and (iii) immediately subsequent to the Incurrence
of such Indebtedness, the obligor thereof shall be a Restricted Subsidiary and
shall have been designated by the Company (as evidenced by an Officers'
Certificate delivered promptly to the Trustee) to be a "Non-Recourse
Restricted Subsidiary."
"Permitted Investment" means (i) Investments in Cash Equivalents; (ii)
Investments in the Company or a Restricted Subsidiary (other than a Non-
Recourse Restricted Subsidiary); (iii) Investments in a Person substantially
all of whose assets are of a type generally used in a Related Business (an
"Acquired Person") if, as a result of such Investments, (A) the Acquired
Person immediately thereupon becomes a Restricted Subsidiary (other than a
Non-Recourse Restricted Subsidiary) or (B) the Acquired Person immediately
thereupon either (1) is merged or consolidated with or into the Company or any
of its Restricted Subsidiaries (other than a Non-Recourse Restricted
Subsidiary) and the surviving Person is the Company or a Restricted Subsidiary
(other than a Non-Recourse Restricted Subsidiary) or (2) transfers or conveys
all or substantially all of its assets to, or is liquidated into, the Company
or any of its Restricted Subsidiaries (other than a Non-Recourse Restricted
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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 Subsidiary Stock" covenant; (vi) any guarantee issued by a Restricted
Subsidiary in respect of Senior Indebtedness Incurred in compliance with the
Indenture; (vii) advances and prepayments for asset purchases in the ordinary
course of business in a Related Business of the Company or a Restricted
Subsidiary; (viii) Investments in Non-Recourse Restricted Subsidiaries with
the proceeds of contributions irrevocably and unconditionally received without
restriction by the Company from Parent; and (ix) customary loans or advances
made in the ordinary course of business to officers, directors or employees of
the Company or any of its Restricted Subsidiaries for travel, entertainment,
and moving and other relocation expenses.
"Permitted Lien" means (a) Liens existing on the Issue Date; (b) Liens
imposed by governmental authorities for taxes, assessments or other charges
not yet subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (c) statutory
liens of carriers, warehousemen, mechanics, materialmen, landlords, repairmen
or other like Liens arising by operation of law in the ordinary course of
business provided that (i) the underlying obligations are not overdue for a
period of more than 30 days, and (ii) such Liens are being contested in good
faith and by appropriate proceedings and adequate reserves with respect
thereto are maintained on the books of the Company in accordance with GAAP;
(d) Liens securing the performance of bids, trade contracts (other than
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business; (e) easements, rights-of-way, zoning, similar
restrictions and other similar encumbrances or title defects which, singly or
in the aggregate, do not in any case materially detract from the value of the
property, subject thereto (as such property is used by the Company or any of
its Restricted Subsidiaries) or interfere with the ordinary conduct of the
business of the Company or any of its Restricted Subsidiaries; (f) Liens
arising by operation of law in connection with judgments, only to the extent,
for an amount and for a period not resulting in an Event of Default with
respect thereto; (g) pledges or deposits made in the ordinary course of
business in connection with worker's compensation, unemployment insurance and
other types of social security legislation; (h) Liens in favor of the Trustee
arising under the Indenture; (i) Liens securing Permitted Acquisition
Indebtedness, which either (A) were not incurred or issued in anticipation of
such acquisition or (B) secure Permitted Acquisition Indebtedness meeting the
requirements set forth in clause (y) of the definition thereof; (j) Liens
securing Senior Indebtedness that was incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; (k) Liens
securing Indebtedness of a Person existing at the time such Person becomes a
Restricted Subsidiary or is merged with or into the Company or a Restricted
Subsidiary, provided that such Liens were in existence prior to the date of
such acquisition, merger or consolidation, were not incurred in anticipation
thereof, and do not extend to any other assets; (l) Liens arising from
Purchase Money Indebtedness permitted under the Indenture; (m) Liens securing
Refinancing Indebtedness Incurred to refinance any Indebtedness that was
previously so secured in a manner no more adverse to the Holders of the Notes
than the terms of the Liens securing such refinanced Indebtedness; and (n)
Liens in favor of the Company or a Wholly Owned Restricted Subsidiary.
"Person" means any corporation, individual, joint stock company, joint
venture, partnership, unincorporated association, governmental regulatory
entity, country, state or political subdivision thereof, trust, municipality
or other entity.
"Pops" means the estimate of the population of a Metropolitan Statistical
Area ("MSA") or Rural Service Area ("RSA") as derived from the most recent
Donnelly Market Service or if such statistics are no longer printed in the
Donnelly Market Service or the Donnelly Market Service is no longer published,
the most recent Rand McNally Commercial Atlas or if such statistics are no
longer printed in the Rand McNally Commercial Atlas or the Rand McNally
Commercial Atlas is no longer published, such other nationally recognized
source of such information.
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"Purchase Money Indebtedness" means Indebtedness of the Company or its
Restricted Subsidiaries Incurred in connection with the purchase of property
or assets for the business of the Company or its Restricted Subsidiaries,
provided that the recourse of the lenders with respect to such Indebtedness is
limited solely to the property or assets so purchased without further recourse
to either the Company or any of its Restricted Subsidiaries.
"Qualified Capital Stock" means any Capital Stock of a Person that is not
Disqualified Capital Stock.
"Reference Period" with regard to any Person means the last full fiscal
quarter of such Person for which financial information (which the Company
shall use its best efforts to compile in a timely manner) in respect thereof
is available ended on or immediately preceding any date upon which any
determination is to be made pursuant to the terms of the Notes or the
Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or
(b) constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the
case of Disqualified Capital Stock, liquidation preference (or if such
Indebtedness or Disqualified Capital Stock does not require cash payments
prior to maturity or is otherwise issued at a discount, the original issue
price of such Indebtedness or Disqualified Capital Stock), not to exceed the
sum of (x) the lesser of (i) the principal amount or, in the case of
Disqualified Capital Stock, liquidation preference, of the Indebtedness or
Disqualified Capital Stock so Refinanced and (ii) if such Indebtedness being
Refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such
Refinancing, (y) the amount of any premium required to be paid in connection
with such refinancing pursuant to the terms of such Indebtedness and (z) all
other customary fees and expenses of the Company or such Restricted Subsidiary
reasonably incurred in connection with such refinancing; provided, that (A)
Refinancing Indebtedness issued by any Restricted Subsidiary of the Company
shall only be used to Refinance outstanding Indebtedness or Disqualified
Capital Stock of such Restricted Subsidiary, (B) Refinancing Indebtedness
shall (x) not have a Weighted Average Life shorter than the Indebtedness or
Disqualified Capital Stock to be so refinanced at the time of such Refinancing
and (y) in all respects, be no less subordinated or junior, if applicable, to
the rights of Holders of the Notes than was the Indebtedness or Disqualified
Capital Stock to be refinanced and (C) such Refinancing Indebtedness shall
have no installments of principal (or redemption payment) scheduled to come
due earlier than the scheduled maturity of any installment of principal (or
redemption payment) of the Indebtedness or Disqualified Capital Stock to be so
refinanced which was scheduled to come due prior to the Stated Maturity of the
Notes.
"Related Business" means any business directly related to the ownership,
development, operation, and acquisition of wireless cellular communications
systems.
"Related Person" means, with respect to any Person, (i) any Affiliate of
such Person or any spouse, immediate family member, or other relative who has
the same principal residence of any Affiliate of such Person and (ii) any
trust in which any Person described in clause (i) above, has a beneficial
interest.
"Restricted Payment" means, with respect to any Person, (i) any dividend or
other distribution on shares of Capital Stock of such Person, its Parent, 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, its Parent, or any Subsidiary of such Person
held by Persons other than such Person or any of its Restricted Subsidiaries,
(iii) any defeasance, redemption, repurchase or other acquisition or
retirement for value, or any payment in respect of any amendment (in
anticipation of or in connection with any such retirement, acquisition or
defeasance) in whole or in part, of any Indebtedness of the Company (other
than the scheduled repayment thereof at maturity and any mandatory redemption
or mandatory repurchase thereof pursuant to the terms thereof) by such Person
or a Subsidiary of such Person that is
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subordinate in right of payment to, or ranks pari passu (other than the Notes)
with, the Notes (other than in exchange for Refinancing Indebtedness permitted
to be Incurred under the Indenture and except for any such defeasance,
redemption, repurchase, other acquisition or payment in respect of
Indebtedness held by any Restricted Subsidiary) and (iv) any Investment (other
than a Permitted Investment); provided, however, that the term "Restricted
Payment" does not include (i) any dividend, distribution or other payment on
shares of Capital Stock of the Company or any Restricted Subsidiary solely in
shares of Qualified Capital Stock, (ii) any dividend, distribution or other
payment to the Company, or any dividend to any of its Restricted Subsidiaries,
by any of its Subsidiaries, (iii) the purchase, redemption or other
acquisition or retirement for value of shares of Capital Stock of any
Restricted Subsidiary (other than Non-Recourse Restricted Subsidiaries) held
by Persons other than the Company or any of its Restricted Subsidiaries, (iv)
payments to satisfy obligations to pay statutory appraisal rights resulting
from the Merger and any settlement in respect thereof to security holders of
Palmer, (v) fees and expenses incurred in connection with the Merger, and (vi)
cash payment in respect of purchases of options and rights for shares of
Palmer common stock issued pursuant to Palmer's 1995 Stock Option Plan, 1995
Directors' Stock Option Plan, 1995 Employee Stock Purchase Plan and 1995 Non-
Employee Director Stock Purchase Plan.
