<PAGE>
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-57363
PROSPECTUS
Dated July 22, 1998
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
$200,000,000
SENIOR EXCHANGEABLE PAYABLE-IN-KIND NOTES DUE 2008
EXCHANGEABLE FOR SHARES OF COMMON STOCK OF PRICE COMMUNICATIONS CORPORATION
---------------------
The Senior Exchangeable Payable-in-Kind Notes due 2008 (the "Notes") are
being offered by Price Communications Cellular Holdings, Inc. ("Holdings" or the
"Company"), a wholly owned indirect subsidiary of Price Communications
Corporation ("PCC"). The Notes will mature on August 15, 2008. The Notes will
initially bear interest at a rate of 11 1/4% per annum, payable semi-annually in
arrears on each February 15 and August 15, commencing February 15, 1999. Such
interest rate will be permanently reduced by 0.50% once cash interest begins to
accrue on the Notes. Cash interest will begin to accrue on the Notes on February
15, 2003; PROVIDED that at any time prior to February 15, 2003, the Company may
make an election on any interest payment date to commence the accrual of cash
interest from and after such interest payment date, in which case, cash interest
will be payable on each interest payment date thereafter. Interest payable on
any interest payment date prior to the earlier of February 15, 2003 and the
Company's election to commence the accrual of cash interest shall be payable
through the issuance of additional Notes (valued at 100% of the principal amount
thereof). The Notes will be redeemable at the option of Holdings, in whole or in
part, at any time on or after August 15, 2003 in cash at the redemption prices
set forth herein, plus accrued and unpaid interest, if any, thereon to the
redemption date.
The Notes are subject to a special mandatory redemption on August 4, 1998 at
a cash price equal to 101% of the principal amount thereof together with accrued
and unpaid interest to the date of redemption if all of the Company's 13 1/2%
Senior Secured Discount Notes due 2007 have not been redeemed prior thereto.
In the event the daily high price of shares of common stock, $0.01 par
value, of PCC ("PCC Shares") equals or exceeds 115% of the Exchange Price (as
defined below) for ten out of 15 consecutive Trading Days (as defined below),
each outstanding Note will be mandatorily exchanged on the fifth Trading Day
immediately succeeding such tenth Trading Day (unless the Company shall have
elected on or prior to the second Trading Day immediately succeeding such tenth
Trading Day to permanently terminate the mandatory exchange provisions of the
Notes) into 25 PCC Shares (subject to adjustment for certain events) per $1,000
aggregate principal amount of Notes (initially equivalent to a price of $40.00
per share (the "Exchange Price")).
The Notes will not be subject to any sinking fund requirement. Upon the
occurrence of a Change of Control (as defined below), Holdings will be required
to make an offer to repurchase the Notes at a cash price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest, if any, to
the date of repurchase. See "Description of Notes--Redemption" and "--Certain
Covenants--Repurchase of Notes at the Option of the Holder Upon a Change of
Control".
The Notes will be general obligations of Holdings ranking senior to all
subordinated indebtedness of Holdings and PARI PASSU in right of payment to all
other existing and future senior unsecured indebtedness of Holdings. The Notes
will be effectively subordinated to all liabilities of Holdings's subsidiaries.
At March 31, 1998, on a pro forma basis after giving effect to the issuance and
sale of the Notes and the application of the net proceeds therefrom and to the
PCW Offering (as defined below), Holdings, on a consolidated basis, would have
had outstanding approximately $900.0 million of Indebtedness (as defined below),
and Holdings' subsidiaries would have had outstanding $700.0 million of
Indebtedness, and $362.7 million of deferred taxes and other liabilities.
Prior to this Offering, there has been no public market for the Notes.
Holdings does not currently intend to list the 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 Notes will develop. On
July 22, 1998, the last reported sale price for the PCC Shares on the American
Stock Exchange was $20.00 per share.
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 HEREOF FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
---------------------
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.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS(1) COMPANY(2)(3)
<S> <C> <C> <C>
Per Note........................................ 100% 2% 98%
Total........................................... $200,000,000 $4,000,000 $196,000,000
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) Holdings and PCC have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by Holdings, estimated at $625,000.
------------------------------
The Notes are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions including the right to reject orders in whole or in
part. It is expected that delivery of the Notes will be made in New York, New
York on or about July 31, 1998.
------------------------------
GLEACHER NATWEST INTERNATIONAL DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
--------------------------
WASSERSTEIN PERELLA SECURITIES, INC.
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY, SUBJECT TO LEGAL AND
REGULATORY RESTRICTIONS, ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR
OTHERWISE AFFECT THE PRICE OF THE SECURITIES, SPECIFICALLY, THE UNDERWRITERS MAY
OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR AND PURCHASE
SECURITIES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN
OF DISTRIBUTION."
AVAILABLE INFORMATION
Holdings and PCC have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1/S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
for the registration of the Notes and PCC Shares offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in exhibits and schedules to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to Holdings, PCC, the Notes and the PCC Shares,
reference is made to the Registration Statement, including the exhibits thereto,
and the financial statements and notes filed as a part thereof. Statements made
in this Prospectus concerning the contents of any contract, agreement or other
document referred to herein are not necessarily complete. With respect to each
such contract, agreement or other document filed with the Commission as an
exhibit, reference is made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
Holdings and PCC are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Commission. The reports, proxy statements and other information filed by
Holdings and PCC with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information at http://www.sec.gov. PCC's Common Stock is listed on the American
Stock Exchange (the "AMEX") under the symbol "PR". Reports, proxy statements and
other information filed by PCC may be inspected at the offices of the AMEX at 86
Trinity Place, New York, NY 10006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
PCC hereby incorporates in this Prospectus by reference thereto and makes a
part hereof the following documents, heretofore filed with the Commission
pursuant to the Exchange Act: (i) PCC's Annual Report on Form 10-K for the year
ended December 31, 1997; (ii) PCC's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998.
All documents filed by PCC pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to
termination of the Offering shall be deemed to be incorporated in the Prospectus
by reference and to be a part hereof from the respective dates of the filing of
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is, or is
deemed to be, incorporated by reference herein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
PCC hereby undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon written or oral request of any
such person, a copy of any and all of the documents referred to above which have
been or may be incorporated in this Prospectus by reference, other than
2
<PAGE>
exhibits to such documents which are not specifically incorporated by reference
into such documents. Requests for such copies should be directed to Kim
Pressman, Executive Vice President and Chief Financial Officer, Price
Communications Corporation, 45 Rockefeller Plaza, New York, New York 10020,
telephone (212) 757-5600.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains statements which constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Those statements appear in a number of places in this Prospectus and
include statements regarding the intent, belief or current expectations of PCC
and Holdings, their directors or their officers primarily with respect to the
future operating performance of PCC and Holdings. Prospective purchasers of the
Notes are cautioned that any such forward looking statements are not guarantees
of future performance and may involve risks and uncertainties, and that actual
results may differ from those in the forward looking statements as a result of
factors, many of which are outside the control of PCC and Holdings. The
accompanying information contained in this Prospectus, including, without
limitation, the information set forth below and the information under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations," identifies important factors that could cause such differences.
FOR CALIFORNIA RESIDENTS
WITH RESPECT TO SALES OF THE SENIOR EXCHANGEABLE PAYABLE-IN-KIND NOTES DUE
2008 (THE "NOTES") BEING OFFERED HEREBY TO CALIFORNIA RESIDENTS, SUCH NOTES MAY
BE SOLD ONLY TO: (1) "ACCREDITED INVESTORS" WITHIN THE MEANING OF REGULATION D
UNDER THE SECURITIES ACT OF 1933, (2) BANKS, SAVINGS AND LOAN ASSOCIATIONS,
TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT COMPANIES REGISTERED UNDER THE
INVESTMENT COMPANY ACT OF 1940, PENSION AND PROFIT-SHARING TRUSTS, CORPORATIONS
OR OTHER ENTITIES WHICH, TOGETHER WITH THE CORPORATION'S OR OTHER ENTITY'S
AFFILIATES, HAVE A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO THEIR MOST
RECENT REGULARLY PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED,
BUT NOT NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN
$14,000,000 AND SUBSIDIARIES OF THE FOREGOING, (3) ANY PERSON (OTHER THAN A
PERSON FORMED FOR THE SOLE PURPOSE OF PURCHASING THE NOTES BEING OFFERED HEREBY)
WHO PURCHASES AT LEAST $1,000,000 AGGREGATE AMOUNT OF THE NOTES BEING OFFERED
HEREBY OR (4) ANY PERSON WHO (A) HAS AN INCOME OF $65,000 AND A NET WORTH OF
$250,000, OR (B) HAS A NET WORTH OF $500,000 (IN EACH CASE, EXCLUDING HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES).
3
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(This page has been left blank intentionally.)
<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
"HOLDINGS" REFER TO PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND ALL
REFERENCES HEREIN TO THE "COMPANY" REFER TO HOLDINGS AND ITS SUBSIDIARIES AND
THEIR RESPECTIVE PREDECESSORS. ALL REFERENCES HEREIN TO "PCC" REFER TO PRICE
COMMUNICATIONS CORPORATION AND, UNLESS THE CONTEXT REQUIRES OTHERWISE, ITS
SUBSIDIARIES. REFERENCES HEREIN TO THE "ACQUISITION" REFER TO THE ACQUISITION BY
PRICE COMMUNICATIONS WIRELESS, INC. ("PCW"), A WHOLLY OWNED DIRECT SUBSIDIARY OF
HOLDINGS, OF PALMER WIRELESS, INC. ("PALMER") AND THE RELATED SALE OF THE FORT
MYERS AND GEORGIA-1 SYSTEMS OF PALMER, AS DESCRIBED BELOW UNDER "THE PALMER
ACQUISITION." AS USED IN THIS PROSPECTUS, THE TERMS "PCW" AND "PALMER" INCLUDE
THEIR RESPECTIVE SUBSIDIARIES AND PREDECESSORS. EXCEPT FOR HISTORICAL FINANCIAL
INFORMATION AND UNLESS OTHERWISE INDICATED, ALL INFORMATION PRESENTED BELOW
RELATING TO THE COMPANY, PCC AND PCW INCLUDING POPS AND NET POPS (EACH AS
DEFINED) AND THE SYSTEMS, GIVES EFFECT TO THE CONSUMMATION OF THE ACQUISITION
(INCLUDING THE SALE OF THE FORT MYERS AND GEORGIA-1 SYSTEMS). ALL INFORMATION
RELATING TO PCC SHARES HAS BEEN ADJUSTED TO GIVE EFFECT TO STOCK SPLITS.
THE COMPANY
The Company is currently engaged in the construction, development,
management and operation of cellular telephone systems in the southeastern
United States. At March 31, 1998, the Company provided cellular telephone
service to 326,721 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. The Company sells its cellular
telephone service as well as a full line of cellular products and accessories,
including pagers, principally through its network of retail stores. The Company
markets all of its products and services under the nationally recognized service
mark CELLULARONE-Registered Trademark-.
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"), the Company is able to offer
ten-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 CELLULARONE-Registered Trademark- name, the Company also enjoys the benefits
of association with a nationally recognized service mark.
The Company's cellular telephone systems serve contiguous licensed service
areas in Georgia, Alabama and South Carolina. The Company also has a cellular
service area in Panama City, Florida. The following table sets forth as of March
31, 1998, with respect to each service area in which the Company owns a cellular
telephone system, the estimated population, the Company's beneficial ownership
percentage, the Net Pops (as defined) and the date of initial operation of such
system by Palmer or a predecessor operator.
5
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<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................................................ 283,978 98.5 279,718 3/88
Georgia-6 RSA............................................... 199,516 96.3 192,134 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.............................................. 171,993 100.0 171,993 7/93
<CAPTION>
------------ ----------
<S> <C> <C> <C> <C>
Subtotal.................................................... 3,155,624 3,037,705
<CAPTION>
------------ ----------
<S> <C> <C> <C> <C>
Panama City, FL............................................. 146,018 78.4 114,493 9/88
<CAPTION>
------------ ----------
<S> <C> <C> <C> <C>
Total....................................................... 3,301,642 3,152,198
<CAPTION>
------------ ----------
------------ ----------
</TABLE>
- ------------------------
(1) Does not include the Alabama-5 RSA and South Carolina-7 RSA where the
Company has interim operating authority ("IOA"). IOA is granted for an area
to a license holder in an adjacent area when there are no license holders in
such area. The Company has no subscribers in the South Carolina-7 RSA, but
instead provides roaming access to its own subscribers and others when they
travel in this service area, utilizing its existing cell sites. Construction
permits were granted to third parties ("Permittees") for the Alabama-5 RSA
and South Carolina-7 RSA. The Permittees are required to complete
construction of their respective RSA within 18 months. After completing
construction, a Permittee may give the Company thirty days prior written
notice, at which point the Company would be required to sell all of its
subscribers of its other systems who reside within the boundaries of the
markets to the Permittee at cost. The Company, along with others, is
currently in negotiations to purchase the Alabama-5 RSA and the South
Carolina-7 RSA. No assurance can be given, however, that the Company will be
successful in consummating such purchase.
(2) Based on population estimates for 1997 from the spring 1998 edition of The
Wireless Communication Industry published by Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") (the "DLJ Pop Book").
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 cellular 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 37 retail
outlets, and a targeted sales staff solicits certain industry and government
subscribers. The Company's management believes that its internal sales force is
far more likely than independent agents to successfully select and screen new
subscribers and select pricing plans that realistically match subscriber means
and needs and to personally keep in contact with new customers.
6
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FLEXIBLE, VALUE-ORIENTED PRICING PLANS. The Company provides a range of
pricing plans, each of which includes a monthly access fee and, in most cases, a
bundle of "free" minutes. Additional home rate minutes are charged at rates
ranging from $0.05 per minute to $1.25 per minute depending on the customer's
usage plan and the 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.
The Company believes that its bundled minute offerings will encourage
greater customer usage. By bundling 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.
CONTINUALLY ADOPTING STATE OF THE ART SYSTEM DESIGN. The Company's network
allows the delivery of full personal communication services ("PCS")
functionality to its digital cellular customers, including primarily caller ID,
short message paging and extended battery life. The Company's network provides
for "seamless handoff" between digital cellular and PCS operators that, like the
Company, employ Time Division Multiple Access ("TDMA") technology, one of three
industry standards and the one employed by AT&T, SBC and others; i.e, the
Company's customers may leave the Company's service area and enter an area
serviced by a PCS provider using TDMA technology without noticing the
difference, and vice versa. The Company believes this innovation will allow the
Company to be the roaming partner of choice for such PCS operators. The Company
has a favorable 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 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 CELLULARONE-Registered Trademark- service mark. The Company has repeatedly
ranked number one in certain customer satisfaction categories among all Cellular
One operators (#1 MSA in its category in 1997, 1996, 1995, 1993, and 1992; #1
RSA in its category 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,
extensive use of in-house technical and engineering staff, and maintenance of
aggressive fraud control procedures, 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 Company was incorporated in the State of Delaware in 1997. The address
of the Company is 45 Rockefeller Plaza, New York, New York 10020. The Company's
phone number is (212) 757-5600.
7
<PAGE>
PRICE COMMUNICATIONS CORPORATION
PCC has historically been a nationwide communications company owning and
then disposing of a number of television, radio, newspaper, cellular telephone
and other communications and related properties. PCC's business strategy is to
acquire communications properties at prices PCC considers attractive, finance
such properties on terms satisfactory to PCC, manage such properties in
accordance with its operating strategy and dispose of them if and when PCC
determines such dispositions to be in its best interests. Prior to 1997 PCC
owned a number of television, radio, newspaper and other media and related
properties which were disposed of pursuant to PCC's long-standing policy of
buying and selling media properties at times deemed advantageous by PCC's Board
of Directors. On October 6, 1997, PCW acquired Palmer in the Acquisition, as
described below. PCC is currently engaged through PCW in the construction,
development, management and operation of cellular telephone systems in the
southeastern United States.
PCC was organized in New York in 1979 and began active operations in 1981.
Its principal executive offices are located at 45 Rockefeller Plaza, New York,
New York 10020, and its telephone number is (212) 757-5600.
THE PALMER ACQUISITION
Prior to the Merger described below, Holdings had no assets, liabilities or
operations other than the proceeds from the issuance of the 13 1/2% Holdings
Notes (as such term is defined below) and liabilities with respect thereto.
On May 23, 1997, PCC, PCW and Palmer entered into an Agreement and Plan of
Merger (the "Merger Agreement"). The Merger Agreement provided, among other
things, for the merger of PCW 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, PCW assumed all outstanding indebtedness of Palmer of approximately
$378.0 million ("Palmer Existing Indebtedness"), making the aggregate purchase
price for Palmer (including transaction fees and expenses) approximately $880.0
million. PCW 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 PCW entered into an Asset Purchase Agreement
with MJ Cellular Company, L.L.C. (the "Georgia Sale Agreement") which provided
for the sale by PCW, for approximately $25.0 million, of substantially all of
the assets of the non-wireline cellular telephone system serving the Georgia-l
Whitfield RSA ("Georgia-1"), including the FCC licenses to operate Georgia-1
(the "Georgia-1 Sale"). The sale of the assets of Georgia-1 was consummated on
December 30, 1997 and generated proceeds to the Company of approximately $24.2
million. A portion of the proceeds from the Georgia Sale were used to retire a
portion of the debt used to fund the acquisition of Palmer. The Merger, the Fort
Myers Sale and the Georgia-1 Sale are collectively referred to as the
"Acquisition."
In order to fund the Acquisition and pay related fees and expenses, PCW
issued $175.0 million aggregate principal amount of 11 3/4% Senior Subordinated
Notes due 2007 (the "11 3/4% PCW Notes") and entered into a syndicated senior
loan facility providing for term loan borrowings in the aggregate principal
8
<PAGE>
amount of $325.0 million and revolving loan borrowings of $200.0 million (the
"Credit Facility"). On October 6, 1997, PCW borrowed all term loans available
thereunder and approximately $120.0 million of revolving loans. The Credit
Facility was retired on June 16, 1998 with the net proceeds from the PCW
Offering (as defined below).
The Acquisition was also funded in part through a $44.0 million equity
contribution from PCC (the "PCC Equity Contribution") which was in the form of
cash and common stock of Palmer. Approximately $46.5 million of the purchase
price for the Acquisition was raised out of the proceeds from the issuance and
sale for $80.0 million (the "Holdings Offering") by Holdings of units consisting
of $153.4 million principal amount at maturity of 13 1/2% Senior Secured
Discount Notes due 2007 of Holdings (the "13 1/2% Holdings Notes") and warrants
(the "Warrants") to purchase shares of PCC common stock, par value $.01 per
share (the "PCC Shares").
The Company has the right to redeem all or part of the 13 1/2% Holdings
Notes on or after August 1, 1998 at a redemption price equal to 120% of the
accreted value thereof, including accrued and unpaid interest, if the closing
price of the PCC Shares equals or exceeds certain specified prices for the ten
consecutive trading days prior to the redemption date ($7.68 per share during
the period from August 1, 1998 to July 31, 1999). The Notes are subject to a
special mandatory redemption on August 4, 1998 at a cash price equal to 101% of
the principal amount thereof together with accrued and unpaid interest to the
date of redemption if all of the 13 1/2% Holdings Notes have not been redeemed
prior thereto. See "Use of Proceeds."
RECENT DEVELOPMENTS
On June 16, 1998, PCW issued (the "PCW Offering") $525.0 million aggregate
principal amount of 9 1/8% Senior Secured Notes due 2006 (the "PCW Secured
Notes," and, together with the 11 3/4% PCW Notes, the "PCW Notes"). See
"Description of the Senior Secured PCW Notes." The net proceeds from the PCW
Offering were used to retire the Credit Facility.
9
<PAGE>
THE OFFERING
The following summary description of the Notes is qualified in its entirety
by the more detailed information set forth under the caption "Description of
Notes" contained elsewhere in this Prospectus.
<TABLE>
<S> <C>
Issuer....................................... Price Communications Cellular Holdings, Inc.
Notes Offered................................ $200,000,000 aggregate principal amount of
Senior Exchangeable Payable-in-Kind Notes due
2008 (the "Notes").
Use of Proceeds.............................. The net proceeds from the Offering are
estimated to be approximately $195.4 million,
after deducting estimated fees and expenses.
The Company intends to use $109.2 million of
the net proceeds to redeem the 13 1/2%
Holdings Notes and the remaining $86.2
million for general corporate purposes,
including acquisitions. See "Use of
Proceeds."
Maturity Date................................ August 15, 2008.
Interest; PIK................................ Interest is payable semi-annually in arrears
on each February 15 and August 15 (the
"Interest Payment Dates"), commencing
February 15, 1999. The Notes will initially
bear interest at a rate of 11 1/4% per annum.
Such interest rate will be permanently
reduced by 0.50% once cash interest begins to
accrue on the Notes. Cash interest will begin
to accrue on the Notes on February 15, 2003;
PROVIDED that at any time prior to February
15, 2003, the Company may make an election on
any interest payment date to commence the
accrual of cash interest from and after such
interest payment date, in which case, cash
interest will be payable on each interest
payment date thereafter. Interest payable on
any interest payment date prior to the
earlier of February 15, 2003 and the
Company's election to commence the accrual of
cash interest shall be payable through the
issuance of additional Notes (valued at 100%
of the principal amount thereof). There can
be no assurances that the Company will not
make an election to pay cash interest and
thereby permanently reduce the interest rate
shortly after consummation of this Offering.
Special Mandatory Redemption................. The Notes are subject to a special mandatory
redemption on August 4, 1998 at a cash price
equal to 101% of the principal amount thereof
together with accrued and unpaid interest to
the date of redemption if all of the 13 1/2%
Holdings Notes have not been redeemed prior
thereto. See "Description of Notes--Special
Mandatory Redemption."
Mandatory Exchange........................... In the event the daily high price of PCC
Shares equals or exceeds 115% of the Exchange
Price for 10 out of 15 consecutive Trading
Days, each outstanding Note will be
mandatorily exchanged on the fifth Trading
Day immediately succeeding such 10th Trading
Day (unless the Company shall have
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
elected on or prior to the second Trading Day
immediately succeeding such 10th Trading Day
to permanently terminate the mandatory
exchange provisions of the Notes) into 25 PCC
Shares (subject to adjustment for certain
events) per $1,000 principal amount of Notes
(initially equivalent to a price of $40.00
per share (the "Exchange Price")).
Sinking Fund................................. None.
Optional Redemption.......................... The Notes will be redeemable in whole or in
part at the option of the Company, at any
time on or after August 15, 2003, 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 obligations of
Holdings and rank PARI PASSU in right of
payment to all other existing and future
senior unsecured Indebtedness of Holdings.
The Notes will be effectively subordinated to
all liabilities of Holdings' subsidiaries. As
of March 31, 1998, on a PRO FORMA basis after
giving effect to the PCW Offering and the
issuance and sale of the Notes and the
application of the estimated net proceeds
therefrom, Holdings, on a consolidated basis,
would have had approximately $900.0 million
of Indebtedness. At March 31, 1998, on a PRO
FORMA basis as described above, Holdings'
subsidiaries would have had outstanding
$700.0 million of Indebtedness and $362.7
million of deferred taxes and other
liabilities.
Change of Control............................ Upon the occurrence of a Change of Control
(as defined below), each Holder of Notes will
have the right, subject to certain
limitations, 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.
Certain Covenants............................ The Indenture (as defined below) 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."
</TABLE>
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in the Notes.
11
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL AND OPERATING DATA
The following table sets forth summary historical data for the Company and
its predecessor, 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 the Company
included elsewhere herein and the consolidated financial statements and notes
thereto of PCC Incorporated by reference herein.
The following table also sets forth certain summary operating data for
Palmer and the Company as of the dates and for the periods indicated.
<TABLE>
<CAPTION>
COMPANY PALMER COMPANY PALMER
------------------------- --------- ---------------------------- -------------------------
PERIOD FROM
(UNAUDITED)
--------------------------------------------------- YEAR
MAY 29 ENDED
THREE MONTHS ENDED MARCH 31, PRO FORMA (INCEPTION) NINE MONTHS DECEMBER
------------------------------------ YEAR ENDED THROUGH ENDED 31,
PRO FORMA DECEMBER 31, DECEMBER 31, SEPTEMBER 30, ---------
1998(1) 1998 1997 1997(1) 1997(2) 1997(3) 1996
-------------- --------- --------- ------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
INCOME STATEMENT DATA:
Revenue:
Service..................... $ 40,684 $ 40,684 $ 42,220 $ 152,854 $ 41,365 $ 134,123 $ 151,119
Equipment sales and
installation.............. 2,591 2,591 2,463 8,615 2,348 7,613 8,624
-------------- --------- --------- ------------- ------------- -------------- ---------
Total revenue............. 43,275 43,275 44,683 161,469 43,713 141,736 159,743
-------------- --------- --------- ------------- ------------- -------------- ---------
Engineering, technical and
other direct expenses....... 6,751 6,751 7,430 24,884 5,978 23,301 28,717
Cost of equipment............. 5,496 5,496 5,807 18,269 5,259 16,112 17,944
Selling, general and
administrative expenses..... 11,717 11,717 13,360 50,423 12,805 41,014 46,892
Depreciation and
amortization................ 11,928 11,928 8,281 42,962 11,055 25,498 25,013
-------------- --------- --------- ------------- ------------- -------------- ---------
Operating income.............. 7,383 7,383 9,805 24,931 8,616 35,811 41,177
Other income (expense):
Interest, net............... (22,355) (17,285) (7,872) (94,017) (22,198) (24,467) (31,462)
Other, net.................. (37) (37) 71 222 15 208 (429)
-------------- --------- --------- ------------- ------------- -------------- ---------
Total other expense....... (22,392) (17,322) (7,801) (93,795) (22,183) (24,259) (31,891)
Minority interest share of
(income) loss............... (460) (460) (331) (1,724) (414) (1,310) (1,880)
Income tax expense
(benefit)................... (5,718) (3,828) 496 (26,267) (5,129) 4,153 2,724
-------------- --------- --------- ------------- ------------- -------------- ---------
Net income (loss)............. $ (9,751) $ (6,571) $ 1,177 $ (44,321) $ (8,852) $ 6,089 $ 4,682
-------------- --------- --------- ------------- ------------- -------------- ---------
-------------- --------- --------- ------------- ------------- -------------- ---------
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue:
Service..................... $ 96,686 $ 61,021 $ 35,173
Equipment sales and
installation.............. 8,220 7,958 6,285
--------- --------- ---------
Total revenue............. 104,906 68,979 41,458
--------- --------- ---------
Engineering, technical and
other direct expenses....... 18,184 12,776 7,343
Cost of equipment............. 14,146 11,546 7,379
Selling, general and
administrative expenses..... 30,990 19,757 13,886
Depreciation and
amortization................ 15,004 9,817 10,689
--------- --------- ---------
Operating income.............. 26,582 15,083 2,161
Other income (expense):
Interest, net............... (21,213) (12,715) (9,006)
Other, net.................. (687) (70) (590)
--------- --------- ---------
Total other expense....... (21,900) (12,785) (9,596)
Minority interest share of
(income) loss............... (1,078) (636) 83
Income tax expense
(benefit)................... 2,650 0 0
--------- --------- ---------
Net income (loss)............. $ 954 $ 1,662 $ (7,352)
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Pro forma adjustments give effect to the following transactions as if each
had occurred on January 1, 1997: (i) the Acquisition (including the sale of
the Fort Myers and Georgia-1 systems) and related financings, (ii) the
issuance and sale of the Secured PCW Notes in the PCW Offering and
application of the net proceeds therefrom and (iii) the issuance and sale of
the Notes in the Offering and application of the net proceeds therefrom. See
"Unaudited Pro Forma Condensed Consolidated Financial Statements" and "The
Palmer Acquisition."