"Restricted Subsidiary" means any Subsidiary of the Company which at the
time of determination is not an Unrestricted Subsidiary. The Board of
Directors of the Company may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if, immediately before and after giving effect to
such designation, there would exist no Default or Event of Default and the
Company could incur at least $1.00 of Indebtedness pursuant to the Annualized
Operating Cash Flow Ratio test of the "Limitation on Incurrence of Additional
Indebtedness" covenant, on a pro forma basis taking into account such
designation.
"Senior Indebtedness" means all Indebtedness of the Company (including, with
respect to the Credit Agreement, all Obligations), including interest thereon,
whether outstanding on the Issue Date or thereafter issued, unless the
instrument under which such Indebtedness is incurred expressly provides that
it is on a parity with or subordinated in right of payment to the Notes.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
shall not include (a) Indebtedness that is expressly subordinated or junior in
right of payment to any Indebtedness of the Company, (b) Indebtedness
represented by Disqualified Capital Stock, (c) any liability for Federal,
state, local or other taxes owed or owing by the Company, (d) Indebtedness of
the Company to any Subsidiary of the Company or any Affiliate of the Company
(other than Purchase Money Indebtedness constituting at least 75% but not more
than 100% of the cost of wireless cellular communication system equipment and
other related fixed assets, Incurred in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant), (e) trade payables and (f)
Indebtedness to the extent incurred in violation of the Indenture.
"Significant Restricted Subsidiary" means one or more Restricted
Subsidiaries having an aggregate net book value of assets in excess of 5% of
the net book value of the assets of the Company and its Restricted
Subsidiaries on a consolidated basis.
"Stated Maturity" means the date fixed for the payment of any principal or
premium pursuant to the Indenture and the Notes, including the Maturity Date,
upon redemption, acceleration, Asset Sale Offer, Proceeds Purchase Offer,
Change of Control Offer or otherwise.
"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.
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"Unrestricted Subsidiary" shall mean any Subsidiary of the Company that, at
the time of determination, shall be an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below). The Board of
Directors of the Company may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary at or prior to the
time it is so formed or acquired) to be an Unrestricted Subsidiary if (a) no
Default or Event of Default is existing or will occur as a consequence
thereof, (b) such Subsidiary does not own any Capital Stock of, or own or hold
any Lien on any property or asset of, the Company or any Restricted Subsidiary
that is not a Subsidiary of the Subsidiary to be so designated and (c) such
Subsidiary and each of its Subsidiaries has not at the time of designation,
and does not thereafter, create, incur, issue, assume, guarantee, or otherwise
become directly or indirectly liable with respect to any Indebtedness pursuant
to which the lender has recourse to any property or assets of the Company or
any of its Restricted Subsidiaries (except that such Subsidiary and its
Subsidiaries may guarantee the Notes); provided that either (A) the Subsidiary
to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, that such designation would be
permitted under the "Limitation on Restricted Payments" covenant. Each such
designation shall be evidenced by filing with the Trustee a certified copy of
the resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions.
"Voting Stock" means Capital Stock of the Company having generally the right
to vote in the election of a majority of the directors of the Company or
having generally the right to vote with respect to the organizational matters
of the Company.
"Weighted Average Life" means, as of the date of determination, with respect
to any debt instrument, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such debt instrument
multiplied by the amount of each such respective principal payment by (ii) the
sum of all such principal payments.
"Wholly Owned" means, with respect to a Subsidiary of the Company, (i) a
Subsidiary that is a corporation, of which not less than 99% of the Capital
Stock (except for directors' qualifying shares or certain minority interests
owned by other Persons solely due to local law requirements that there be more
than one stockholder, but which interest is not in excess of what is required
for such purpose) is owned directly by such Person or through one or more
other Wholly Owned Subsidiaries of such Person, or (ii) any entity other than
a corporation in which such Person, directly or indirectly, owns not less than
99% of the Capital Stock of such entity.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Holders of New Notes are not entitled to any registration rights with
respect to the New Notes. Holders of Old Notes are entitled to certain
registration rights pursuant to the Registration Rights Agreement. Pursuant to
the Registration Rights Agreement, the Company has agreed to file with the SEC
and have declared effective on or prior to December 7, 1997 a registration
statement (the "Exchange Offer Registration Statement") under the Securities
Act with respect with the Exchange Offer. The Company also agreed that, after
the effectiveness of the Exchange Offer Registration Statement, it would,
subject to certain conditions, offer to the Holders of Old Notes who are able
to make certain representations the opportunity to exchange their Old Notes
for New Notes. In the event that applicable interpretations of the staff of
the SEC do not permit the Company to effect the Exchange Offer ("SEC
Blockage") or do not permit any Holder of Old Notes, subject to certain
limitations, to participate in such Exchange Offer, the Company has agreed to
file with the SEC a shelf registration statement (the "Shelf Registration
Statement") to cover resales of the applicable Old Notes. The Registration
Statement of which this Prospectus is a part constitutes the Exchange Offer
Registration Statement.
The Registration Rights Agreement provides that the Company will use its
reasonable best efforts to have the Exchange Offer Registration Statement
(and, if applicable, a Shelf Registration Statement) declared effective by the
SEC on or prior to December 7, 1997. If the Exchange Offer has not been
consummated by January 6, 1998 (unless there exists a SEC Blockage) (such
event, a "Registration Default"), the Company will pay liquidated damages to
each Holder of Old Notes, during the first 90-day period immediately following
the
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occurrence of such Registration Default in an amount equal to $0.05 per week
per $1,000 principal amount of Notes constituting Old Notes held by such
Holder. The amount of the liquidated damages will increase by an additional
$0.05 per week per $1,000 principal amount constituting Old Notes for each
subsequent 90-day period until the Exchange Offer is consummated, up to a
maximum amount of liquidated damages of $0.25 per week per $1,000 principal
amount of Notes constituting Old Notes. All accrued liquidated damages shall
be paid to Holders in the same manner as interest payments on the Notes on
semi-annual Damages Payment Dates which correspond to interest payment dates
for the Notes.
The Registration Rights Agreement provides that the Company (i) shall make
available for a period of 90 days after the consummation of the Exchange Offer
a prospectus meeting the requirements of the Securities Act to any broker-
dealer for use in connection with any resale of any such New Notes and (ii)
shall pay all expenses incident to the Exchange Offer (including the expenses
of one counsel to the Holders of the Notes) and will indemnify certain Holders
of the Notes (including any broker-dealer) against certain liabilities,
including liabilities under the Securities Act.
Holders of Old Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
liquidated damages set forth in the preceding sentence. In addition, for so
long as the Notes are outstanding, the Company will continue to provide to
Holders of Notes and to prospective purchasers of the Notes the information
required by Rule 144A(d)(4). The Company will provide a copy of the
Registration Rights Agreement to prospective investors upon request.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax consequences of the ownership and disposition of the Notes by Holders who
acquired such securities in the Offering (the "Initial Holders"). This summary
is based on the Internal Revenue Code of 1986, as amended to the date hereof
(the "Code"), administrative pronouncements, judicial decisions and existing
and proposed Treasury Regulations, changes to any of which subsequent to the
date of this Prospectus may affect the tax consequences described herein. This
summary discusses only Notes held as capital assets within the meaning of
Section 1221 of the Code. It does not discuss all of the tax consequences that
may be relevant to a Holder in light of his particular circumstances or to
Holders subject to special rules, such as persons who are not U.S. Holders (as
defined below) or Initial Holders, certain financial institutions, insurance
companies, dealers in securities and Holders who hold the Notes as part of a
straddle or a hedging or conversion transaction. Holders of Notes should
consult their tax advisors with regard to the application of the United States
federal income tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that, for United States federal income tax purposes, is (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, or (iii) an estate or trust the income of which
is subject to United States federal income taxation regardless of its source.
The term also includes certain former citizens or residents of the United
States.
PAYMENTS OF INTEREST
Interest paid on a Note will generally be taxable as ordinary income at the
time it accrues or is received in accordance with the U.S. Holder's method of
accounting for federal income tax purposes.
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not result in any federal income tax consequences to U.S. Holders. When a U.S.
Holder exchanges an Old Note for a New Note pursuant to the Exchange Offer,
the U.S. Holder will have the same adjusted basis and holding period in the
New Note as in the Old Note immediately before the exchange.
REDEMPTION
A U.S. Holder will recognize a capital gain upon a Special Redemption or an
Optional Redemption equal to the excess, if any, of the redemption price over
the principal amount of a Note.
THE MERGER
Although there is no authority with respect to a transaction closely
comparable to the issuance of the Notes in anticipation of a merger of the
obligor into an unrelated entity pursuant to an acquisition agreement between
the obligor's indirect parent and such entity, the Company believes that upon
the Merger an Initial Holder (i) would not have recognized gain or loss, and
(ii) would have a tax basis equal to the principal amount of the Notes and a
holding period that commenced on the date of the Merger.
U.S. Holders who are not Initial Holders are urged to consult their tax
advisors with respect to the consequences, if any, of the Merger.
93
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 90 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any such broker-dealer for use in connection with any such
resale. The Company will not receive any proceeds from any sale of New Notes
by broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker-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 commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities Act. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal.
The Company has agreed in the Registration Rights Agreement to indemnify
each broker-dealer reselling New Notes pursuant to this Prospectus, and their
officers, directors and controlling persons, against certain liabilities in
connection with the offer and sale of the New Notes, including liabilities
under the Securities Act, or to contribute to payments that such broker-
dealers may be required to make in respect thereof.