(2) Includes results of operations after the Acquisition (the period October 1,
1997 through December 31, 1997).
(3) Includes revenue of $24,720, total expenses of $16,354 (including
depreciation and amortization of $2,581) and operating income of $8,366 for
the Fort Myers and Georgia-1 markets sold during 1997.
12
<PAGE>
<TABLE>
<CAPTION>
COMPANY PALMER COMPANY PALMER
------------------------ --------- ---------------------------- -------------------------
FOR THE
PERIOD
(UNAUDITED)
-------------------------------------------------- YEAR
MAY 29 ENDED
THREE MONTHS ENDED MARCH 31, PRO FORMA (INCEPTION) NINE MONTHS DECEMBER
----------------------------------- YEAR ENDED THROUGH ENDED 31,
PRO FORMA DECEMBER 31, DECEMBER 31, SEPTEMBER 30, ---------
1998(1) 1998 1997 1997(1) 1997(2) 1997(3) 1996
----------- ----------- --------- ------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES AND SUBSCRIBER STATISTICS AND DATA)
OTHER DATA:
Capital expenditures......... $ 704 $ 704 $ 16,987 $ 55,256 $ 14,499 $ 40,757 $ 41,445
Operating income before
depreciation and
amortization ("EBITDA").... $ 19,311 $ 19,311 $ 18,086 $ 67,893 $ 19,671 $ 61,309 $ 66,190
EBITDA margin on service
revenue.................... 47.5% 47.5% 42.8% 44.4% 47.6% 45.7% 43.8%
Penetration(4)............... 9.90% 9.90% 7.94% 9.40% 9.40% 8.60% 7.45%
Subscribers at end of
period(5).................. 326,721 326,721 310,823 309,606 309,606 337,345 279,816
Cost to add a gross
subscriber(6).............. $ 223 $ 223 $ 234 $ 220 $ 188 $ 231 $ 216
Cost to add a net
subscriber(6).............. $ 440 $ 440 $ 440 $ 461 $ 370 $ 514 $ 407
Average monthly service
revenue per
subscriber(7).............. $ 43.18 $ 43.18 $ 47.70 $ 46.24 $ 47.47 $ 47.52 $ 52.20
Average monthly churn(8)..... 1.75% 1.75% 1.87% 1.88% 1.84% 1.89% 1.84%
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash......................... $ 183,445 $ 7,823 $ 2,091 $ 27,926 $ 27,926 $ 3,581 $ 1,698
Working capital (deficit).... 173,684 (4,867) 2,282 3,080 3,080 7,011 296
Property, plant and
equipment, net............. 147,003 147,003 148,121 151,141 151,141 161,351 132,438
Licenses, other intangibles
and other assets, net...... 937,973 930,822 411,314 937,986 937,986 406,828 387,067
Total assets................. 1,295,558 1,112,785 589,566 1,144,479 1,144,479 599,815 549,942
Total long-term debt......... 900,000 681,624 378,698 690,300 690,300 378,000 343,662
Stockholder's equity
(deficit).................. (4,082) 28,592 166,107 35,163 35,163 172,018 164,930
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
OTHER DATA:
Capital expenditures......... $ 36,564 $ 22,541 $ 13,304
Operating income before
depreciation and
amortization ("EBITDA").... $ 41,586 $ 24,900 $ 12,850
EBITDA margin on service
revenue.................... 43.0% 40.8% 36.5%
Penetration(4)............... 6.41% 4.58% 3.48%
Subscribers at end of
period(5).................. 211,985 117,224 65,761
Cost to add a gross
subscriber(6).............. $ 183 $ 178 $ 156
Cost to add a net
subscriber(6).............. $ 276 $ 247 $ 203
Average monthly service
revenue per
subscriber(7).............. $ 56.68 $ 60.02 $ 62.69
Average monthly churn(8)..... 1.55% 1.55% 1.37%
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash......................... $ 3,436 $ 2,998 $ 1,670
Working capital (deficit).... (1,435) 2,490 799
Property, plant and
equipment, net............. 100,936 51,884 23,918
Licenses, other intangibles
and other assets, net...... 332,850 199,265 114,955
Total assets................. 462,871 273,020 150,054
Total long-term debt......... 350,441 245,609 131,361
Stockholder's equity
(deficit).................. 74,553 4,915 3,244
</TABLE>
- ------------------------
(4) Determined by dividing the aggregate number of subscribers by the estimated
population.
(5) Each billable telephone number in service represents one subscriber. The
number of subscribers in the historical operating data of Palmer includes
subscribers in the Fort Myers and Georgia-1 markets which were sold in
connection with the Acquisition.
(6) 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 gross or net
subscribers (as applicable) added during such period.
(7) 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.
(8) 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.
13
<PAGE>
RISK FACTORS
In addition to the other matters described in this Prospectus, each
prospective purchaser of the Notes should consider the specific factors set
forth below.
LEVERAGE, LIQUIDITY AND ABILITY TO MEET REQUIRED DEBT SERVICE
On a pro forma basis, after giving effect to the Offering and the PCW
Offering, in each case, including the application of the net proceeds therefrom,
and the Acquisition and related financing, the Company's ratio of EBITDA to cash
interest expense (excluding non-cash interest related to the Notes and
amortization of deferred debt financing costs) would have been 1.00 to 1.00 for
the year ended December 31, 1997 and 1.14 to 1.00 for the three months ended
March 31, 1998. 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.
The Company used the net proceeds of the PCW Offering to retire the Credit
Facility. Accordingly, the Company has no credit facility in place and currently
does not intend to enter into a new credit facility. In addition, borrowings
under a new credit facility may be subject to significant conditions, including
compliance with certain financial ratios and the absence of any material adverse
change. In addition, the Company intends to pursue opportunities to acquire
additional cellular telephone systems which, if successful, will require the
Company to issue or 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, the PCW Notes or any credit
facility will not restrict or prohibit any such debt financing.
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. 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.
There can be no assurances that the Company would be successful in procuring any
such financing. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
LIMITATIONS ON ACCESS TO CASH FLOW OF SUBSIDIARIES; HOLDING COMPANY STRUCTURE
Holdings is a holding company, and its ability to pay interest on the Notes
is dependent upon the receipt of dividends from its direct and indirect
subsidiaries or of contributions from its parent, PCC. Holdings does not have,
and may not in the future have, any assets other than the common stock of PCW.
PCW is a party to an indenture related to the PCW Notes (the "PCW Indenture")
and an indenture related to the PCW Secured Notes (the "Secured PCW Indenture,"
and, together with the 11 3/4% PCW Indenture, the "PCW Indentures"), each of
which imposes substantial restrictions on PCW's ability to pay dividends to
Holdings. In addition, any credit agreement to which PCW may become a party may
impose similar restrictions. Any payment of dividends will be subject to the
satisfaction of certain financial conditions set forth in the PCW Indentures and
any future credit facility. The ability of PCW to comply with the PCW Indentures
may be affected by events that are beyond the control of Holdings. The breach of
any such conditions could result in a default under the PCW Indentures, and in
the event of any such default, the holders of the PCW Notes could elect to
accelerate the maturity of all the PCW Notes. If the maturity of the PCW Notes
were to be accelerated, all such outstanding debt would be required to be paid
in full before PCW would be permitted to distribute any assets or cash to
Holdings. In certain circumstances, it is possible that holders of PCW Notes
would have the right to require PCW to repurchase the PCW Notes while holders of
the Notes would not have a similar right to require the Company to repurchase
the Notes. There can be no assurance that the assets of the Company would be
sufficient to repay all of such outstanding debt and to meet its obligations
under the Notes. Future borrowings by PCW can be expected to contain
restrictions or prohibitions on the payment of dividends by such subsidiaries to
14
<PAGE>
Holdings. In addition, under Delaware law, a subsidiary of a company is
permitted to pay dividends on its capital stock only out of its surplus or, in
the event that it has no surplus, out of its net profits for the year in which a
dividend is declared or for the immediately preceding fiscal year. Surplus is
defined as the excess of a company's total assets over the sum of its total
liabilities plus the par value of its outstanding capital stock. In order to pay
dividends in cash, PCW must have surplus or net profits equal to the full amount
of the cash dividend at the time such dividend is declared. In determining PCW's
ability to pay dividends, Delaware law permits the Board of Directors of PCW to
revalue its assets and liabilities from time to time to their fair market values
in order to create surplus. The Company cannot predict what the value of its
subsidiaries' assets or the amount of their liabilities will be in the future
and, accordingly, there can be no assurance that the Company will be able to pay
its debt service obligations on the Notes.
As a result of Holdings' status as a holding company, the holders of the
Notes are structurally junior to all creditors of Holdings' subsidiaries, except
to the extent that Holdings is itself recognized as a creditor of any such
subsidiary, in which case the claims of Holdings would still be subordinate to
any security in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by Holdings. In the event of insolvency,
liquidation, reorganization, dissolution or other winding-up of Holdings'
subsidiaries, Holdings will not receive any funds available to pay to creditors
of the subsidiaries. As of March 31, 1998, on a pro forma basis, Holdings'
subsidiaries would have had outstanding $700.0 million of indebtedness, and
$362.7 million of deferred taxes and other liabilities.
POSSIBLE INABILITY TO PURCHASE NOTES UPON A CHANGE OF CONTROL OR ASSET SALE;
POSSIBLE EFFECT OF A CHANGE OF CONTROL
Upon a Change of Control, each holder of Notes will have the right to
require the Company to repurchase all outstanding Notes held by such holder.
However, there can be no assurance that sufficient funds will be available at
the time of any Change of Control to make any required repurchases of Notes
tendered, especially after giving effect to provisions of the PCW Indentures
which require repayment or repurchase, as the case may be, upon such a Change of
Control. Similarly, there can be no assurance that, upon the occurrence of an
Asset Sale which requires prepayment under the Indenture, the Company will have
sufficient funds available to satisfy such obligation after giving effect to
required prepayments under the PCW Indentures and as a result of an Asset Sale.
In certain circumstances, it is possible that holders of PCW Notes would have
the right to require PCW to repurchase the PCW Notes while holders of the Notes
would not have a similar right to require the Company to repurchase the Notes.
See "Description of Notes--Optional Redemption."
ORIGINAL ISSUE DISCOUNT
As a result of the Company's option to issue additional Notes in lieu of
cash interest payments, the Notes will be considered to be issued at an original
issue discount from what will be deemed to be their principal amount at
maturity. Consequently, purchasers of the Notes may be required to include
amounts in gross income for federal income tax purposes in advance of receipt of
the cash payments to which the income is attributable. See "Certain Federal
Income Tax Consequences" for a more detailed discussion of the federal income
tax consequences to the purchasers of the Notes resulting from the purchase,
ownership or disposition thereof.
MANDATORY EXCHANGE
Although the Trading Price must equal or exceed 115% of the Exchange Price
for ten out of 15 consecutive Trading Days in order for the Notes to be
mandatorily exchanged for PCC Shares, there can be no assurances as to the
trading price of the PCC Shares on the Exchange Date or thereafter or as to the
amount any Holder may realize upon any disposition thereof.
15
<PAGE>
NET LOSSES
On a pro forma basis after giving effect to the Offering and the PCW
Offering, in each case, including the application of the net proceeds therefrom,
and the Acquisition and related financing, the Company would have incurred
accounting net losses of approximately $44.3 million for the year ended December
31, 1997 and $9.8 million for the three months ended March 31, 1998. There can
be no assurance that the Company's future operations will generate sufficient
cash flow to pay its obligations. The Company expects to incur accounting net
losses for several years. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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, competition from various wireless technology
licensees authorized to serve each market in which the Company operates, as well
as from resellers of cellular service. Competition for subscribers between the
two cellular licensees in each market 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, paging
services and, to a limited extent, satellite systems for mobile communications.
ESMR is a digital transmission system providing for "cellular-like"
communications service. The Company also faces limited competition from and may
in the future face increased competition from 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 may be capable of
offering, and PCS operators claim to offer additional services not offered by
cellular providers. PCS subscribers could have dedicated personal telephone
numbers and communicate using small digital radio handsets 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, all such
services and features. The FCC has also completed or announced plans for
auctions in wireless services such as narrowband PCS, local multipoint
multichannel distribution service ("LMDS"), interactive video distribution
service ("IVDS"), wireless communications service ("WCS") and general wireless
communications service ("GWCS") spectrum. Some of this spectrum might be used
for services competitive in some manner with cellular service. The Company
cannot predict the effect of these proceedings and auctions on the Company's
business. However, 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 of the Company--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
16
<PAGE>
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: 1998 (three); 2000 (two); 2001
(four); 2002 (two); 2006 (one); and 2007 (four). 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 obligations during the relevant 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. The non-renewal of licenses could
have a material adverse effect on the Company's results of operations. See
"Business of the Company--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 a 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
CELLULARONE-Registered Trademark- to market its services. The Company's use of
this service mark is, and has historically been, governed by separate five-year
contracts between the Company and Cellular One Group, the owner of the service
mark, for each of the markets in which the Company operates. Such contracts
currently in effect expire at different times, ranging from April 18, 1999 to
June 9, 2003. If for some reason beyond the Company's control, the name
CELLULARONE-Registered Trademark- were to suffer diminished marketing appeal,
the Company's ability both to attract new subscribers and retain existing
subscribers could be materially affected. AT&T Wireless Services, Inc., which
has been the single largest user of the CELLULARONE-Registered Trademark-
service mark, has significantly reduced its use of the service mark as a primary
service mark, as has Centennial Cellular. There can be no assurance that such
reduction in use by any of such parties 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. 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.
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
17
<PAGE>
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 $25.0
million in umbrella liability coverage. This insurance would cover (subject to
coverage limits) any liability suits with respect to human exposure to radio
frequency emissions.
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 Offering, the Company will not be
rendered insolvent, it will have sufficient capital for the businesses in which
it was not 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 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 Notes will develop. If a trading market develops for the 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.
YEAR 2000
The Company and its consultants have reviewed the possible effect of the
Year 2000 on the computer systems currently in use, including the software that
is an integral part of the Company's switches and the related billing
information. Preliminary estimates indicate that the costs for Year 2000
compliance will be less than $2 million; however, the Company is unable to
predict whether its third-party billing provider or its principal sources of
puchased or leased cellular equipment have made sufficient modifications to
address the potential problems of the Year 2000 software shortcomings on their
computer systems. Any additional costs of this nature, to the extent they are
passed on to the Company or affect or delay the Company's business, bill
collection or cellular equipment installation, could have a material adverse
effect upon the Company's business or results of operations.
18
<PAGE>
THE PALMER ACQUISITION
Prior to the Merger described below, Holdings had no assets, liabilities or
operations other than the proceeds from the issuance of the 13 1/2% Holdings
Notes and liabilities with respect thereto.
On May 23, 1997, PCC, PCW and Palmer entered into the Merger Agreement. The
Merger Agreement provided, among other things, for the Merger of PCW 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, PCW assumed all outstanding indebtedness of
Palmer of approximately $378.0 million ("Palmer Existing Indebtedness"), making
the aggregate purchase price for Palmer (including transaction fees and
expenses) approximately $880.0 million. PCW 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 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 PCW entered into the Georgia Sale Agreement
which provided for the sale by PCW, for approximately $25.0 million, of
substantially all of the assets of the non-wireline cellular telephone system
serving the Georgia-l RSA, including the FCC licenses to operate Georgia-1. The
sale of the assets of Georgia-1 was consummated on December 30, 1997 and
generated proceeds to the Company of approximately $24.2 million. A portion of
the proceeds from the Georgia Sale were 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, PCW
issued $175.0 million aggregate principal amount of 11 3/4% PCW Notes and
entered into a syndicated senior loan facility providing for term loan
borrowings in the aggregate principal amount of $325.0 million and revolving
loan borrowings of $200.0 million (the "Credit Facility"). On October 6, 1997,
PCW borrowed all term loans available thereunder and approximately $120.0
million of revolving loans. The Credit Facility was retired on June 16, 1998
with the net proceeds from the PCW Offering.
The Acquisition was also funded in part through a $44.0 million equity
contribution from PCC which was in the form of cash and common stock of Palmer.
Approximately $46.5 million of the purchase price for the Acquisition was raised
out of the proceeds from the issuance and sale for $80.0 million of units
consisting of $153.4 million principal amount at maturity of the 13 1/2%
Holdings Notes and Warrants to purchase PCC Shares. See "Description of the
13 1/2% Holdings Notes."
The Company has the right to redeem all or part of the 13 1/2% Holding Notes
on or after August 1, 1998 at a redemption price equal to 120% of the accreted
value thereof, including accrued and unpaid interest, if the closing price of
the PCC Shares equals or exceeds certain specified prices for the ten
consecutive trading days prior to the redemption date ($7.68 per share during
the period from August 1, 1998 to July 31, 1999). The Notes are subject to a
special mandatory redemption on August 4, 1998 at a cash price equal to 101% of
the principal amount thereof together with accrued and unpaid interest to the
date of redemption if all of the 13 1/2% Holdings Notes have not been redeemed
prior thereto. See "Use of Proceeds."
19
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Notes, after deducting expenses of the
Offering, are estimated to be approximately $195.4 million. $109.2 million of
the net proceeds (based upon the accreted value as of August 1, 1998 and the 20%
redemption premium) will be used by the Company to redeem all of the outstanding
13 1/2% Holdings Notes on August 3, 1998. The remaining $86.2 million of net
proceeds will be used for general corporate purposes, including acquisitions.
The 13 1/2% Holdings Notes were issued in connection with the acquisition of
Palmer. See "The Palmer Acquisition." The remaining $29.5 million of net
proceeds from the issuance of the 13 1/2% Holdings Notes were dividended to PCC
and used to repurchase outstanding shares of PCC preferred stock and warrants to
purchase PCC Shares. The 13 1/2% Holdings Notes mature on August 1, 2007 and
were issued at a discount which represents a yield to maturity of 13 1/2% per
annum. Holdings has the right to redeem all or part of the 13 1/2% Notes on or
after August 1, 1998 at a redemption price equal to 120% of the accreted value
thereof, including accrued and unpaid interest, if any, if the closing price of
the PCC Shares equals or exceeds certain specified prices for the ten
consecutive trading days prior to the redemption date ($7.68 per share during
the period from August 1, 1998 to July 31, 1999). The Notes are subject to a
special mandatory redemption on August 4 , 1998 at a cash price equal to 101% of
the principal amount thereof together with accrued and unpaid interest to the
date of redemption if all of the 13 1/2% Holdings Notes have not been redeemed
prior thereto. See "Description of the 13 1/2% Holdings Notes."
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of March 31, 1998 and as adjusted to reflect the Offering and the
PCW Offering, in each case, including the application of the net proceeds
therefrom. This table should be read in conjunction with the consolidated
financial statements of the Company, including the notes thereto, the "Unaudited
Pro Forma Condensed Consolidated Financial Statements" and notes thereto,
included elsewhere herein, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "The Palmer Acquisition," as well as
the financial statements and notes thereto of PCC which are incorporated by
reference herein.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
(IN THOUSANDS)
Cash..................................................................................... $ 7,823 $ 183,445
---------- -----------
---------- -----------
Long-term debt (including current portion):
Borrowings outstanding under Credit Facility........................................... 425,900 --
9 1/8% Senior Secured Notes due 2006................................................... -- 525,000
11 3/4% PCW Notes due 2007............................................................. 175,000 175,000
Senior Exchangeable Payable-in-Kind Notes due 2008..................................... -- 200,000
13 1/2% Senior Secured Discount Notes due 2007......................................... 82,974 --
---------- -----------
Total long-term debt................................................................. 683,874 900,000
Stockholder's equity:
Common Stock, $0.01 par value per share, 100 shares authorized, issued and outstanding
actual and pro forma................................................................. -- --
Additional paid-in capital............................................................. 44,015 44,015
Accumulated deficit.................................................................... (15,423) (48,097)
---------- -----------
Total stockholder's equity (deficit)................................................. 28,592 (4,082)
---------- -----------
Total capitalization................................................................. $ 712,466 $ 895,918
---------- -----------
---------- -----------
</TABLE>
20
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet of
PCC and Holdings as of March 31, 1998 gives effect to the Offering and the PCW
Offering as if the Offerings had occurred on such date. The unaudited pro forma
condensed consolidated statements of operations for the year ended December 31,
1997 and the three month period ended March 31, 1998 of PCC and Holdings give
effect to the following transactions as if they occurred at the beginning of the
relevant period:
(i) The Acquisition of Palmer. On October 6, 1997, Holdings acquired
Palmer, with Palmer as the surviving corporation. 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, the Company
assumed the Palmer Existing Indebtedness. As a result, the aggregate
purchase price was approximately $880.0 million. See "The Palmer
Acquisition." The Acquisition was recorded pursuant to the purchase method
of accounting. The excess of cost over the fair value of Palmer's assets and
liabilities has been allocated to the FCC licenses. Certain of the acquired
assets related to the Fort Myers and Georgia operations were sold pursuant
to the Fort Myers and Georgia-1 Sales. See "The Palmer Acquisition." These
assets have been assigned values based on the net proceeds from such sales.
(ii) The Fort Myers Sale (the proceeds of which were used to pay a
portion of the Palmer Existing Indebtedness). On October 6, the Fort Myers
Sale was consummated and generated proceeds of approximately $166.0 million.
(iii) The Georgia-1 Sale. On December 30, 1997, the Company sold
substantially all of the assets used or useful in the operation of the
non-wireline cellular telephone system serving Georgia-1. A portion of the
$25.0 million in proceeds was used to retire a portion of the debt used to
fund the acquisition of Palmer.
(iv) The following transactions represent the proceeds raised for the
acquisition of Palmer:
1. The issuance and sale by PCW of the 11 3/4% PCW Notes.
2. The financing of PCW under the Credit Facility, which provides
for term loan borrowings in the aggregate principal amount of $325.0
million and revolving loan borrowings of $200.0 million. On October 6,
1997, PCW borrowed all term loans available thereunder and approximately
$120.0 million of revolving loans. In June 1998, PCW used the net
proceeds of the PCW Offering to retire amounts outstanding under the
Credit Facility.
3. The issuance and sale by Holdings of 153,400 Units in the
Holdings Offering. The Units consisted of $153.4 million in aggregate
principal amount at maturity of the 13 1/2% Holdings Notes, together with
Warrants to purchase 1,030,656 shares of PCC Shares.
4. The PCC Equity Contribution, a $44.0 million contribution from
PCC in the form of cash and common stock of Palmer, was contributed by
PCC to fund a portion of the acquisition of Palmer.
(v) The sale of the PCW Secured Notes in the PCW Offering, at an
interest rate of 9 1/8%, including application of approximately $426.6
million of the net proceeds to retire the outstanding indebtedness under the
Credit Facility, including accrued interest, which amounts were outstanding
as of March 31, 1998.
(vi) The sale of the Notes in the Offering, at an interest rate of
11 1/4%.
(vii) The repayment of the 13 1/2% Holdings Notes.
21
<PAGE>
The unaudited pro forma condensed consolidated financial statements have
been prepared by management of PCC and Holdings. The unaudited pro forma data is
not designed to represent and does not represent what the results of operations
or financial position of PCC and Holdings would have been had the above
transactions been completed on or as of the dates assumed, and are not intended
to project results of operations of PCC and Holdings 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 and Holdings, included
elsewhere in this Prospectus.
22
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS FOR ADJUSTMENTS FOR PRO FORMA
PCC PCW OFFERING THE OFFERING PCC
------------ --------------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 8,629 $ 81,421(a) $ 94,201(g) $ 184,251
Accounts receivable, net............................ 18,478 18,478
Investment Securities:
Available-for-sale securities....................... 33,512 33,512
Inventory........................................... 2,005 2,005
Deferred income taxes............................... 4,807 4,807
Prepaid expenses and other current assets........... 2,234 2,234
------------ --------------- --------------- ------------
Total current assets................................ 69,665 81,421 94,201 245,287
Property, plant and equipment, net.................. 147,112 147,112
Cellular licenses, net.............................. 911,923 911,923
Other intangible assets (net) and other assets...... 23,866 4,802(b) (401)(i) 28,267
------------ --------------- --------------- ------------
Total assets........................................ $ 1,152,566 $ 86,223 $ 93,800 $ 1,332,589
------------ --------------- --------------- ------------
------------ --------------- --------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............... $ 40,238 $ (679)(d) $ 39,559
Current portion of long-term debt................... 2,250 (2,250)(c) --
Other current liabilities........................... 4,578 4,578
------------ --------------- --------------- ------------
Total current liabilities........................... 47,066 (2,929) 44,137
Long-term debt...................................... 681,624 101,350(e) 117,026(j) 900,000
Accrued income taxes long-term...................... 48,571 48,571
Deferred taxes (1).................................. 306,359 306,359
Other long-term liabilities......................... 7,812 7,812
------------ --------------- --------------- ------------
Total liabilities................................... 1,091,432 98,421 117,026 1,306,879
Redeemable preferred stock.......................... 35 35
Stockholders' equity................................ 61,099 (12,198)(f) (23,226)(l) 25,675
------------ --------------- --------------- ------------
Total liabilities and stockholders' equity.......... $ 1,152,566 $ 86,223 $ 93,800 $ 1,332,589
------------ --------------- --------------- ------------
------------ --------------- --------------- ------------
</TABLE>
- ------------------------
(l) This accounting line represents the future tax consequences, if any,
attributable to the currently reported differences between the financial
statement carrying amounts of existing assets and their tax bases. These
assets (largely intangibles) will be amortized by the Company and offset
against this deferred tax balance without any cash consequences. This amount
less the amortization would become due only if the assets are sold by the
Company in a taxable transaction.
23
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS FOR ADJUSTMENTS FOR PRO FORMA
COMPANY PCW OFFERING THE OFFERING COMPANY
------------ --------------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 7,823 $ 81,421(a) $ 94,201(g) $ 183,445
Accounts receivable, net............................ 18,477 18,477
Inventory........................................... 2,005 2,005
Deferred income taxes............................... 4,807 4,807
Prepaid expenses and other current assets........... 1,848 1,848
------------ --------------- --------------- ------------
Total current assets................................ 34,960 81,421 94,201 210,582
Property, plant and equipment, net.................. 147,003 147,003
Cellular licenses, net.............................. 911,923 911,923
Other intangible assets (net) and other assets...... 18,899 4,802(b) 2,349(h) 26,050
------------ --------------- --------------- ------------
Total assets........................................ $ 1,112,785 $ 86,223 $ 96,550 $ 1,295,558
------------ --------------- --------------- ------------
------------ --------------- --------------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses............... $ 32,999 $ (679)(d) $ $ 32,320
Current portion of long-term debt................... 2,250 (2,250)(c) --
Other current liabilities........................... 4,578 4,578
------------ --------------- --------------- ------------
Total current liabilities........................... 39,827 (2,929) 36,898
Long-term debt...................................... 681,624 101,350(e) 117,026(j) 900,000
Accrued income taxes long-term...................... 48,571 48,571
Deferred taxes (1).................................. 306,359 306,359
Other long-term liabilities......................... 7,812 7,812
------------ --------------- --------------- ------------
Total liabilities................................... 1,084,193 98,421 117,026 1,299,640
Stockholder's equity (deficit)...................... 28,592 (12,198)(f) (20,476)(k) (4,082)
------------ --------------- --------------- ------------
Total liabilities and stockholder's equity
(deficit)......................................... $ 1,112,785 $ 86,223 $ 96,550 $ 1,295,558
------------ --------------- --------------- ------------
------------ --------------- --------------- ------------
</TABLE>
- ------------------------
(1) This accounting line represents the future tax consequences, if any,
attributable to the currently reported differences between the financial
statement carrying amounts of existing assets and their tax bases. These
assets (largely intangibles) will be amortized by the Company and offset
against this deferred tax balance without any cash consequences. This amount
less the amortization would become due only if the assets are sold by the
Company in a taxable transaction.