LEGAL MATTERS
The legality of the New Notes offered hereby will be passed upon for the
Company by Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated balance sheets of Palmer Wireless, Inc. and subsidiaries as
of December 31, 1996 and 1995 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three years ended December 31, 1996 appearing in this Prospectus and
Registration Statement have been audited by KPMG Peat Marwick LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
94
<PAGE>
AVAILABLE INFORMATION
This Prospectus constitutes a part of the Registration Statement on Form S-4
under the Securities Act filed by the Company with the SEC under the
Securities Act. As permitted by the rules and regulations of the SEC, this
Prospectus does not contain all of the information contained in the
Registration Statement and the exhibits and schedules thereto and reference is
hereby made to the Registration Statement and the exhibits and schedules
thereto for further information with respect to the Company and the Notes
offered hereby. Statements contained herein concerning the provisions of any
documents filed as an exhibit to the Registration Statement or otherwise filed
with the SEC are not necessarily complete, and in each instance reference is
made to the copy of such document so filed. Each such statement is qualified
in its entirety by such reference.
CERTAIN TERMS
Interests in cellular markets that are licensed by the FCC are commonly
measured on the basis of the population of the market served, with each person
in the market area referred to as a "Pop." The number of Pops or Net Pops
owned is not necessarily indicative of the number of subscribers or potential
subscribers. As used in this Prospectus, unless otherwise indicated, the term
"Pops" means the estimate of the 1996 population of an MSA or RSA, as derived
from the 1996 Donnelley Market Information Service. The term "Net Pops" means
the estimated population with respect to a given service area multiplied by
the percentage interest that the Company owns in the entity licensed in such
service area. MSAs and RSAs are also referred to as "markets." The term
"wireline" license refers to the license for any market initially awarded to a
company or group that was affiliated with a local landline telephone carrier
in the market, and the term "non-wireline" license refers to the license for
any market that was initially awarded to a company, individual or group not
affiliated with any landline carrier. The term "System" means an FCC-licensed
cellular telephone system. The term "CTIA" means the Cellular
Telecommunications Industry Association.
95
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PALMER WIRELESS, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets, December 31, 1995 and 1996 ................ F-3
Consolidated Statements of Operations, Years Ended December 31, 1994,
1995 and 1996 ......................................................... F-4
Consolidated Statements of Stockholders' Equity, Years Ended December
31, 1994, 1995
and 1996 .............................................................. F-5
Consolidated Statements of Cash Flows, Years Ended December 31, 1994,
1995 and 1996 ......................................................... F-6
Notes to Consolidated Financial Statements ............................. F-8
Condensed Consolidated Balance Sheets, December 31, 1996 and June 30,
1997 (Unaudited) ...................................................... F-21
Condensed Consolidated Statements of Operations, Six Months Ended June
30, 1996 and 1997 (Unaudited) ......................................... F-22
Condensed Consolidated Statements of Stockholders' Equity, Year Ended
December 31, 1996 and Six Months Ended June 30, 1997 (Unaudited) ...... F-23
Condensed Consolidated Statements of Cash Flows, Six Months Ended June
30, 1996 and 1997 (Unaudited) ......................................... F-24
Notes to Condensed Consolidated Financial Statements (Unaudited) ....... F-25
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Palmer Wireless, Inc.:
We have audited the accompanying consolidated balance sheets of Palmer
Wireless, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Palmer
Wireless, Inc. and subsidiaries at December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997,
except for Note 10 which is as of
February 1, 1997
F-2
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS (NOTE 4)
Current assets:
Cash and cash equivalents....................... $ 3,436 $ 1,698
Trade accounts receivable, net of allowance for
doubtful accounts of $1,880 in 1995 and $1,791
in 1996........................................ 17,347 18,784
Receivable from other cellular carriers......... 3,936 1,706
Prepaid expenses and deposits................... 1,111 2,313
Inventory....................................... 2,434 5,106
Deferred income taxes (note 5).................. 821 830
-------------- --------------
Total current assets.......................... $ 29,085 $ 30,437
-------------- --------------
Property, plant and equipment:
Land and improvements........................... 3,796 5,238
Buildings and improvements...................... 5,120 7,685
Equipment, communication systems, and
furnishings.................................... 127,140 166,735
-------------- --------------
$ 136,056 $ 179,658
Less accumulated depreciation and amortization.. 35,120 47,220
-------------- --------------
Net property, plant and equipment............... $ 100,936 $ 132,438
-------------- --------------
Licenses and goodwill, at cost less accumulated
amortization of $20,828 in 1995 and $30,188 in
1996 (note 3)................................... 321,053 375,808
Other intangible assets and other assets, at cost
less accumulated amortization of $4,471 in 1995
and $7,311 in 1996.............................. 11,797 11,259
-------------- --------------
Total assets.................................. $ 462,871 $ 549,942
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note
4)............................................. $ 7,441 $ 5,296
Notes payable (note 4).......................... -- 1,366
Accounts payable................................ 10,795 10,394
Accrued interest payable........................ 2,508 2,341
Accrued salaries and employee benefits.......... 2,267 2,432
Other accrued liabilities....................... 4,058 3,626
Deferred revenue................................ 2,860 3,929
Customer deposits............................... 591 757
-------------- --------------
Total current liabilities..................... $ 30,520 $ 30,141
Long-term debt, excluding current installments
(note 4)........................................ 343,000 337,000
Deferred income taxes (note 5)................... 9,636 11,500
Minority interests............................... 5,162 6,371
-------------- --------------
Total liabilities............................. $ 388,318 $ 385,012
-------------- --------------
Stockholders' equity (note 7):
Preferred stock par value $.01 per share;
10,000,000 shares authorized; none issued...... -- --
Class A Common Stock par value $.01 per share;
73,000,000 shares authorized; 6,095,772 shares
issued in 1995 and 11,119,681 shares issued in
1996 including shares in treasury and Class B
Common Stock par value $.01 per share;
18,000,000 shares authorized; 17,293,578
shares issued in 1995 and 1996................. 234 284
Additional paid-in capital...................... 72,466 166,975
Retained earnings............................... 1,853 6,535
-------------- --------------
$ 74,553 $ 173,794
Less Class A Common Stock in treasury at cost --
600,000 shares in 1996.......................... -- 8,864
-------------- --------------
Total stockholders' equity.................... $ 74,553 $ 164,930
Commitments and contingencies (note 8).
-------------- --------------
Total liabilities and stockholders' equity.... $ 462,871 $ 549,942
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1994 1995 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue:
Service............... $ 61,021 $ 96,686 $ 151,119
Equipment sales and
installation......... 7,958 8,220 8,624
------------------ ------------------ ------------------
Total revenue..... $ 68,979 $ 104,906 $ 159,743
------------------ ------------------ ------------------
Operating expenses:
Engineering,
technical, and other
direct............... 12,776 18,184 28,717
Cost of equipment..... 11,546 14,146 17,944
Selling, general, and
administrative:
Related party, net
(note 6)........... (442) (408) (414)
Other............... 20,199 31,398 47,306
Depreciation and
amortization......... 9,817 15,004 25,013
------------------ ------------------ ------------------
Total operating
expenses......... $ 53,896 $ 78,324 $ 118,566
------------------ ------------------ ------------------
Operating income........ $ 15,083 $ 26,582 $ 41,177
------------------ ------------------ ------------------
Other income (expense):
Interest income:
Investment.......... 93 211 62
Related party (note
6)................. 78 -- --
Interest expense:
Long-term debt...... (11,158) (21,424) (31,524)
Related party (note
6)................. (1,728) -- --
------------------ ------------------ ------------------
Interest expense,
net................ $ (12,715) $ (21,213) $ (31,462)
Other expense, net.... (70) (687) (429)
------------------ ------------------ ------------------
Total other
expense.......... $ (12,785) $ (21,900) $ (31,891)
------------------ ------------------ ------------------
Income before minority
interest share of
income and income tax
expense................ $ 2,298 $ 4,682 $ 9,286
Minority interest share
of income.............. 636 1,078 1,880
------------------ ------------------ ------------------
Income before income tax
expense................ $ 1,662 $ 3,604 $ 7,406
Income tax expense (note
5)..................... -- 2,650 2,724
------------------ ------------------ ------------------
Net income.............. $ 1,662 $ 954 $ 4,682
================== ================== ==================
Net income per share of
common stock........... $ 0.09 $ 0.04 $ 0.18
================== ================== ==================
Average shares
outstanding............ 18,000,000 22,326,613 26,132,455
================== ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK (ACCUMULATED
CLASS A CLASS B ADDITIONAL DEFICIT) TREASURY STOCK TOTAL
------------------ ----------------- PAID-IN RETAINED --------------- STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
----------- ------ ---------- ------ ---------- ------------ ------- ------- -------------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1993................... 706,422 $ 7 17,293,578 $173 $ 3,064 $ -- -- $ -- $ 3,244
Partnership earnings
before business
combination............ -- -- -- -- 1,829 -- -- -- 1,829
Net loss................ -- -- -- -- -- (167) -- -- (167)
Capital contribution,
net before business
combination............ -- -- -- -- 9 -- -- -- 9
----------- ---- ---------- ---- -------- ------ ------- ------- --------
Balances at December 31,
1994................... 706,422 $ 7 17,293,578 $173 $ 4,902 $ (167) -- $ -- $ 4,915
Partnership loss before
business combination... -- -- -- -- (1,066) -- -- -- (1,066)
Public offering, net of
issuance costs of
$8,114................. 5,369,350 54 -- -- 68,345 -- -- -- 68,399
Exercise of stock
options................ 20,000 -- -- -- 285 -- -- -- 285
Net income.............. -- -- -- -- -- 2,020 -- -- 2,020
----------- ---- ---------- ---- -------- ------ ------- ------- --------
Balances at December 31,
1995................... 6,095,772 $ 61 17,293,578 $173 $ 72,466 $1,853 -- $ -- $ 74,553
Public offering, net of
issuance costs of
$5,826................. 5,000,000 50 -- -- 94,124 -- -- -- 94,174
Exercise of stock
options................ 6,666 -- -- -- 95 -- -- -- 95
Employee and non-
employee director stock
purchase plans......... 17,243 -- -- -- 290 -- -- -- 290
Treasury shares
purchased.............. -- -- -- -- -- -- 600,000 (8,864) (8,864)
Net income.............. -- -- -- -- -- 4,682 -- -- 4,682
----------- ---- ---------- ---- -------- ------ ------- ------- --------
Balances at December 31,
1996................... 11,119,681 $111 17,293,578 $173 $166,975 $6,535 600,000 $(8,864) $164,930
=========== ==== ========== ==== ======== ====== ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
(DOLLAR AMOUNTS IN THOUSANDS)
Cash flows from operating activities:
Net income.................................... $ 1,662 $ 954 $ 4,682
--------- --------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 9,817 15,004 25,013
Minority interest share of income............ 636 1,078 1,880
Deferred income taxes........................ -- 2,650 1,855
Increase in trade accounts receivable........ (4,195) (2,741) (1,561)
(Increase) decrease in inventory............. (3,672) 4,076 (2,595)
Increase (decrease) in accounts payable...... 2,508 2,623 (841)
Increase (decrease) in accrued interest
payable...................................... 1,184 (14) (167)
Interest deferred and added to related party
borrowings................................... 1,611 -- --
Deferred interest paid to related party...... (6,475) -- --
Interest deferred and added to other debt.... 537 607 355
Payment of deferred interest................. -- -- (1,080)
Increase in accrued salaries and employee
benefits..................................... 466 241 165
Increase (decrease) in other accrued
liabilities.................................. 895 583 (507)
Increase in deferred revenue................. 1,163 658 912
Increase (decrease) in customer deposits..... 191 (53) 134
Change in other accounts..................... 910 1,994 1,885
--------- --------- ---------
Total adjustments.......................... $ 5,576 $ 26,706 $ 25,448
--------- --------- ---------
Net cash provided by operating activities.. $ 7,238 $ 27,660 $ 30,130
--------- --------- ---------
Cash flows from investing activities:
Cash payment for purchases of non-wireline
cellular telephone systems and licenses
(note 3)..................................... (91,720) (158,397) (67,588)
Purchases of minority interests.............. (3,097) (1,543) (1,854)
Capital expenditures......................... (22,541) (36,564) (41,445)
Proceeds from sales of property, plant and
equipment.................................... 150 38 5
Decrease (increase) in other intangible
assets and other assets...................... 358 (310) (2,180)
Collection of purchase price adjustment...... -- -- 2,452
--------- --------- ---------
Net cash used in investing activities...... $(116,850) $(196,776) $(110,610)
--------- --------- ---------
Cash flows from financing activities:
Advances from Palmer Communications
Incorporated................................. 4,176 -- --
Payments on advances from Palmer
Communications Incorporated................. (2,359) (1,650) --
Increase in notes payable.................... -- -- 1,366
Proceeds from long-term debt................. 137,000 171,000 100,000
Repayment of long-term debt.................. (75) (65,125) (108,319)
Repayment of related party borrowings........ (20,000) -- --
Payment of debt issuance costs............... (6,454) (4,803) --
Public offering proceeds, net................ -- 71,144 95,000
Proceeds from stock options exercised........ -- 285 95
Payment of deferred offering costs........... (1,448) (1,297) (826)
Collection of common stock subscriptions
receivable................................... 100 -- --
Purchase of treasury stock................... -- -- (8,864)
Proceeds from sales under stock purchase
plans........................................ -- -- 290
--------- --------- ---------
Net cash provided by financing activities.. $ 110,940 $ 169,554 $ 78,742
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................ $ 1,328 $ 438 $ (1,738)
Cash and cash equivalents at beginning of
year.......................................... 1,670 2,998 3,436
--------- --------- ---------
Cash and cash equivalents at end of year...... $ 2,998 $ 3,436 $ 1,698
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During 1994, certain assets net of certain liabilities were transferred
between Palmer Wireless, Inc. and Palmer Communications Incorporated. These
transfers were treated as contributions to and distributions from equity and
amounted to a net contribution of $9 for the year ended December 31, 1994.
During 1994, Palmer Wireless, Inc. accrued $188 for unpaid deferred offering
costs.
During 1995, Palmer Wireless, Inc. committed to purchase certain minority
interests in 1996. This commitment totaling $451 was accrued in 1995 and paid
in 1996.
During 1996, the Company increased the purchase obligations related to the
final purchase price adjustment for the controlling interest in a non-wireline
cellular telephone system purchased in 1991. This increase amounted to $899
and resulted in an increase in licenses.
Acquisitions of non-wireline cellular telephone systems in 1994, 1995 and
1996 (note 3):
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Cash payment...................................... $91,720 $158,397 $67,588
======= ======== =======
Allocated to:
Fixed assets.................................... $11,332 $ 22,846 $ 5,678
Licenses........................................ 79,383 136,940 61,433
Deferred income taxes........................... -- (6,165) --
Current assets and liabilities, net............. 1,005 4,776 477
------- -------- -------
$91,720 $158,397 $67,588
======= ======== =======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1994 1995 1996
<S> <C> <C> <C>
Cash paid for interest.............................. $15,199 $18,435 $29,733
Cash paid for income taxes.......................... -- -- $ 1,591
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Palmer
Wireless, Inc. and its subsidiaries (the "Company"), all of which the Company
has an ownership interest in greater than 50 percent.
Palmer Wireless, Inc. ("Wireless") is a Delaware corporation and was
incorporated on December 15, 1993 to effect an initial public offering of its
Class A Common Stock. At December 31, 1996, Palmer Communications Incorporated
("PCI") owned 61 percent of Wireless' outstanding common stock and had 75
percent of Wireless' voting rights and therefore Wireless is a subsidiary of
PCI.
In March of 1995, Wireless issued common stock for 100 percent of the
partnership interests of Palmer Cellular Partnership (the "Partnership") (see
note 2). Since this exchange was between related parties it has been accounted
for in a manner similar to a pooling of interests. Therefore, the statements
of operations, stockholders' equity and cash flows for the year ended December
31, 1994 have been restated to include the accounts of the Partnership.
Losses in subsidiaries, attributable to minority stockholders and partners,
in excess of their capital accounts and cash capital call provisions are not
eliminated in consolidation.
Significant intercompany accounts and transactions have been eliminated in
the consolidation.
OPERATIONS
The Company has majority ownership in corporations and partnerships which
operate the non-wireline cellular telephone systems in nine Metropolitan
Statistical Areas ("MSA") in three states: Florida (two), Georgia (five) and
Alabama (two). The Company's ownership percentages in these entities range
from approximately 78 percent to 100 percent. The Company owns directly and
operates eight non-wireline cellular telephone systems in Rural Service Areas
("RSA") in Georgia (seven) and Alabama (one).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company 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 AND CASH EQUIVALENTS
For purposes of the statements of cash flows the Company considers
repurchase agreements with a maturity of three months or less to be cash
equivalents.
TRADE ACCOUNTS RECEIVABLE
The Company grants credit to its customers. Substantially all of the
customers are residents of the local areas served by the Company. Generally,
the Company discontinues service to customers whose accounts are 60 days past
due. The activity in the Company's allowance for doubtful accounts for the
years ended December 31, 1994, 1995, and 1996 consisted of the following:
<TABLE>
<CAPTION>
ADDITIONS--
BALANCE AT ADDITIONS ALLOWANCE AT BALANCE
BEGINNING CHARGED TO DATES OF DEDUCTIONS NET AT END
OF YEAR EXPENSES ACQUISITIONS OF RECOVERIES OF YEAR
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1994................... $ 681 $1,453 $ 211 $ 778 $1,567
====== ====== ====== ====== ======
Year ended December 31,
1995................... $1,567 $2,078 $ 432 $2,197 $1,880
====== ====== ====== ====== ======
Year ended December 31,
1996................... $1,880 $3,946 $1,270 $5,305 $1,791
====== ====== ====== ====== ======
</TABLE>
F-8
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INVENTORY
Inventory consisting primarily of cellular telephones and telephone parts is
stated at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
principally by the straight-line method over the estimated useful lives,
ranging from 5 to 20 years for buildings and improvements and 5 to 10 years
for equipment, communications systems and furnishings.
ACQUISITIONS AND LICENSES
The cost of acquired companies is allocated first to the identifiable
assets, including licenses, based on the fair market value of such assets at
the date of acquisition (as determined by independent appraisers or management
of the Company). The excess of the total consideration over the amounts
assigned to identifiable assets is recorded as goodwill.
Also included in licenses are expenditures related directly to acquiring
licenses which were not developed or operating at the time of purchase.
Licenses and goodwill are being amortized from the date of commencement of
service to customers (with applicable interest capitalized from acquisition
date to this date) on a straight-line basis over a 40-year period.
Subsequent to the acquisition of the licenses, the Company continually
evaluates whether later events and circumstances have occurred that indicate
the remaining estimated useful life of licenses may warrant revision or that
the remaining balance of the license rights may not be recoverable. The
Company has undergone an annual independent appraisal of its licenses' value.
The Company utilizes projected undiscounted cash flows over the remaining life
of the licenses and sales of comparable businesses to evaluate the recorded
value of licenses. The assessment of the recoverability of the remaining
balance of the license rights will be impacted if projected cash flows are not
achieved.