24
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
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 condensed consolidated balance sheet of Holdings and PCC
as of March 31, 1998, the following adjustments have been made:
<TABLE>
<S> <C> <C>
(A) CASH AND CASH EQUIVALENTS
Proceeds from the PCW 9 1/8% Senior Secured Notes due 2006................... $ 525,000
Cash used to pay estimated transaction fees and expenses..................... (17,000)
Cash used to pay accrued interest on Credit Facility......................... (679)
Cash used to retire outstanding indebtedness under the Credit Facility,
including current portion.................................................. (425,900)
---------
$ 81,421
---------
---------
(B) OTHER INTANGIBLE AND OTHER ASSETS, NET
Write-off of unamortized deferred finance fees related to Credit Facility.... $ (10,198)
Estimated fees and expenses related to the PCW Offering...................... 15,000
---------
$ 4,802
---------
---------
(C) CURRENT PORTION OF LONG-TERM DEBT
Payment of current portion of long-term debt from proceeds of the PCW
Offering................................................................... $ (2,250)
---------
---------
(D) OTHER CURRENT LIABILITIES
Payment of accrued interest on Credit Facility from proceeds of the PCW
Offering................................................................... $ (679)
---------
---------
(E) LONG-TERM DEBT
The PCW 9 1/8% Senior Secured Notes due 2006................................. $ 525,000
Repayment of Credit Facility................................................. (423,650)
---------
$ 101,350
---------
---------
(F) STOCKHOLDER'S EQUITY
Write-off of existing unamortized deferred financing fees related to the
Credit Facility............................................................ $ (10,198)
Expenses related to cancellation of interest swap and cap contracts.......... (2,000)
---------
$ (12,198)
---------
---------
(G) CASH AND CASH EQUIVALENTS
Proceeds from Senior Exchangeable PIK Notes due 2008......................... $ 200,000
Repayment of 13 1/2% Holdings Notes as of March 31, 1998..................... (82,974)
Cash used to pay 20% premium on redemption of 13 1/2% Holdings Notes. The
premium is based upon the accreted value of the 13 1/2% Holdings Notes at
August 1, 1998 (approximately $91.0 million), the earliest date permitted
for redemption............................................................. (18,200)
Cash used to pay estimated transaction fees and expenses..................... (4,625)
---------
$ 94,201
---------
---------
(H) OTHER INTANGIBLE ASSETS, NET - HOLDINGS
Estimated fees and expenses in connection with the offering.................. $ 4,625
Write-off of existing unamortized deferred financing fees related to the
13 1/2% Holdings Notes..................................................... (2,276)
---------
$ 2,349
---------
---------
</TABLE>
25
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
(I) OTHER INTANGIBLE ASSETS, NET - PCC
Write-off of existing unamortized deferred financing fees related to the
13 1/2% Holdings Notes on books of PCC..................................... $ (2,750)
Holdings' Other Intangible Assets (Note h)................................... 2,349
---------
$ (401)
---------
---------
(J) LONG-TERM DEBT
Senior Exchangeable PIK Notes due 2008....................................... $ 200,000
Repayment of 13 1/2% Holdings Notes.......................................... (82,974)
---------
$ 117,026
---------
---------
(K) STOCKHOLDER'S EQUITY - HOLDINGS
Write-off of existing unamortized deferred financing fees related to the
13 1/2% Holdings Notes..................................................... $ (2,276)
20% premium on redemption of 13 1/2% Holdings Notes (based upon accreted
value as of August 1, 1998)................................................ (18,200)
---------
$ (20,476)
---------
---------
(L) STOCKHOLDERS' EQUITY - PCC
Write-off of existing unamortized deferred financing fees related to the
13 1/2% Holdings Notes on books of PCC..................................... $ (2,750)
Holdings' stockholder's equity (Note k)...................................... (20,476)
---------
$ (23,226)
---------
---------
</TABLE>
26
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
FOR THE FOR THE
FORT MYERS ACQUISITION
FORT MYERS SALE AND AND THE
SALE AND GEORGIA-1 RELATED PALMER AS
PALMER(1) GEORGIA-1 SALE(2) SALE FINANCING ADJUSTED
--------- ----------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues........................... $141,736 $23,980 $ $ $117,756
Cost and expenses:
Cost of cellular service/operating
expenses......................... 23,301 4,395 18,906
Cost of equipment.................. 16,112 3,102 13,010
Selling, general and
administrative................... 41,014 5,836 2,440(a) 37,618
Depreciation and amortization...... 25,498 2,521 8,930(c) 31,907
--------- ------- ----------- ------------ -----------
Operating income (loss)............ 35,811 8,126 (2,440) (8,930) 16,315
Other income (expense):
Interest income (expense) (net).... (24,467) 332 (23,375)(d) (48,174)
Other, net......................... 208 1 207
--------- ------- ----------- ------------ -----------
Total other income (expense)....... (24,259) 333 (23,375) (47,967)
Minority interest share of
income........................... (1,310) (1,310)
--------- ------- ----------- ------------ -----------
Income (loss) before income tax
expense.......................... 10,242 8,459 (2,440) (32,305) (32,962)
Income tax expense (benefit)(4).... 4,153 3,430 (988) (b) (11,958)(e) (12,223)
--------- ------- ----------- ------------ -----------
Net income (loss).................. $ 6,089 $ 5,029 $(1,452) $(20,347) $(20,739)
--------- ------- ----------- ------------ -----------
--------- ------- ----------- ------------ -----------
Per share data:
Basic and diluted (loss) earnings
per share........................
Weighted average shares
outstanding......................
Deficiency of earnings to fixed
charges..........................
<CAPTION>
PRO FORMA
ADJUSTMENT PRO FORMA
FOR THE ADJUSTMENT
PCW FOR THE PRO FORMA
PCC(3) OFFERING OFFERING PCC
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues........................... $ 43,713 $ $ $ 161,469
Cost and expenses:
Cost of cellular service/operating
expenses......................... 5,978 24,884
Cost of equipment.................. 5,259 18,269
Selling, general and
administrative................... 16,750 54,368
Depreciation and amortization...... 11,107 43,014
---------- ---------- ---------- ----------
Operating income (loss)............ 4,619 20,934
Other income (expense):
Interest income (expense) (net).... (20,063) (12,341)(f) (11,304)(h) (91,882 )
Other, net......................... 1400 -- 1,607
---------- ---------- ---------- ----------
Total other income (expense)....... (18,663) (12,341) (11,304) (90,275 )
Minority interest share of
income........................... (414) -- (1,724 )
---------- ---------- ---------- ----------
Income (loss) before income tax
expense.......................... (14,458) (12,341) (11,304) (71,065 )
Income tax expense (benefit)(4).... (5,509) (4,653)(i) (4,262)(i) (26,647 )
---------- ---------- ---------- ----------
Net income (loss).................. $ (8,949) $ (7,688) $ (7,042) $ (44,418 )
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Per share data:
Basic and diluted (loss) earnings
per share........................ $ (.91) $ (4.53 )
---------- ----------
---------- ----------
Weighted average shares
outstanding...................... 9,812,905 9,812,905
---------- ----------
---------- ----------
Deficiency of earnings to fixed
charges.......................... $ (44,418 )
----------
----------
</TABLE>
- ------------------------
(1) Includes the results and operations of Palmer for the nine months ended
September 30, 1997. The Company purchased Palmer on October 6, 1997.
(2) Represents the elimination of the operating results of the Fort Myers and
Georgia-1 operations for the nine months ended September 30, 1997. These
operations were sold in the fourth quarter of 1997. The amounts are net of
the operating results for one month of the GA-13 RSA operations acquired by
Palmer on January 31, 1997.
(3) Includes the results of operations after the Acquisition (the period October
1, 1997 through December 31, 1997).
(4) Calculated using an effective tax rate of approximately 38%.
27
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
FOR THE FOR THE
FORT MYERS ACQUISITION
FORT MYERS SALE AND AND THE
SALE AND GEORGIA-1 RELATED PALMER AS
PALMER(1) GEORGIA-1 SALE(2) SALE FINANCING ADJUSTED
--------- ----------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues........................... $141,736 $23,980 $ $ $117,756
Cost and expenses:
Cost of cellular service/ operating
expenses......................... 23,301 4,395 18,906
Cost of equipment.................. 16,112 3,102 13,010
Selling, general and
administrative................... 41,014 5,836 2,440(a) 37,618
Depreciation and amortization...... 25,498 2,521 8,930(c) 31,907
--------- ------- ----------- ------------ -----------
Operating income (loss)............ 35,811 8,126 (2,440) (8,930) 16,315
Other income (expense):
Interest income (expense) (net).... (24,467) 332 (23,375)(d) (48,174)
Other, net......................... 208 1 207
--------- ------- ----------- ------------ -----------
Total other income (expense)....... (24,259) 333 (23,375) (47,967)
Minority interest share of
income........................... (1,310) (1,310)
--------- ------- ----------- ------------ -----------
Income (loss) before income tax
expense.......................... 10,242 8,459 (2,440) (32,305) (32,962)
Income tax expense (benefit)(4).... 4,153 3,430 (988) (b) (11,958)(e) (12,223)
--------- ------- ----------- ------------ -----------
Net income (loss).................. $ 6,089 $ 5,029 $(1,452) $(20,347) $(20,739)
--------- ------- ----------- ------------ -----------
--------- ------- ----------- ------------ -----------
Deficiency of earnings to fixed
charges..........................
<CAPTION>
PRO FORMA
ADJUSTMENT PRO FORMA
FOR THE ADJUSTMENT
PCW FOR THE PRO FORMA
HOLDINGS(3) OFFERING OFFERING HOLDINGS
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues........................... $ 43,713 $ $ $161,469
Cost and expenses:
Cost of cellular service/ operating
expenses......................... 5,978 24,884
Cost of equipment.................. 5,259 18,269
Selling, general and
administrative................... 12,805 50,423
Depreciation and amortization...... 11,055 42,962
----------- ---------- ---------- ---------
Operating income (loss)............ 8,616 24,931
Other income (expense):
Interest income (expense) (net).... (22,198) (12,341)(f) (11,304)(h) (94,017)
Other, net......................... 15 -- 222
----------- ---------- ---------- ---------
Total other income (expense)....... (22,183) (12,341) (11,304) (93,795)
Minority interest share of
income........................... (414) -- (1,724)
----------- ---------- ---------- ---------
Income (loss) before income tax
expense.......................... (13,981) (12,341) (11,304) (70,588)
Income tax expense (benefit)(4).... (5,129) (4,653)(g) (4,262)(i) (26,267)
----------- ---------- ---------- ---------
Net income (loss).................. $ (8,852) $ (7,688) $ (7,042) $(44,321)
----------- ---------- ---------- ---------
----------- ---------- ---------- ---------
Deficiency of earnings to fixed
charges.......................... $(44,321)
---------
---------
</TABLE>
- ------------------------
(1) Includes the results and operations of Palmer for the nine months ended
September 30, 1997. The Company purchased Palmer on October 6, 1997.
(2) Represents the elimination of the operating results of the Fort Myers and
Georgia-1 operations for the nine months ended September 30, 1997. These
operations were sold in the fourth quarter of 1997. The amounts are net of
the operating results for one month of the GA-13 RSA operations acquired by
Palmer on January 31, 1997.
(3) Include the results of operations after the Acquisition (the period October
1, 1997 through December 31, 1997).
(4) Calculated using an effective tax rate of approximately 38%.