OTHER INTANGIBLE ASSETS AND OTHER ASSETS
Other intangibles and other assets consist primarily of deferred financing
costs, covenants not to compete, subscriber base, and other items. These costs
are being amortized by the interest or straight-line method over their
respective useful lives, which range from 5 to 10 years.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method
of accounting for deferred income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The 1994 consolidated financial statements made no provision for income
taxes, due to the fact that the losses of the Partnership were included in the
income tax returns of the individual partners. Also, the consolidated
financial statements made no provision for income taxes of subsidiary
corporations of the Company since those
F-9
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
corporations had approximately $16,182 of net operating loss carryforwards at
December 31, 1994 for federal income tax purposes. In addition, the 1994
consolidated financial statements made no provision for income taxes on the
loss of Wireless due to the non-utilization of Wireless' net operating loss
for the year.
INTEREST RATE SWAP AND CAP AGREEMENTS
The differential to be paid or received in connection with interest rate
swap agreements is accrued as interest rates change and is recognized over the
life of the agreements.
Premiums paid for purchased interest rate cap agreements are amortized to
interest expense over the term of the caps. Unamortized premiums are included
in other assets in the consolidated balance sheet. Amounts receivable under
cap agreements are accrued as a reduction of interest expense.
REVENUE RECOGNITION
Service revenue includes local subscriber revenue and roamer revenue.
The Company earns local subscriber revenue by providing access to the
cellular network (access revenue) or, as applicable, for usage of the cellular
network (airtime revenue). Access revenue is billed one month in advance and
is recognized when earned. Airtime revenue is recognized when the service is
rendered.
Roamer revenue represents revenue earned by the Company for usage of its
cellular network by subscribers of other cellular carriers. Roamer revenue is
recognized when the services are rendered.
Equipment sales and installation revenue is recognized upon delivery or
installation of the equipment to the customer.
OPERATING EXPENSES--ENGINEERING, TECHNICAL AND OTHER DIRECT
Engineering, technical and other direct operating expenses represent certain
costs of providing cellular telephone service to customers. These costs
include cost of incollect roaming service. Incollect roaming is the result of
the Company's subscribers using cellular networks of other cellular carriers.
Incollect roaming revenue is netted against the cost of incollect roaming
service to determine net incollect roaming expense.
STOCK OPTION PLANS
Prior to January 1, 1996, the Company accounted for its stock option plans
in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No.123
had been applied. The Company has elected to continue to apply the provisions
of APB Opinion No.25 and provide the pro forma disclosure provisions of SFAS
No. 123.
F-10
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods and assumptions used to estimate the fair
value of the Company's financial instruments are set forth below:
For cash and cash equivalents, trade accounts receivable, receivable from
other cellular carriers, notes payable, accounts payable and accrued expenses,
the carrying amount approximates the estimated fair value due to the short-
term nature of those instruments.
Rates currently available to the Company for long-term debt with similar
terms and remaining maturities are used to discount the future cash flows to
estimate the fair value for long-term debt. Note 4 presents the fair value for
long-term debt and the related interest rate cap and swap agreements.
Fair value estimates are made as of a specific point in time, based upon the
relevant market information about the financial instruments. Because no market
exists for a majority of the Company's financial instruments, fair value
estimates are based on judgements regarding current economic conditions and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of judgement and, therefore, cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.
COMPUTATION OF NET INCOME PER SHARE
The computation of net income per share is based on the weighted average
number of common and dilutive common equivalent shares (common stock options
using the treasury stock method) outstanding during the periods presented.
Average shares of common stock outstanding has been computed assuming that the
704,755 shares of Class A Common Stock and 17,288,578 shares of Class B Common
Stock issued in the Exchange (as defined in note 2) have been outstanding
since January 1, 1994 and the 1,667 shares of Class A Common Stock and the
5,000 shares of Class B Common Stock issued in the initial capitalization of
Wireless have been outstanding since January 1, 1994.
(2) OFFERING AND EXCHANGE
On March 21, 1995 and April 18, 1995, Wireless issued 5,000,000 and 369,350
shares, respectively, of Class A Common Stock in an initial public offering
(the "Offering") for net proceeds of $68,399. In connection with the Offering,
on March 21, 1995, Wireless issued 704,755 shares of Class A Common Stock and
17,288,578 shares of Class B Common Stock in exchange for 100 percent of the
Partnership interests of the Partnership (the "Exchange"). The assets and
liabilities received in the Exchange were recorded at their historical cost to
the Partnership and not revalued at fair value on the date of transfer. Since
the Exchange was between related parties it has been accounted for in a manner
similar to a pooling of interests (see note 1).
(3) ACQUISITIONS AND PURCHASE OF LICENSES
On October 31, 1994, the Company acquired the assets of and the licenses to
operate the non-wireline cellular telephone systems serving the Georgia Rural
Service Area Market Nos. 377, 378, 380 and 382, otherwise known as Georgia-7
RSA, Georgia-8 RSA, Georgia-10 RSA and Georgia-12 RSA, respectively, for an
aggregate purchase price of $91,720. The acquisition was accounted for by the
purchase method of accounting. In connection with this acquisition, $79,383 of
the purchase price was allocated to licenses. From the date of acquisition to
December 31, 1994, revenue, depreciation and amortization, operating loss and
net loss before interest expense related to the purchase price of the non-
wireline cellular telephone systems purchased were $1,803, $744, $(645) and
$(644), respectively.
On December 1, 1995, the Company purchased all of the outstanding stock of
Augusta Metronet, Inc. and Georgia Metronet, Inc., which owned either directly
(or in the case of Georgia Metronet, Inc., through its 97.9 percent interest
in the Savannah Cellular Limited Partnership) the licenses to operate the non-
wireline cellular
F-11
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
telephone systems in the Savannah and Augusta, Georgia MSAs, respectively, for
an aggregate purchase price of $158,397. The acquisition was accounted for by
the purchase method of accounting. In connection with this acquisition,
$136,940 of the purchase was allocated to licenses. From the date of
acquisition to December 31, 1995, revenue, depreciation and amortization,
operating income and net income before interest expense related to the
purchase price of the non-wireline cellular telephone systems were $2,126,
$508, $208 and $202, respectively.
On June 20, 1996, the Company acquired the assets of and the license to
operate the non-wireline cellular telephone system serving the Georgia Rural
Service Area Market No. 371, otherwise known as Georgia-1 RSA for an aggregate
purchase price of $31,616. The acquisition was accounted for by the purchase
method of accounting. In connection with the acquisition, $27,942 of the
purchase price was allocated to licenses. From the date of acquisition to
December 31, 1996, revenue, depreciation and amortization, operating loss and
net loss before interest expense related to the purchase of the non-wireline
cellular telephone system were $1,239, $556, $(278), and $(278), respectively.
On July 5, 1996, two of the Company's majority-owned subsidiaries acquired
the assets of and the license to operate the non-wireline cellular telephone
system serving the Georgia Rural Service Area Market No. 376, otherwise known
as Georgia-6 RSA for an aggregate purchase price of $35,972. The acquisition
was accounted for by the purchase method of accounting. In connection with the
acquisition, $33,491 of the purchase price was allocated to licenses. From the
date of acquisition to December 31, 1996, revenue, depreciation and
amortization, operating income, and net income before interest expense related
to the purchase of the non-wireline cellular telephone system were $2,682,
$578, $743, and $743, respectively.
Assuming the 1995 and 1996 acquisitions had occurred on January 1, 1995,
unaudited pro forma revenue, net (loss) income and net (loss) income per share
for the year ended December 31, 1995 would have been $132,958, $(12,437), and
$(.56), respectively, and for the year ended December 31, 1996, would have
been $163,393, $3,840, and $.15, respectively. These pro forma amounts assume
that the financing requirements were met by the incurrence of bank debt and
are not necessarily indicative of what the actual consolidated results of
operation might have been if the acquisition had been effective on January 1,
1995.
(4) NOTES PAYABLE AND LONG-TERM DEBT
On December 1, 1995, the Company entered into a loan agreement with a bank
which provides for a revolving line of credit of up to $5,000 to facilitate
day-to-day cash management needs. The loan agreement provides for interest at
the bank's prime rate and matures November 30, 1997.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
<S> <C> <C>
Credit agreement (a)......................................... $343,000 $337,000
Purchase obligations (b)..................................... 7,441 5,296
-------- --------
$350,441 $342,296
Less current installments.................................... 7,441 5,296
-------- --------
Long-term debt, excluding current installments............... $343,000 $337,000
======== ========
</TABLE>
(a) On December 1, 1995, the Company entered into an amended and restated
credit agreement with 21 banks which provides for a revolving line of credit
of up to $500,000, subject to certain limitations through June 30, 2004. This
credit agreement increased the Company's previously existing $275,000
revolving line of credit. The credit agreement provides for quarterly
commitment reductions commencing September 30, 1998 and
F-12
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
commitment reductions of 25 to 50 percent of Excess Cash Flow (as defined in
the credit agreement), if any, are required on April 15, 1998 and annually
thereafter. Interest is payable at variable rates and under various interest
rate options. The interest rate at December 31, 1996 ranged from 7.42 to 8.88
percent before the effect of the interest rate swap and cap agreements
outlined below. The credit agreement also provides for a commitment fee of .5
percent per year on any unused amounts of the credit agreement. Amounts
outstanding are secured by the assets of the Company.
The credit agreement provides for various compliance covenants and
restrictions, including items related to mergers or acquisition transactions,
the declaration or payment of dividends or other payments to stockholders,
capital expenditures and maintenance of certain financial ratios. At December
31, 1996, the Company was in compliance with all but one financial ratio
covenant. This covenant was based upon operating results for the year ended
December 31, 1996. The Company obtained a waiver of the noncompliance with
this 1996 financial ratio covenant.