28
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENT PRO FORMA
FOR THE ADJUSTMENT
PCW FOR THE PRO FORMA
PCC OFFERING OFFERING PCC
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................................................. $ 43,275 $ $ $ 43,275
Cost and expenses:
Cost of cellular service/operating expenses.............. 6,751 6,751
Cost of equipment........................................ 5,496 5,496
Selling, general and administrative...................... 12,341 12,341
Depreciation and amortization............................ 12,017 12,017
---------- ----------- ----------- -----------
Operating income (loss).................................. 6,670 6,670
Other income (expense):
Interest expense (net)................................... (17,254) (2,331)(f) (2,739)(h) (22,324)
Other, net............................................... 183 -- 183
---------- ----------- ----------- -----------
Total other income (expense)............................. (17,071) (2,331) (2,739) (22,141)
Minority interest share of income........................ (460) -- (460)
---------- ----------- ----------- -----------
Income (loss) before income tax expense.................. (10,861) (2,331) (2,739) (15,931)
Income tax expense (benefit)............................. (4,016) (856)(g) (1,034)(i) (5,906)
---------- ----------- ----------- -----------
Net income (loss)........................................ $ (6,845) $ (1,475) $ (1,705) $ (10,025)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Deficiency of earnings to fixed charges.................. $ (10,025)
-----------
-----------
</TABLE>
29
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENT PRO FORMA
FOR THE ADJUSTMENT
PCW FOR THE PRO FORMA
HOLDINGS OFFERING OFFERING HOLDINGS
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues................................................... $ 43,275 $ $ $ 43,275
Cost and expenses:
Cost of cellular service/operating expenses................ 6,751 6,751
Cost of equipment.......................................... 5,496 5,496
Selling, general and administrative........................ 11,717 11,717
Depreciation and amortization.............................. 11,928 11,928
----------- ----------- ----------- ----------
Operating income (loss).................................... 7,383 7,383
Other income (expense):
Interest expense (net)..................................... (17,285) (2,331)(f) (2,739)(h) (22,355)
Other, net................................................. (37) -- (37)
----------- ----------- ----------- ----------
Total other income (expense)............................... (17,322) (2,331) (2,739) (22,392)
Minority interest share of income.......................... (460) -- (460)
----------- ----------- ----------- ----------
Income (loss) before income tax expense.................... (10,399) (2,331) (2,739) (15,469)
Income tax expense (benefit)............................... (3,828) (856)(g) (1,034)(i) (5,718)
----------- ----------- ----------- ----------
Net income (loss).......................................... $ (6,571) $ (1,475) $ (1,705) $ (9,751)
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Deficiency of earnings to fixed charges.................... $ (9,751)
----------
----------
</TABLE>
30
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
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 condensed consolidated statements of operations of PCC
and Holdings for the three months ended March 31, 1998 and the year ended
December 31, 1997, the following adjustments have been made:
<TABLE>
<CAPTION>
FOR THE
PERIOD
ENDED FOR THE YEAR
MARCH 31, ENDED
1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C> <C>
(a) SELLING, GENERAL AND ADMINISTRATIVE
Represents a portion of the operating expenses charged to Fort Myers and
Georgia-1 operations by Palmer which might not be eliminated upon the
Fort Myers Sale and the Georgia-1 Sale................................. $ -- $ 2,440
------------- --------
------------- --------
(b) INCOME TAX BENEFIT
Represents the tax impact of the adjustment to selling general and
administrative expenses indicated above $ -- $ (988)
------------- --------
------------- --------
(c) DEPRECIATION AND AMORTIZATION
Represents the excess of the purchase price over the historical cost of
the assets acquired allocated to FCC licenses and amortized over 40
years for nine months.................................................. $ -- $ 8,930
------------- --------
------------- --------
(d) INTEREST EXPENSE, NET
Interest expense on $425 million of Indebtedness under the Credit
Facility at an assumed interest rate of 8 1/2% per annum............... $ -- $ 36,125
Interest expense on $175 million of the 11 3/4% PCW Notes at an interest
rate of 11 3/4% per annum.............................................. -- 20,563
Interest expense on $80 million of the 13 1/2% Holdings Notes at an
interest rate of 13 1/2%............................................... -- 10,617
Interest expense related to the accretion of 13 1/2% Holdings Notes due
to Warrant value*...................................................... -- 579
Represents current amortization expense related to deferred debt
financing costs........................................................ -- 2,156
Elimination of previously recorded interest expense for Palmer (9
months)................................................................ -- (24,467)
Elimination of previously recorded interest expense for the Company
(3 months)............................................................. (22,198)
------------- --------
$ -- $ 23,375
------------- --------
------------- --------
(e) INCOME TAX EXPENSE (BENEFIT)
To record deferred tax benefit resulting from the amortization of the
acquired FCC licenses and the additional benefit arising from the pro
forma adjustments...................................................... $ -- $ (11,958)
------------- --------
------------- --------
(f) INTEREST EXPENSE, NET
To record interest for the PCW Offering at an interest rate of 9 1/8%.... $ 11,977 $ 47,906
Less interest previously reflected as pro forma adjustment related to the
Credit Facility........................................................ (9,786) (36,125)
------------- --------
Net adjustment related to the PCW Offering............................... 2,191 11,781
To record additional amortization of deferred financing costs associated
with the PCW Offering.................................................. 140 560
------------- --------
$ 2,331 $ 12,341
------------- --------
------------- --------
(g) INCOME TAX EXPENSE (BENEFIT)
To record tax benefit arising from the pro forma adjustments regarding
the PCW Offering....................................................... $ (856) $ (4,653)
------------- --------
------------- --------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
FOR THE
PERIOD
ENDED FOR THE YEAR
MARCH 31, ENDED
1998 DECEMBER 31, 1997
------------- -----------------
(h) INTEREST EXPENSE, NET
<S> <C> <C> <C>
To record interest for the Offering...................................... $ 5,625 $ 22,500
Less interest previously reflected as a pro forma adjustment related to
the 13 1/2% Holdings Notes including interest attributable to the
Warrant value.......................................................... -- (11,196)
Interest included in actual results related to the 13 1/2% Holdings Notes
including interest attributable to the warrant value................... (2,886) --
------------- --------
2,739 11,304
Difference in amortization of deferred financing charges between actual
amount and pro forma amount is not significant......................... -- --
------------- --------
$ 2,739 $ 11,304
------------- --------
------------- --------
(i) INCOME TAX EXPENSE (BENEFIT)
To record tax benefit arising from the pro forma adjustments regarding
the Offering........................................................... $ (1,034) $ (4,262)
------------- --------
------------- --------
</TABLE>
- ------------------------
* Represents the accretion over 10 years of the 13 1/2% Holdings Notes
resulting from the allocation of proceeds of the Holdings Offering between
the 13 1/2% Holdings Notes and the Warrants.
32
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data for the period May 29, 1997
(inception) through December 31, 1997 have been derived from the audited
consolidated financial statements of the Company and the selected consolidated
financial data for each of the four years ended December 31, 1996 and for the
nine months ended September 30, 1997 have been derived from the audited
consolidated financial statements of the Company's predecessor, Palmer. The
unaudited selected consolidated results of operations of Palmer and of the
Company for the three months ended March 31, 1997 and 1998, respectively, are
unaudited and not necessarily indicative of the Company'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 or the Company'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
the Company's Consolidated Financial Statements and Notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
COMPANY PALMER PALMER
----------- --------- COMPANY ----------------------------------------------
-------------
PERIOD FROM
(UNAUDITED)
----------------------
MAY 29, 1997
THREE MONTHS ENDED (INCEPTION) NINE
MARCH 31, THROUGH MONTHS ENDED YEAR ENDED DECEMBER 31,
---------------------- DECEMBER 31, SEPTEMBER 30, -------------------------------
1998 1997 1997(1) 1997(2) 1996 1995 1994
----------- --------- ------------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES AND SUBSCRIBER STATISTICS AND DATA)
INCOME STATEMENT DATA:
Revenue:
Service..................................... $ 40,684 $ 42,220 $ 41,365 $ 134,123 $ 151,119 $ 96,686 $ 61,021
Equipment sales and installation............ 2,591 2,463 2,348 7,613 8,624 8,220 7,958
----------- --------- ------------- ------------- --------- --------- ---------
Total revenue........................... 43,275 44,683 43,713 141,736 159,743 104,906 68,979
Engineering, technical and other direct
expenses.................................. 6,751 7,430 5,978 23,301 28,717 18,184 12,776
Cost of equipment........................... 5,496 5,807 5,259 16,112 17,944 14,146 11,546
Selling, general and administrative
expenses.................................. 11,717 13,360 12,805 41,014 46,892 30,990 19,757
Depreciation and amortization............... 11,928 8,281 11,055 25,498 25,013 15,004 9,817
----------- --------- ------------- ------------- --------- --------- ---------
Operating income............................ 7,383 9,805 8,616 35,811 41,177 26,582 15,083
Other income (expense):
Interest, net............................... (17,285) (7,872) (22,198) (24,467) (31,462) (21,213) (12,715)
Other, net.................................. (37) 71 15 208 (429) (687) (70)
----------- --------- ------------- ------------- --------- --------- ---------
Total other expense......................... (17,322) (7,801) 22,183 (24,259) (31,891) (21,900) (12,785)
Minority interest share of (income) loss.... (460) (331) (414) (1,310) (1,880) (1,078) (636)
Income tax expense (benefit)................ (3,828) 496 (5,129) 4,153 2,724 2,650 0
----------- --------- ------------- ------------- --------- --------- ---------
Net income (loss)........................... $ (6,571) $ 1,177 $ (8,852) $ 6,089 $ 4,682 $ 954 $ 1,662
----------- --------- ------------- ------------- --------- --------- ---------
----------- --------- ------------- ------------- --------- --------- ---------
OTHER DATA:
Capital expenditures........................ $ 704 $ 16,987 $ 14,449 $ 40,757 $ 41,445 $ 36,564 $ 22,541
EBITDA...................................... $ 19,311 $ 18,086 $ 19,671 $ 61,309 $ 66,190 $ 41,586 $ 24,900
EBITDA margin on service revenue............ 47.5% 42.8% 47.6% 45.7% 43.8% 43.0% 40.8%
Penetration(3).............................. 9.9% 7.94% 9.4% 8.60% 7.45% 6.51% 4.58%
Subscribers at end of period(4)............. 326,721 310,823 309,606 337,345 279,816 211,985 117,224
Cost to add a gross subscriber(5)........... $ 223 $ 234 $ 188 $ 231 $ 216 $ 183 $ 178
Cost to add a net subscriber(5)............. $ 440 $ 476 $ 370 $ 514 $ 407 $ 276 $ 247
Average monthly service revenue per
subscriber(6)............................. $ 43.18 $ 47.70 $ 47.47 $ 47.52 $ 52.20 $ 56.68 $ 60.02
Average monthly churn(7).................... 1.75% 1.87% 1.84% 1.89% 1.84% 1.55% 1.55%
Ratio of earnings to fixed charges(8)....... N/A 1.34x N/A 1.45x 1.28x 1.21x 1.17x
<CAPTION>
1993
---------
<S> <C>
INCOME STATEMENT DATA:
Revenue:
Service..................................... $ 35,173
Equipment sales and installation............ 6,285
---------
Total revenue........................... 41,458
Engineering, technical and other direct
expenses.................................. 7,343
Cost of equipment........................... 7,379
Selling, general and administrative
expenses.................................. 13,886
Depreciation and amortization............... 10,689
---------
Operating income............................ 2,161
Other income (expense):
Interest, net............................... (9,006)
Other, net.................................. (590)
---------
Total other expense......................... (9,596)
Minority interest share of (income) loss.... 83
Income tax expense (benefit)................ 0
---------
Net income (loss)........................... $ (7,352)
---------
---------
OTHER DATA:
Capital expenditures........................ $ 13,304
EBITDA...................................... $ 12,850
EBITDA margin on service revenue............ 36.5%
Penetration(3).............................. 3.48%
Subscribers at end of period(4)............. 65,761
Cost to add a gross subscriber(5)........... $
Cost to add a net subscriber(5)............. $ 203
Average monthly service revenue per
subscriber(6)............................. $ 62.69
Average monthly churn(7).................... 1.37%
Ratio of earnings to fixed charges(8)....... N/A
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
COMPANY PALMER PALMER
----------- --------- COMPANY ----------------------------------------------
-------------
PERIOD FROM
(UNAUDITED)
----------------------
MAY 29, 1997
THREE MONTHS ENDED (INCEPTION) NINE
MARCH 31, THROUGH MONTHS ENDED YEAR ENDED DECEMBER 31,
---------------------- DECEMBER 31, SEPTEMBER 30, -------------------------------
1998 1997 1997(1) 1997(2) 1996 1995 1994
----------- --------- ------------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash................................. $ 7,823 $ 2,091 $ 27,926 $ 3,581 $ 1,698 $ 3,436 $ 2,998
Working capital (deficit)............ (4,867) 2,282 3,080 7,011 296 (1,435) 2,490
Property, plant and equipment, net... 147,003 148,121 151,141 161,351 132,438 100,936 51,884
Licenses, other intangibles and other
assets, net........................ 930,822 411,314 937,986 406,828 387,067 332,850 199,265
Total assets......................... 1,112,785 589,566 1,144,479 599,815 549,942 462,871 273,020
Total debt........................... 681,624 378,698 690,300 378,000 343,662 350,441 245,609
Stockholder's equity................. 28,592 166,107 35,163 172,018 164,930 74,553 4,915
<CAPTION>
1993
---------
<S> <C>
BALANCE SHEET DATA:
Cash................................. $ 1,670
Working capital (deficit)............ 799
Property, plant and equipment, net... 23,918
Licenses, other intangibles and other
assets, net........................ 114,955
Total assets......................... 150,054
Total debt........................... 131,361
Stockholder's equity................. 3,244
</TABLE>
- ------------------------
(1) Includes results of operations for the period October 1, 1997 through
December 31, 1997.
(2) Includes revenue of $24,720, total expenses of $16,354 (including
depreciation and amortization of $2,581) and operating income of $8,366 for
the Fort Myers and Georgia-1 markets sold during 1997.
(3) Determined by dividing the aggregate number of subscribers by the estimated
population.
(4) Each billable telephone number in service represents one subscriber. The
number of subscribers in the historical operating data of Palmer includes
subscribers in the Fort Myers and Georgia-1 markets which were sold in
connection with the Acquisition.
(5) 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 gross or net
subscribers (as applicable) added during such period.
(6) 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.
(7) 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.
(8) 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 period May 29, 1997 through
December 31, 1997 and the three months ended March 31, 1998, the deficit of
earnings to fixed charges was approximately $8,852 and $6,571, respectively.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to facilitate an understanding and
assessment of significant changes and trends related to the financial condition
and results of operations of the Company. This discussion should be read in
conjunction with the Company's Consolidated Financial Statements and related
Notes thereto. References to the Company where appropriate also include PCW's
predecessor, Palmer.
Results for the Company for the years ended December 31, 1995 and December
31, 1996 are based solely on the historical operations of Palmer prior to the
Merger. The discussion for the year ended December 31, 1997 is based upon the
operating results of Palmer through September 30, 1997 and the operating results
of the Company from October 1, 1997 to December 31, 1997. The audited financial
statements of the Company do not include such combined financial statements as
this would not be in conformity with GAAP.
OVERVIEW
Holdings, a wholly-owned subsidiary of PCC, was incorporated on May 29, 1997
in connection with the purchase of Palmer.
On May 23, 1997, PCC, PCW and Palmer entered the Merger Agreement. The
Merger Agreement provided, among other things, for the merger of PCW with and
into Palmer with Palmer as the surviving corporation. In October, 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
direct stock purchase plans for an aggregate price of $486.4 million. In
addition, as a result of the Merger, PCW assumed all outstanding indebtedness of
Palmer of approximately $378.0 million. As a result, the aggregate purchase
price for Palmer (including transaction fees and expenses) was approximately
$880.0 million. PCW refinanced all of the Palmer Existing Indebtedness
concurrently with the consummation of the Merger.
In October 1997, the Fort Myers Sale, which covered approximately 382,000
Pops for $168.0 million 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. Accordingly, no gain or loss was
recognized on the Fort Myers Sale.