The Company has entered into interest rate swap and cap agreements to reduce
the impact of changes in interest rates on its floating debt and thus were
entered into for purposes other than trading. At December 31, 1996, the
Company had outstanding ten interest rate swap agreements and four interest
rate cap agreements having a total notional value of $295,000. These interest
rate swap and cap agreements effectively change the Company's interest rate
exposure on a quarterly basis on $295,000 of credit.
F-13
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The cap and swap agreements are summarized as follows:
<TABLE>
<CAPTION>
MAXIMUM NOTIONAL
TYPE OF AGREEMENT MATURITY LIBOR(1) VALUE
<S> <C> <C> <C>
Cap....................................... Nov. 17, 1997 8.00 $ 10,000
Swap...................................... Nov. 17, 1997 8.10 10,000
Swap...................................... Nov. 17, 1997 7.48 20,000
Participating Cap (2)..................... Nov. 23, 1997 8.75 15,000
Participating Swap (3).................... Nov. 24, 1997 8.29 15,000
Trigger Cap (4)........................... Nov. 28, 1997 7.50/8.50 15,000
Pay Later Cap (5)......................... Jan. 12, 1998 8.50 20,000
Swap...................................... Aug. 3, 1998 5.26 25,000
Participating Swap (6).................... Aug. 10, 1998 5.98 15,000
Swap...................................... Aug. 6, 1999 6.36 25,000
Swap...................................... Aug. 7, 2000 6.04 50,000
Swap...................................... Aug. 20, 2000 6.07 25,000
Swap...................................... Oct. 10, 2000 6.03 25,000
Swap...................................... Oct. 11, 2000 5.99 25,000
--------
$295,000
========
</TABLE>
- ---------------------
(1) The maximum interest rate is 2.5 percent over the LIBOR stated in the
table below. The 2.5 percent interest rate over such LIBOR decreases if
certain leverage ratios are met by the Company.
(2) On 36 percent ($5,400) the interest rate is set at 8.75 percent, the
balance is set at the three-month LIBOR up to a maximum 8.75 percent.
(3) When the three-month LIBOR is less than 8.29 percent the Company
participates in 50 percent of the difference.
(4) When LIBOR is below 8.5 percent the rate is 7.5 percent, when LIBOR is 8.5
percent or above the rate is 8.5 percent.
(5) When the three-month LIBOR rate is 8.5 percent or higher the Company
receives a quarterly payment of $98.
(6) When the six-month LIBOR is less than 5.98 percent the Company
participates in 45 percent of the difference.
Fees in the amount of $240 were incurred in connection with certain of the
cap agreements and are being amortized over the lives of the respective cap
agreements.
The market value of the swap and cap agreements above, which has not been
reflected in the consolidated financial statements as of December 31, 1996, is
a loss of $1,545.
The Company is exposed to interest rate risk in the event of nonperformance
by the other party to the interest rate swap and cap agreements. However, the
Company does not anticipate nonperformance by any of the banks.
(b) In connection with the purchase of controlling interest in a non-
wireline cellular telephone system in 1991, the Company incurred certain
purchase obligations. The obligations, were retired in July 1996 and January
1997.
Based upon current borrowing rates the fair value approximates the carrying
value of the long-term debt outstanding under the credit agreement described
in (a) above and the purchase obligations described in (b) above.
F-14
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
<S> <C>
1997........................... $ 5,296
1998........................... --
1999........................... --
2000........................... --
2001........................... 72,000
Thereafter..................... 265,000
--------
$342,296
========
</TABLE>
(5) INCOME TAXES
Components of income tax expense consist of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
<S> <C> <C> <C>
Year ended December 31, 1995:
Current............................................. $ -- $-- $ --
Deferred............................................ 2,550 100 2,650
------ ---- ------
$2,550 $100 $2,650
====== ==== ======
Year ended December 31, 1996:
Current............................................. $ -- $869 $ 869
Deferred............................................ 1,795 60 1,855
------ ---- ------
$1,795 $929 $2,724
====== ==== ======
</TABLE>
The consolidated effective tax rate differs from the statutory United States
federal tax rate for the following reasons and by the following percentages:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER
31,
------------
1995 1996
<S> <C> <C>
Statutory United States federal tax rate........................ 34.0% 34.0%
Partnership loss prior to corporate status...................... 10.1 --
License amortization not deductible for tax..................... 7.7 32.5
Net operating loss carryforwards................................ (59.0) (42.8)
State taxes..................................................... -- 8.3
Recognition of deferred income taxes related to the difference
between financial statement and income tax bases of certain
assets and liabilities in connection with the Exchange......... 73.5 --
Other........................................................... 7.2 4.8
----- -----
Consolidated effective tax rate................................. 73.5% 36.8%
===== =====
</TABLE>
F-15
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The components of the deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts..................... $ 658 $ 609
Nondeductible accruals.............................. 163 221
Net operating loss carryforwards.................... 4,314 4,100
-------- --------
Total deferred tax assets......................... $ 5,135 $ 4,930
Valuation allowance................................. (3,898) --
-------- --------
$ 1,237 $ 4,930
-------- --------
Deferred tax liabilities:
Property, plant and equipment....................... (7,323) (7,415)
Licenses............................................ (2,729) (8,185)
-------- --------
Total deferred tax liabilities.................... $(10,052) $(15,600)
-------- --------
Deferred tax liability, net......................... $ (8,815) $(10,670)
======== ========
</TABLE>
The net change in the total valuation allowance for the year ended December
31, 1996 was a decrease of $3,898. A valuation allowance had been recorded
primarily to offset the gross deferred tax assets created by net operating
loss carryforwards until such time as earnings of the Company or alternative
tax planning strategies warranted full recognition. Management believes that
it is more likely than not that the results of future operations will generate
sufficient taxable income to realize that portion of the deferred tax asset
related to the net operating loss carryforwards. The net operating loss
carryforwards totaled approximately $11,700 at December 31, 1996 and expire in
amounts ranging from approximately $400 to $4,100 through 2011. For
carryforwards of approximately $10,900, generated in periods prior to the
Exchange, utilization is limited to the subsidiary that generated the
carryforwards, unless the Company utilizes alternative tax planning
strategies.
(6) RELATED PARTY TRANSACTIONS
During 1994, the Company had a subordinated demand note of $20,000 with
Palmer Broadcasting Limited Partnership, a majority-owned subsidiary of PCI.
Interest expense under the note was $1,611 for the year ended December 31,
1994. The note was paid off in 1994.
PCI had previously extended the Company a line of credit in the amount of
$3,000 that was used for the initial operations of the Company, to pay
organization expenses and to pay expenses of the Offering. The line of credit
bore interest at 2 percent above the prime rate. Interest expense on the line
of credit amounted to $117 for the year ended December 31, 1994. The
borrowings totaling $1,615 were repaid with the proceeds of the Offering.
During 1994, the Company earned $78 of interest income from advances to PCI.
During 1994, the Company performed certain management functions for PCI.
These functions included general management, human resources administration,
accounting, and computer services. PCI was charged a fee based on the
Company's estimate of its time spent managing PCI and usage of its computer.
Concurrently with the Offering and the Exchange, the Company and PCI entered
into both a transitional management and administrative services agreement and
a computer services agreement that extend each December 31 for
F-16
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
additional one-year periods unless and until either party notifies the other.
The fees from these arrangements amounted to a total of $509, $492, and $534
for the years ended December 31, 1994, 1995, and 1996, respectively, and are
included as a reduction of selling, general and administrative expenses.
During 1994, PCI provided certain tax consulting services to the Company.
Concurrently with the Offering and the Exchange, the Company and PCI entered
into a tax consulting agreement that extends each December 31 for additional
one-year periods unless and until either party notifies the other. The fees
for tax consulting services amounted to a total of $67, $84, and $120 for the
years ended December 31, 1994, 1995, and 1996, respectively, and are included
in selling, general and administrative expenses.
PCI has a 401(k) plan with a noncontributory retirement feature and a
matching provision for employees who meet length of service and other
requirements. The Company participates in this plan and was allocated 401(k)
retirement and matching expense of $305, $493, and $696 for the years ended
December 31, 1994, 1995, and 1996, respectively.
(7) COMMON STOCK AND STOCK PLANS
During 1994, the Company amended its certificate of incorporation to
increase the number of authorized shares of common stock from 60,000,000 to
91,000,000 and to provide for Class A Common Stock and Class B Common Stock.
The Class A Common Stock has one vote per share. The Class B Common Stock,
which may be owned only by PCI or certain successors of PCI and of which no
shares may be issued subsequent to the Offering, has five votes per share,
provided, however, that, so long as any Class A Common Stock is issued and
outstanding, at no time will the total outstanding Class B Common Stock have
the right to cast votes having more than 75 percent of the total voting power
of the common stock in the aggregate. Shares of Class B Common Stock shall be
converted into Class A Common Stock on a share-for-share basis: (i) at any
time at the option of the holder; (ii) immediately upon the transfer of shares
of Class B Common Stock to any holder other than a successor of PCI; (iii)
immediately if the shares of Class B Common Stock held by PCI or its
successors constitute 33 percent or less of the outstanding shares of the
Company; (iv) at the end of 20 years from original issuance of those shares of
Class B Common Stock; or (v) if more than 50 percent of the equity interests
in PCI become beneficially owned by persons other than: (i) beneficial owners
of PCI as of December 29, 1994 ("Current PCI Beneficial Owners"); (ii)
affiliates of Current PCI Beneficial Owners; (iii) heirs or devisees of any
individual Current PCI Beneficial Owner, successors of any corporation or
partnership which is a Current PCI Beneficial Owner and beneficiaries of any
trust which is a Current PCI Beneficial Owner; and (iv) any relative, spouse
or relative of a spouse of any Current PCI Beneficial Owner.
The Company adopted a Stock Option Plan in connection with the Offering,
under which options for an aggregate of 1,600,000 shares of Class A Common
Stock are available for grants to key employees. The Company also adopted a
Director's Stock Option Plan in connection with the Offering, under which
options for an aggregate of 300,000 shares of Class A Common Stock are
available for grants to directors who are not officers or employees of the
Company. Stock options under both plans are granted with an exercise price
equal to the stock's fair value at the date of grant. The stock options
granted under the Stock Option Plan have 10-year terms and vest and become
exercisable ratably over three years from the date of grant. The stock options
granted under the Director's Stock Option Plan are vested and become fully
exercisable upon the date of the grant. At December 31, 1996, there were
options with respect to 693,334 and 45,000 shares of Class A Common Stock
outstanding under the Stock Option Plan and the Director's Stock Option Plan,
respectively. At December 31, 1996, there were 880,000 and 255,000 additional
shares available for grant under the Stock Option Plan and the Director's
Stock Option Plan, respectively.
The Company applies APB Opinion No. 25 in accounting for its Stock Option
Plan and Director's Stock Option Plan ("the Plans") and accordingly, no
compensation cost has been recognized for its stock options in
F-17
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under
SFAS No.123, the Company's net income (loss) and net income (loss) per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------
1995 1996
<S> <C> <C>
Net income-as reported...................................... $ 954 $4,682
Net (loss) income-pro forma................................. $(777) $2,850
Net income per share-as reported............................ $ .04 $ .18
Net (loss) income per share-pro forma....................... $(.03) $ .11
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the weighted-average assumptions
as follows: dividend yield of 0.0%; expected volatility of 101%; risk-free
interest rate of 5.5%; and expected lives of five years. The fair value of the
option grants in 1995 and 1996 were $11.04 and $13.36 per share, respectively.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Balance December 31, 1994 -- --
Granted......................................... 692,500 $14.25
Exercised....................................... (20,000) 14.25
-------
Balance December 31, 1995......................... 672,500 14.25
Granted......................................... 72,500 17.25
Exercised....................................... (6,666) 14.25
-------
Balance December 31, 1996......................... 738,334 14.54
=======
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $14.25--$17.25 and 8.3
years, respectively.
At December 31, 1995 and 1996, the number of options exercisable was 37,500
and 250,000, respectively, and the weighted average exercise price of those
options was $14.25 and $14.34, respectively.
The Company adopted a stock purchase plan for employees (the "Employee Stock
Purchase Plan") and a stock purchase plan for non-employee directors (the
"Non-Employee Director Stock Purchase Plan"). Under the Employee Stock
Purchase Plan, 160,000 shares of Class A Common Stock are available for
purchase by eligible employees of the Company or any of its subsidiaries.
Under the Non-Employee Director Stock Purchase Plan, 25,000 shares of Class A
Common Stock are available for purchase by non-employee directors of the
Company. The purchase price of each share of Class A Common Stock purchased
under the Employee Stock Purchase Plan or the Non-Employee Director Stock
Purchase Plan will be the lesser of 90 percent of the fair market value of the
Class A Common Stock on the first trading day of the plan year or on the last
day of such plan year; provided, however, that in no event shall the purchase
price be less than the par value of the stock. Both plans will terminate in
2005, unless terminated at an earlier date by the board of directors. During
the year ended December 31, 1996, 15,541 shares were issued under the Employee
Stock Purchase Plan and 1,702 shares were issued under the Non-Employee
Director Stock Purchase Plan at a purchase price of $16.85. Compensation cost
computed under the provisions of SFAS No. 123 related to the shares issued
under the Employee Stock Purchase Plan and the Non-Employee Director Stock
Purchase Plan is immaterial to the consolidated financial statements.
F-18
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(8) COMMITMENTS AND CONTINGENCIES
LEASES
The Company occupies certain buildings and uses certain tower sites, cell
sites and equipment under noncancellable operating leases which expire through
2014. The operating leases for a building and certain tower sites and cell
sites are with related parties.
Future minimum lease payments under noncancellable operating leases as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
RELATED PARTIES OTHERS
<S> <C> <C>
1997............................................. $285 $ 3,429
1998............................................. 285 2,899
1999............................................. 52 2,507
2000............................................. 14 2,011
2001............................................. -- 1,348
Later years through 2014......................... -- 4,522
---- -------
Total minimum lease payments................... $636 $16,716
==== =======
</TABLE>
Rental expense was $1,609, $2,487, and $3,551 for the years ended December
31, 1994, 1995 and 1996, respectively, of which $253, $269, and $278 was paid
to related parties for 1994, 1995 and 1996, respectively.
CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial statements.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with six officers of the Company. The
agreements have terms of two or three years and provide for aggregate annual
salaries of $1,181 in 1997. Each employment agreement provides that if the
officer is terminated by the Company without cause (as defined therein) or
terminates the agreement for good reason (as defined therein), the Company
will pay the officer the full base salary and benefits which would have been
paid to such officer during the remaining term of the agreement.
F-19
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(9) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 FIRST QUARTER(A) SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL
<S> <C> <C> <C> <C> <C>
Total Revenue........... $22,374 $25,931 $26,055 $30,546 $104,906
======= ======= ======= ======= ========
Operating Income........ $ 4,872 $ 6,892 $ 8,152 $ 6,666 $ 26,582
======= ======= ======= ======= ========
Net (Loss) Income....... $(3,958) $ 1,620 $ 2,801 $ 491 $ 954
======= ======= ======= ======= ========
Net (Loss) Income Per
Share*................. $ (.21) $ .07 $ .12 $ .02 $ .04
======= ======= ======= ======= ========
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 FIRST QUARTER (B) SECOND QUARTER (B) THIRD QUARTER (B) FOURTH QUARTER TOTAL
<S> <C> <C> <C> <C> <C>
Total Revenue........... $36,950 $40,031 $41,171 $41,591 $159,743
======= ======= ======= ======= ========
Operating Income........ $ 8,514 $11,281 $11,977 $ 9,405 $ 41,177
======= ======= ======= ======= ========
Net Income (Loss)....... $ 76 $ 1,684 $ 2,976 $ (54) $ 4,682
======= ======= ======= ======= ========
Net Income (Loss) Per
Share*................. $ .00 $ .07 $ .10 $ (.00) $ .18
======= ======= ======= ======= ========
</TABLE>
- ---------------------
(a) First quarter loss was increased by $2,650 due to the recognition of
deferred income taxes relating to the difference between financial
statement and income tax return bases of certain assets and liabilities
in connection with the Exchange.
(b) Certain reclassifications have been made to conform to the fourth quarter
presentation.
* Weighted average shares outstanding for the quarters are calculated
independent of the weighted average shares outstanding for the year;
therefore, quarterly net income (loss) per share may not total to annual
net income per share.
(10) SUBSEQUENT EVENT
On February 1, 1997, one of the Company's majority-owned subsidiaries
acquired the assets of and license to operate the non-wireline cellular
telephone system serving the Georgia Rural Service Area Market No. 383,
otherwise known as Georgia-13 RSA for a total purchase price of $30,000,
subject to certain adjustments.