On October 21, 1997, PCC and PCW entered the "Georgia Sale Agreement" which
provided for the sale by PCW, for $25.0 million, of substantially all of the
assets of the non-wireline cellular telephone system serving Georgia-1,
including the FCC licenses to operate Georgia-1. The sale of the assets of
Georgia-1 was consummated on December 30, 1997 for $24.2 million. A portion of
the proceeds from the Georgia Sale were used to retire a portion of the debt
used to fund the acquisition of Palmer. Accordingly, no gain or loss was
recognized on the Georgia-1 Sale.
In order to fund the Acquisition and pay related fees and expenses, in July
1997, PCW issued $175.0 million aggregate principal amount of the 11 3/4% PCW
Notes and entered into a syndicated senior loan facility providing for term loan
borrowings in the aggregate principal amount of $325.0 million and revolving
loan borrowings of $200.0 million. On October 6, 1997, PCW borrowed all term
loans available thereunder and approximately $120.0 million of revolving loans.
The Credit Facility was retired on June 16, 1998 with the net proceeds from the
PCW Offering.
The acquisition of Palmer was also funded in part through a $44.0 million
equity contribution from PCC which was in the form of cash and common stock of
Palmer. An additional amount of the purchase price for the Acquisition was
raised out of the proceeds from the issuance and sale for $80.0 million of units
consisting of $153.4 million principal amount at maturity of the 13 1/2%
Holdings Notes and Warrants.
35
<PAGE>
The Company intends to use a portion of the net proceeds of the Offering to
redeem the 13 1/2% Holding Notes. See "Use of Proceeds."
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. As of
March 31, 1998, the Company provided cellular telephone service to 326,721
subscribers in Georgia, Alabama, Florida and South Carolina in a total of 16
licensed service areas, composed of eight MSA's and eight RSA's with an
aggregate estimated population of 3.3 million. The Company sells its cellular
telephone service as well as a full line of cellular products and accessories
principally through its network of retail stores. The Company markets all of its
products and services under the nationally-recognized service mark
CELLULARONE-Registered Trademark-.
MARKET OWNERSHIP
The following is a summary of the Company's ownership interest in the
cellular telephone system in each licensed service area to which the Company
provided service at March 31, 1998 and December 31, 1997.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
CELLULAR SERVICE AREA 1998 1997
- ---------------------------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
Albany, GA.............................................................................. 86.5% 86.5%
Augusta, GA............................................................................. 100.0 100.0
Columbus, GA............................................................................ 85.2 85.2
Macon, GA............................................................................... 99.2 99.2
Savannah, GA............................................................................ 98.5 98.5
Georgia-1 RSA........................................................................... N/A 100.0
Georgia-6 RSA........................................................................... 96.3 96.3
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.......................................................................... 86.5 N/A
Alabama-8 RSA........................................................................... 100.0 100.0
Dothan, AL.............................................................................. 94.6 94.6
Montgomery, AL.......................................................................... 92.8 92.8
Fort Myers, FL.......................................................................... N/A 99.0
Panama City, FL......................................................................... 78.4 77.9
</TABLE>
On February 1, 1997, one of the Company's majority-owned subsidiaries
acquired the assets of and the license to operate the non-wireline cellular
telephone system serving Georgia RSA Market No. 383, otherwise known as
Georgia-13 RSA, for a total purchase price of $31.5 million, subject to certain
adjustments.
On October 6, 1997, as part of the Acquisition of Palmer by the Company, the
Fort Myers MSA was sold for approximately $168.0 million.
On December 30, 1997, the Company sold the assets of and license to operate
the non-wireline cellular telephone system serving Georgia RSA Market No. 371,
otherwise known as Georgia-1 RSA for a total price of $24.2 million, subject to
certain adjustments.
36
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the Company, for the periods indicated,
the percentage which certain amounts bear to total revenue.
<TABLE>
<CAPTION>
COMPANY PALMER PALMER
----------- ----------- COMPANY -------------------------------------
---------------
MAY 29, 1997
THREE MONTHS ENDED
(INCEPTION) NINE MONTHS YEAR ENDED
MARCH 31, THROUGH ENDED DECEMBER 31,
------------------------ DECEMBER 31, SEPTEMBER 30, --------------------
1998 1997 1997 1997 1996 1995
----------- ----------- --------------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Service................................... 94.0% 94.5% 94.6% 94.6% 94.6% 92.2%
Equipment sales and installation.......... 6.0 5.5 5.4 5.4 5.4 7.8
----------- ----- ----- ----- --------- ---------
Total Revenue........................... 100.0 100.0 100.0 100.0 100.0 100.0
OPERATING EXPENSES:
Engineering, technical and other direct:
Engineering and technical(1).............. 8.4 7.9 7.2 8.0 7.9 7.6
Other direct costs of services(2)......... 7.2 8.7 6.5 8.4 10.1 9.7
Cost of equipment(3)...................... 12.7 13.0 12.0 11.4 11.2 13.5
SELLING, GENERAL AND ADMINISTRATIVE:
Selling and marketing(4).................. 9.8 8.6 8.9 8.4 8.6 8.7
Customer service(5)....................... 6.7 6.7 6.2 6.3 5.9 6.0
General and administrative(6)............. 10.6 14.6 14.2 14.2 14.9 14.9
Depreciation and amortization............. 27.5 18.5 25.3 18.0 15.7 14.3
----------- ----- ----- ----- --------- ---------
Total Operating Expenses:................. 82.9 78.0 80.3 74.7 74.3 74.7
----------- ----- ----- ----- --------- ---------
Operating income............................ 17.1% 22.0% 19.7% 25.3% 25.7% 25.3%
----------- ----- ----- ----- --------- ---------
EBITDA...................................... 44.6% 40.5% 45.0% 43.3% 41.4% 39.6%
</TABLE>
- ------------------------
(1) Consists of costs of 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 subscriber 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 of customer service personnel
and costs of printing and mailing billings generated in-house.
(6) Includes salaries and benefits of general and administrative personnel and
other overhead expenses.
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
REVENUE. Service revenues totaled $40.7 million for the first quarter of
1998, a decrease of 3.6% from $42.2 million for the first quarter of 1997. The
decrease is primarily attributable to service revenues of the cellular telephone
systems sold in the Fort Myers Sale and the Georgia Sale which totaled $7.4
million in the first quarter of 1997. This was partially offset by an increase
in the average number of subscribers to
37
<PAGE>
314,068 in the first quarter 1998 from 295,320 in 1997. The average number of
subscribers attributable to the Fort Myers Sale and Georgia Sale was 37,362 in
the first quarter of 1997.
Average monthly revenue per subscriber decreased 9.5% to $43.18 for the
first quarter of 1998 from $47.70 for the first quarter of 1997. 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 the Company's markets.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased by 5.2% to $2.6 million for the
first quarter of 1998 compared to $2.5 million for the first quarter of 1997.
The increase is partially due to a 3.3% increase in gross subscriber activations
in the first quarter of 1998 compared to 1997. As a percentage of revenue,
equipment sales and installation revenue increased to 6.0% in the first quarter
of 1998 from 5.5% in the first quarter of 1997.
OPERATING EXPENSES. Engineering and technical expenses increased by 3.0% to
$3.6 million for the first quarter of 1998 from $3.5 million in the first
quarter of 1997, due primarily to the increase in subscribers. As a percentage
of revenue, engineering and technical expenses increased to 8.4% for the first
quarter of 1998 from 7.9% for the first quarter of 1997 primarily because
centralized engineering is being spread over a smaller number of markets than
last year, a result of the Fort Myers Sale and Georgia Sale. Engineering and
technical expenses attributable to the cellular telephone systems sold in the
Fort Myers Sale and Georgia Sale totaled $0.4 million for the first quarter of
1997.
Other direct costs of service decreased to $3.1 million for the first
quarter of 1998 from $3.9 million for the first quarter of 1997 reflecting the
decrease in interconnection costs as a result of the Company's renegotiation of
interconnection agreements with the local exchange carriers ("LECs") in most of
the Company's markets. As a percentage of revenue, these costs of service
declined to 7.2% from 8.7%, reflecting improved interconnection agreements with
LECs, as well as efficiencies gained from the growing subscriber base. Other
direct costs of service attributable to the cellular telephone systems sold in
the Fort Myers Sale and Georgia Sale totaled $1.2 million for the first quarter
of 1997.
The cost of equipment decreased 5.4% to $5.5 million for the first quarter
of 1998 from $5.8 million for the first quarter of 1997, due primarily to
reductions of equipment costs by manufacturers. Equipment sales resulted in
losses of $2.9 million in 1998 versus $3.3 million in 1997 primarily as a result
of reduced equipment costs and slightly better retail margins. The Company sells
equipment below its costs in an effort to address market competition and improve
market share. Cost of equipment attributable to the cellular telephone systems
sold in the Fort Myers Sale and Georgia Sale totaled $0.9 million for the first
quarter of 1997.
Selling, general and administrative expenses decreased 12.3% to $11.7
million in the first quarter of 1998 from $13.4 million in the first quarter of
1997. These expenses are comprised of (i) sales and marketing costs, (ii)
customer service costs and (iii) general and administrative expenses.
Sales and marketing costs increased 10.5% to $4.2 million for the first
quarter of 1998 from $3.8 million for the same period in 1997. This increase is
primarily due to the 3.3% increase in gross subscriber activations and the costs
to acquire them, including advertising and commissions. As a percentage of total
revenue, sales and marketing costs increased to 9.8% for the first quarter of
1998 compared to 8.6% for the first quarter of 1997. The Company's cost to add a
gross subscriber, including loss on telephone sales, decreased to $223 for the
first quarter of 1998 from $235 for the first quarter of 1997. This decrease in
cost to add a net subscriber was caused primarily by decreased losses from the
Company's sales of cellular telephones. Sales and marketing expenses
attributable to the cellular telephone systems sold in the Fort Myers Sale and
Georgia Sale totaled $0.4 million for the first quarter of 1997.
Customer service costs decreased 3.3% to $2.9 million for the first quarter
of 1998 from $3.0 million for the first quarter of 1997. As a percentage of
revenue, customer service costs remained flat at 6.7% for
38
<PAGE>
the first quarter of both 1998 and 1997. Customer service expenses attributable
to the cellular telephone systems sold in the Fort Myers Sale and Georgia Sale
totaled $0.3 million for the first quarter of 1997.
General and administrative expenditures decreased 29.2% to $4.6 million for
the first quarter of 1998 from $6.5 million for the first quarter of 1997, due
primarily to expense savings and reorganization efforts. General and
administrative expenses decreased as a percentage of revenue to 10.6% in the
first quarter of 1998 from 14.6% in the first quarter of 1997. As the Company
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 unforeseen general and
administrative expenses and other factors. General and administrative expenses
attributable to the cellular telephone systems sold in the Fort Myers Sale and
Georgia Sale totaled $0.6 million for the first quarter of 1997.
Depreciation and amortization increased 44.0% to $11.9 million for the first
quarter of 1998 from $8.3 million for the first quarter of 1997. This increase
was primarily due to the depreciation and amortization associated with the new
carrying value of assets as a result of the "push down" of the purchase price of
the Acquisition to the Company. As a percentage of revenue, depreciation and
amortization increased to 27.6% for the first quarter of 1998 compared to 18.5%
for the first quarter of 1997. Depreciation and amortization attributable to the
cellular telephone systems sold in the Fort Myers Sale and Georgia Sale totaled
$0.7 million for the first quarter of 1997.
Operating income decreased 24.7% to $7.4 million in the first quarter of
1998, from $9.8 million for the first quarter of 1997. This decrease in
operating results is attributable primarily to the increase in depreciation and
amortization expense.
NET INTEREST EXPENSE, INCOME TAXES AND NET INCOME. Net interest expense
increased 119.6% to $17.3 million for the first quarter of 1998 from $7.9
million in the first quarter of 1997 primarily due to rate increases and
additional borrowings incurred as a result of the Acquisition.
Income tax benefit was $3.8 million in the first quarter of 1998
representing utilization of the net operating losses carried back against
previous earnings. Income tax expense was $0.5 million in the first quarter of
1997 based on earnings.
Net loss for the first quarter of 1998 was $6.6 million compared to net
income of $1.2 million for the first quarter of 1997. The decrease in net income
is primarily attributable to increases in interest expense and depreciation and
amortization partially offset by the income tax benefit.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUE. Service revenues totaled $175.5 million for 1997, an increase of
16.1% over $151.1 million for 1996. This increase was due to a 29.8% increase in
the average number of subscribers to 313,042 for 1997 versus 241,255 for 1996.
The increase in subscribers is the result of internal growth, which the Company
attributes primarily to its strong sales and marketing efforts, and the recent
acquisitions. In addition to the subscriber base growth, service revenues also
increased because of a 35.3% increase in outcollect roaming revenues.
Average monthly revenue per subscriber decreased 10.5% to $46.72 for 1997
from $52.20 for 1996. This is due to a common trend in the cellular telephone
industry, where on average, new customers use 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 the Company's markets.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $10.0 million for 1997 from
$8.6 million for 1996. As a percentage of total cellular
39
<PAGE>
revenue, equipment sales and installation revenue remained flat at 5.4% for both
1997 and 1996, reflecting the increased recurring revenue base as well as lower
cellular equipment prices charged to customers.
OPERATING EXPENSES. Engineering and technical expenses increased by 16.0%
to $14.6 million for 1997 from $12.6 million in 1996, due primarily to the
increase in subscribers and in cell site locations. As a percentage of revenue,
engineering and technical expenses remained flat at 7.9% for both 1997 and 1996.
This reflects the increased fixed costs associated with additional cell sites
constructed. As revenue grows the Company 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 declined to $14.7 million for 1997 from $16.1
million in 1996. As a percentage of revenue, other direct costs of service
decreased to 7.9% in 1997 from 10.1% in 1996, reflecting the decrease in
interconnection costs as a result of the Company's renegotiation of
interconnection agreements with the LECs in most of the Company's markets,
offset somewhat by more competitive roaming rates for Company's customer roaming
in adjacent areas.