F-20
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
---------------- --------------
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents.................. $ 1,698 $ 1,740
Trade Accounts Receivable, Net of Allowance
for Doubtful Accounts..................... 18,784 19,049
Receivable from Other Cellular Carriers.... 1,706 3,669
Deferred Income Taxes...................... 830 980
Prepaid Expenses and Deposits.............. 2,313 1,794
Inventory.................................. 5,106 3,181
-------------- --------------
Total Current Assets..................... $ 30,437 $ 30,413
Net Property, Plant and Equipment............ 132,438 157,596
Licenses, Net of Amortization................ 375,808 398,845
Other Intangible Assets and Other Assets, at
Cost Less Accumulated Amortization.......... 11,259 10,348
-------------- --------------
$ 549,942 $ 597,202
============== ==============
LIABILITIES AND EQUITY
Current Liabilities:
Notes Payable.............................. $ 1,366 $ 2,321
Current Installments of Long-Term Debt..... 5,296 --
Accounts Payable........................... 10,394 9,032
Accrued Expenses........................... 8,399 11,896
Other Liabilities.......................... 4,686 4,874
-------------- --------------
Total Current Liabilities................ $ 30,141 $ 28,123
Long-Term Debt, Excluding Current
Installments................................ 337,000 378,000
Deferred Income Taxes........................ 11,500 15,326
Minority Interests........................... 6,371 7,123
-------------- --------------
Total Liabilities........................ $ 385,012 $ 428,572
-------------- --------------
Stockholders' Equity......................... 164,930 168,630
-------------- --------------
$ 549,942 $ 597,202
============== ==============
</TABLE>
- ---------------------
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
F-21
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1996 1997
(DOLLAR AMOUNTS IN THOUSANDS
EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
Revenue:
Service...................................... $ 72,741 $ 88,140
Equipment Sales and Installation............. 4,239 5,088
-------------- --------------
Total Revenue.............................. $ 76,980 $ 93,228
-------------- --------------
Operating Expenses:
Engineering, Technical and Other Direct...... 14,939 15,554
Cost of Equipment............................ 8,397 11,057
Selling, General and Administrative.......... 21,977 27,204
Depreciation and Amortization................ 11,872 15,129
-------------- --------------
Total Operating Expenses................... $ 57,185 $ 68,944
-------------- --------------
Operating Income........................... $ 19,795 $ 24,284
-------------- --------------
Other Income (Expense):
Interest Expense, Net........................ (16,006) (16,113)
Other (Expense) Income, Net.................. (58) 162
-------------- --------------
Total Other Expense........................ $ (16,064) $ (15,951)
-------------- --------------
Income Before Minority Interest Share of Income
and Income Taxes.............................. $ 3,731 $ 8,333
Minority Interest Share of Income.............. (1,023) (782)
-------------- --------------
Income Before Income Taxes..................... $ 2,708 $ 7,551
Income Taxes................................... (948) (3,851)
-------------- --------------
Net Income................................. $ 1,760 $ 3,700
============== ==============
Net Income Per Share of Common Stock........... $ 0.07 $ 0.13
============== ==============
Average Shares Outstanding..................... 23,940,039 27,813,259
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-22
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
CLASS A CLASS B TREASURY STOCK
----------------- ----------------- ----------------
ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December
31, 1995............... 6,095,772 $ 61 17,293,578 $173 $ 72,466 $ 1,853 -- $ -- $74,553
Public offering, net of
issuance costs
of $5,826.............. 5,000,000 50 -- -- 94,124 -- -- -- 94,174
Exercise of stock
options................ 6,666 -- -- -- 95 -- -- -- 95
Employee and non-
employee director stock
purchase plans......... 17,243 -- -- -- 290 -- -- -- 290
Treasury shares
purchased.............. -- -- -- -- -- 600,000 (8,864) (8,864)
Net income.............. -- -- -- -- -- 4,682 -- -- 4,682
---------- ---- ---------- ---- -------- ------- ------- -------- --------
Balances at December 31,
1996................... 11,119,681 $111 17,293,578 $173 $166,975 $ 6,535 600,000 $(8,864) $164,930
Net income.............. -- -- -- -- -- 3,700 -- -- 3,700
---------- ---- ---------- ---- -------- ------- ------- -------- --------
Balances at June 30,
1997................... 11,119,681 $111 17,293,578 $173 $166,975 $10,235 600,000 $ (8,864) $168,630
========== ==== ========== ==== ======== ======= ======= ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-23
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
<S> <C> <C>
1996 1997
-------------- --------------
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................... $ 1,760 $ 3,700
-------------- --------------
Adjustments to reconcile net income to net
cash provided by operating
activities:
Depreciation and amortization.............. 11,872 15,129
Minority interest share of income.......... 1,023 782
Deferred income taxes...................... 498 3,676
Loss (gain) on disposal of property........ 59 (9)
Interest deferred and added to long-term
debt....................................... 326 --
Payment of deferred interest............... -- (1,514)
(Increase) decrease in trade accounts
receivable................................. (809) 500
Decrease in inventory...................... 358 2,085
(Decrease) increase in accounts payable and
accrued expenses........................... (1,629) 1,799
Change in other accounts................... 2,345 (576)
-------------- --------------
Total adjustments........................ $ 14,043 $ 21,872
-------------- --------------
Net cash provided by operating
activities............................... $ 15,803 $ 25,572
-------------- --------------
Cash flows from investing activities:
Capital expenditures......................... (21,639) (31,700)
Proceeds from sales of property and
equipment.................................... 4 201
Purchase of cellular systems................. (31,500) (31,260)
Collection of purchase price adjustment...... 2,452 --
Purchases of minority interests.............. (1,254) (794)
Increase in other intangible assets and other
assets....................................... (1,710) (150)
-------------- --------------
Net cash used in investing activities...... $ (53,647) $ (63,703)
-------------- --------------
Cash flows from financing activities:
Increase in short-term notes payable......... 2,535 955
Repayment of long-term debt.................. (100,050) (3,782)
Proceeds from long-term debt................. 39,000 41,000
Public offering proceeds, net................ 94,295 --
-------------- --------------
Net cash provided by financing activities.. $ 35,780 $ 38,173
-------------- --------------
Net (decrease) increase in cash and cash
equivalents................................ $ (2,064) $ 42
Cash and cash equivalents at the beginning of
period......................................... 3,436 1,698
-------------- --------------
Cash and cash equivalents at the end of period. $ 1,372 $ 1,740
============== ==============
Supplemental disclosure of cash flow
information:
Income taxes paid (received), net............ $ 1,172 $ (617)
============== ==============
Interest paid................................ $ 14,460 $ 16,328
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-24
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Palmer
Wireless, Inc. and subsidiaries (the "Company") have been prepared without
audit pursuant to Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financials. In the opinion of management, all adjustments (none of which were
other than normal recurring items) considered necessary for a fair
presentation have been included. The results of operations for the interim
periods reported are not necessarily indicative of results to be expected for
the year.
The computation of net income per share is based on the weighted average
number of common and, as appropriate, dilutive common equivalent shares
(common stock options using the treasury stock method) outstanding during the
periods presented.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 Statement of Operations
to conform to the 1997 presentation.
(2) ACQUISITION AND PURCHASE OF LICENSE
On February 1, 1997, one of the Company's majority-owned subsidiaries
acquired the assets of and license to operate the non-wireline cellular
telephone system serving the Georgia Rural Service Area Market No. 383,
otherwise known as Georgia-13 RSA, for a total purchase price of $31,260.
(3) SALE OF THE COMPANY
On October 6, 1997, the outstanding shares of common stock of the Company
were sold to Price Communications Corporation for a purchase price of $17.50
per share, for an aggregate purchase price of approximately $486,000. In
addition, Price Communications Corporation also repaid approximately $378,000
of outstanding indebtedness of the Company.
F-25
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 13
The Acquisition........................................................... 18
Use of Proceeds........................................................... 20
Capitalization............................................................ 21
Unaudited Pro Forma Condensed Consolidated Financial Statements........... 22
Selected Consolidated Financial Data...................................... 30
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 32
The Exchange Offer........................................................ 42
Business.................................................................. 48
Management................................................................ 61
Principal Stockholders.................................................... 64
Description of New Credit Facility........................................ 64
Description of Notes...................................................... 67
United States Federal Income Tax Consequences............................. 93
Plan of Distribution...................................................... 94
Legal Matters............................................................. 94
Experts................................................................... 94
Available Information..................................................... 95
Certain Terms............................................................. 95
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$175,000,000
PRICE COMMUNICATIONS WIRELESS, INC.
11 3/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
-----------------------
PROSPECTUS
-----------------------
NOVEMBER 14, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty,
except (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) pursuant
to Section 174 of the DGCL (providing for liability of directors for the
unlawful payment of dividends or unlawful stock purchases or redemptions) or
(iv) for any transaction from which a director derived an improper personal
benefit.
Section 145 of the DGCL empowers the Company to indemnify, subject to the
standards set forth therein, any person in connection with any action, suit or
proceeding brought before or threatened by reason of the fact that the person
was a director, officer, employee or agent of such company, or is or was
serving as such with respect to another entity at the request of such company.
The DGCL also provides that the Company may purchase insurance on behalf of
any such director, officer, employee or agent.
The Company's Certificate of Incorporation and By-laws provide in effect for
the indemnification by the Company of each director and officer of the Company
to the fullest extent permitted by applicable law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits (see index to exhibits at E-1)
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes;
(a)(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;
(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. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(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 of 1933, 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.
II-1
<PAGE>
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant 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 Securities Act and will be
governed by the final adjudication of such issue.
(c) 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.
(d) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NEW YORK, NEW YORK, ON NOVEMBER 14, 1997.
PRICE COMMUNICATIONS WIRELESS, INC.
/s/ Robert Price
By: _________________________________
ROBERT PRICE
DIRECTOR, PRESIDENT AND TREASURER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Robert Price Director,
_____________________________________ President and November 14,
ROBERT PRICE Treasurer 1997
(Principal
Executive
Officer,
Financial Officer
and Accounting
Officer)
November 14,
1997
/s/ Ashley B. Dixon Vice President and
_____________________________________ Corporate
ASHLEY B. DIXON Secretary
(Principal
Executive
Officer)
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 The Merger Agreement*
3.1 Articles of Incorporation of the Company*
3.2 By-laws of the Company*
4.1 Indenture to 11 3/4% Senior Subordinated Notes due 2007 between the
Company and Bank of Montreal Trust Company, as Trustee (including form
of Note)*
4.2 Registration Rights Agreement*
5.1 Opinion of Davis Polk & Wardwell regarding the validity of the New
Notes*
8.1 Opinion of Davis Polk & Wardwell regarding tax matters*
10.1 Credit Agreement dated as of October 6, 1997 among the Company,
Holdings, the lenders listed therein, DLJ Capital Funding, Inc., as
syndication agent and Bank of Montreal, Chicago branch, as
administrative agent*
10.2 Fort Myers Sale Agreement*
10.3 Georgia Sale Agreement*
10.4 Ryan Agreement*
10.5 Wisehart Agreement*
10.6 Meehan Agreement*
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges*
21.1 Subsidiaries of the Company*
23.1 Consent of KPMG Peat Marwick LLP relating to the financial statements
of Palmer*
23.2 Consent of Davis Polk & Wardwell (see exhibit 5.1)*
25.1 Statement of Eligibility of Bank of Montreal Trust Company*
99.1 Form of Letter of Transmittal to 11 3/4% Senior Subordinated Notes due
2007 of the Company*
99.2 Form of Notice of Guaranteed Delivery to 11 3/4% Senior Subordinated
Notes due 2007 of the Company*
99.3 Form of Instruction to Registered Holder and/or Book-Entry Transfer of
Participant from Owner of the Company*
99.4 Form of Letter to Clients*
99.5 Form of Letter to Registered Holders and Depository Trust Company
Participants*
</TABLE>
- --------
* Previously filed.
E-1