The cost of equipment increased 19.1% to $21.4 million for 1997 from $17.9
million for 1996, due primarily to the increase in gross subscriber activations.
Equipment sales resulted in losses of $11.4 million in 1997 versus $9.3 million
in 1996. The Company sells equipment below its costs in an effort to address
market competition and improve market share. The Company sold more telephones
below cost in 1997 than in 1996.
Selling, general and administrative expenses increased 14.8% to $53.8
million in 1997 from $46.9 million in 1996. These expenses are comprised of (i)
sales and marketing costs, (ii) customer service costs and (iii) general and
administrative expenses.
Sales and marketing costs increased 15.5% to $15.8 million for 1997 from
$13.7 million for 1996. This increase is primarily due to a 13.5% increase in
gross subscriber activations and the costs to acquire them and higher
advertising costs in response to market competition. As a percentage of total
revenue, sales and marketing costs decreased to 8.5% for 1997 compared to 8.6%
for 1996. The Company's cost to add a net subscriber, including loss on
telephone sales, increased to $469 for 1997 from $407 for 1996 due primarily to
increased losses from the Company's sales of cellular telephones and an increase
in commissions
Customer service costs increased 23.6% to $11.7 million for 1997 from $9.4
million for 1996. As a percentage of revenue, customer service costs increased
to 6.3% for 1997 from 5.9% for 1996. The increase was due primarily to an
increase in license and maintenance costs for the Company's billing systems.
General and administrative expenditures increased 10.8% to $26.3 million for
1997 from $23.8 million for 1996. General and administrative expenses decreased
as a percentage of total revenue to 14.2% in 1997 from 14.9% in 1996. As the
Company continues to add more subscribers, and generates associated revenue,
general and administrative expenses should continue to 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 unforeseen
general and administrative expenses and other factors.
Depreciation and amortization increased 46.1% to $36.6 million for 1997 from
$25.0 million for 1996. This increase was primarily due to the depreciation and
amortization associated with the new carrying value of assets as a result of the
"push down" of the purchase price of the Acquisition to the Company, recent
acquisitions and additional capital expenditures. As a percentage of revenue,
depreciation and amortization increased to 19.7% from 15.7% for 1997 compared to
1996.
Operating income increased 7.9% to $44.4 million in 1997, from $41.2 million
for 1996. This improvement in operating results is attributable primarily to
increases in revenue which exceeded increases in operating expenses.
40
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUE. Service revenues totaled $151.1 million for 1996, an increase of
$54.4 million or 56.3% over $96.7 million for 1995. This increase was primarily
due 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 the Company attributes primarily to its strong sales and marketing
efforts, and recent acquisitions. The GTE Acquisition 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 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 revenue did not increase in proportion to the increase in subscribers.
In addition, the Company entered into revised roaming agreements with certain of
its neighboring carriers. These agreements provide for reciprocal lower roaming
rates per minute of use, resulting in lower roaming revenue for the Company, but
offset by lower direct costs of services when the Company'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, primarily due to the increase in gross
subscriber activations, partially 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 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 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 32.0%
increase in the number of subscribers. As a percentage of revenue, engineering
and technical expenses increased to 7.9% in 1996 from 7.6% for 1995 due to
additional costs incurred for the recent acquisitions and recurring costs
associated with the Company'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 the
Company 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. Equipment sales resulted in losses of $9.3 million in 1996
versus $5.9 million in 1995. The Company sells equipment below its costs in an
effort to address market competition and improve market share. The Company 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.
41
<PAGE>
Selling, general and administrative expenses increased 51.3% to $46.9
million in 1996 from $31.0 million in 1995. These expenses are comprised of (i)
sales and marketing costs, (ii) customer service costs and (iii) general and
administrative expenses.
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 costs to acquire
them. As a percentage of total revenue, sales and marketing costs remained
relatively flat at 8.6% for 1996 and 8.7% for 1995. The Company's cost to add a
net subscriber, including losses on telephone sales, increased to $407 in 1996
from $276 in 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 the Company'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.
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 in 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. There can be no assurance, however, that this
forward-looking statement will not differ materially from actual results due to
unforeseen general and administrative expenses and other factors. 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 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 attributable 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.
NET INTEREST EXPENSE, INCOME TAXES, AND NET INCOME
Net interest expense increased 48.3% to $46.7 million for 1997 from $31.5
million for 1996 primarily due to rate increases and additional borrowings
incurred as a result of the recent Merger. For 1996, net interest expense
increased 48.3% to $31.5 million from $21.2 million for 1995 due primarily to
debt incurred for acquisitions and amortization of deferred financing fees
related to the Predecessor credit agreement.
Income tax benefit was $976,000 in 1997 compared to income tax expense of
$2.7 million in 1996 and 1995. 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 based on certain assets and
liabilities of Palmer Cellular Partnership. See Note 6 to the Company's
Consolidated Financial Statements.
42
<PAGE>
Net loss for 1997 was $2.8 million compared to net income in 1996 of $4.7
million. The loss was due to increased interest and amortization incurred as a
result of the Merger. Net income for 1996 was $4.7 million, compared to net
income of $1.0 million for 1995. The increase in net income is primarily
attributable to increases in revenue which exceeded increases in operating
expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's long-term capital requirements consist of funds for capital
expenditures, acquisitions and debt service. Historically, the Company has met
its capital requirements primarily through equity contributions, bank debt, and,
to a lesser extent, operating cash flow.
In the year ended December 31, 1997 the Company spent approximately $55.3
million on capital expenditures of which $3.5 million related to properties
which were sold and approximately $6 million in capital expenditures related to
purchases of equipment for cell sites to be completed in 1998. The Company
expects to spend approximately $16 million and $18 million for capital
expenditures for the years ended December 31, 1998 and 1999, respectively. The
Company expects to use net cash provided by operating activities to fund such
capital expenditures.
PCW used the net proceeds of the PCW Offering to retire outstanding
indebtedness under the Credit Facility, including accrued interest. As a result,
the Company has no ability to borrow funds under the Credit Facility. The
Company currently does not intend to enter into a new credit facility.
In July 1997, PCW issued $175 million of the 11 3/4% PCW Notes with interest
payable semi-annually commencing January 15, 1998. The 11 3/4% PCW Notes contain
covenants that restrict the payment of dividends, incurrence of debt and sale of
assets. See "Description of the 11 3/4% PCW Notes."
In August 1997 Holdings issued 153,400 units, consisting of Notes and
Warrants, in exchange for $80 million. The 13 1/2% Holdings Notes accrete at a
rate of 13.5% compounded semi-annually, to an aggregate principal amount of
approximately $153.4 million by August 1, 2002. Cash interest will not commence
to accrue on the 13 1/2% Holdings Notes prior to August 2, 2002. Commencing on
February 1, 2003, cash interest on the 13 1/2% Holdings Notes will be payable at
a rate of 13.5% per annum, payable semi-annually. The 13 1/2% Holdings Notes are
redeemable at the option of Holdings, in whole or in part, at any time after
August 1, 1998 in cash at the redemption price as defined, plus accrued and
unpaid interest, if any, thereon to the redemption date; provided that the
trading price of the PCC Shares shall equal or exceed certain levels. The
13 1/2% Holdings Notes mature on August 1, 2007 and contain covenants that
restrict payment of dividends, incurrence of debt and sale of assets. The
Company intends to use a portion of the net proceeds of the Offering to redeem
the 13 1/2% Holdings Notes. See "Use of Proceeds" and "Description of the
13 1/2% Holdings Notes."
In June 1998, PCW issued $525 million aggregate principal amount of the PCW
Secured Notes with interest payable semi-annually on June 15 and December 15 of
each year. The PCW Secured Notes contain certain covenants that restrict the
payment of dividends, incurrence of debt and sale of assets. See "Description of
the Senior Secured PCW Notes."
On a pro forma basis, after giving effect to the Offering and PCW Offering,
in each case, including the application of the net proceeds therefrom, and the
Acquisition and related financing, the Company's ratio of EBITDA to cash
interest expense (excluding non-cash interest related to the the Notes and
amortization of deferred debt financing costs) would have been 1.00 to 1.00 for
the year ended December 31, 1997 and 1.14 to 1.00 for the three months ended
March 31, 1998.
ACCOUNTING POLICIES
For financial reporting purposes, the Company reports 100% of revenues and
expenses for the markets for which it provides cellular telephone service.
However, in several of its markets, the Company holds less than 100% of the
equity ownership. The minority stockholders' and partners' share of income or
43
<PAGE>
losses in those markets are reflected in the consolidated financial statements
as "minority interest share of (income) loss", except for losses in excess of
their capital accounts and cash call provisions which are not eliminated in
consolidation. For financial reporting purposes, the Company consolidates each
subsidiary and partnership in which it has a controlling interest (greater than
50%). From 1992 through March 31, 1998, the Company had controlling interests in
each of its subsidiaries and partnerships.
YEAR 2000 IMPACT
The Company has studied the impact of the year 2000 on its operational and
financial systems, and has developed estimates of costs of implementing changes
or upgrades where necessary. Preliminary estimates indicate that these costs
will be less than $2 million. However, the Company is unable to predict all of
the implications of the year 2000 issue as it relates to its suppliers and other
entities. It is anticipated that a substantial portion of the costs will be
incurred in the next two years and will be expensed as incurred.
INFLATION
The Company believes that inflation affects its business no more than it
generally affects other similar businesses.
44
<PAGE>
BUSINESS OF THE COMPANY
GENERAL
The Company is currently engaged in the construction, development,
management and operation of cellular telephone systems in the southeastern
United States. At March 31, 1998, the Company provided cellular telephone
service to 326,721 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. The Company sells its
cellular telephone service as well as a full line of cellular products and
accessories, including pagers, principally through its network of retail stores.
The Company markets all of its products and services under the nationally
recognized service mark CELLULARONE-Registered Trademark-.
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 NACN, the Company is able to offer ten-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 CELLULARONE-Registered Trademark- name, the
Company also enjoys the benefits of association with a nationally recognized
service mark.
MARKETS AND SYSTEMS
The Company's cellular telephone systems serve contiguous licensed service
areas in Georgia, Alabama and South Carolina. The Company also has a cellular
service area in Panama City, Florida. The following table sets forth as of March
31, 1998, with respect to each service area in which the Company owns a cellular
telephone system, the estimated population, the Company'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 OWNERSHIP DATE SYSTEM
CELLULAR 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.................................... 283,978 98.5 279,718 3/88
Georgia-6 RSA................................... 199,516 96.3 192,134 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.................................. 171,993 100.0 171,993 7/93
----------------- ----------
Subtotal........................................ 3,155,624 3,037,705
----------------- ----------
Panama City, FL................................. 146,018 78.4 114,493 9/88
----------------- ----------
Total........................................... 3,301,642 3,152,198
----------------- ----------
----------------- ----------
</TABLE>
45
<PAGE>
- ------------------------
(1) Does not include the Alabama-5 RSA and South Carolina-7 RSA where the
Company has IOA. IOA is granted for an area to a license holder in an
adjacent area when there are no license holders in such area. The Company
has no subscribers in the South Carolina-7 RSA, but instead provides roaming
access to its own subscribers and others when they travel in this service
area, utilizing its existing cell sites. Construction permits were granted
to Permittees for the Alabama-5 RSA and South Carolina-7 RSA. The Permittees
are required to complete construction of their respective RSA within 18
months. After completing construction, a Permittee may give the Company
thirty days prior written notice, at which point the Company would be
required to sell all of its subscribers of its other systems who reside
within the boundaries of the markets to the Permittee at cost.
(2) Based on population estimates for 1997 from the Spring 1998 edition of the
DLJ Pop Book.
GEORGIA/ALABAMA
In 1988, the Company 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. Since 1989, the Company has continued to increase its
presence in this market by acquiring additional cellular service areas. The
Augusta, Georgia MSA includes Aiken County in South Carolina. In the aggregate,
these markets (excluding the Alabama-5 RSA and South Carolina-7 RSA where the
Company has only an IOA) now cover 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 these markets 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 March
31, 1998 the Company utilized 207 cell sites in this cluster (including three
cell sites in Alabama-5 RSA).
PANAMA CITY
The Company acquired control of the non-wireline cellular license for the
Panama City, Florida market in 1991. The Company 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 March 31, 1998,
the Company utilized 13 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 March 31, 1998, the
Company provided cellular telephone service to 326,721 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 nonwireline cellular
telephone companies, with the goal of providing seamless regional and national
cellular telephone service to its subscribers. Participation in the NACN allows
ten-digit dialing access to the Company's subscribers when they travel outside
the Company'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.
46
<PAGE>
The following table sets forth information, at the dates indicated after
giving effect to the Acquisition, regarding the Company's subscribers,
penetration rate, cost to add a net subscriber, cost to add a gross subscriber,
average monthly churn rate and average monthly service revenue per subscriber.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -----------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Subscribers at end of period(1).................. 326,721 309,606 243,204 187,870 99,626 54,382
Penetration at end of period(2).................. 9.90% 9.40% 7.73% 6.41% 4.54% 3.57%
Cost to add a gross subscriber(3)................ $ 223 $ 220 $ 216 $ 183 $ 178 $ 156
Cost to add a net subscriber(3).................. $ 440 $ 461 $ 436 $ 275 $ 247 $ 198
Average monthly churn(4)......................... 1.75% 1.88% 1.89% 1.51% 1.54% 1.32%
Average monthly service revenue per
subscriber(5).................................. $ 43.18 $ 46.24 $ 50.23 $ 53.80 $ 56.54 $ 56.70
</TABLE>
- ------------------------
(1) Each billable telephone number in service represents one subscriber. Amounts
at December 31, 1993 include 2,576 subscribers in the Alabama-7 RSA where
the Company had interim operating authority 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 CELLULARONE-Registered Trademark- service mark, by (ii)
the gross or net, as applicable, 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
The Company's subscribers have increased from 17,148 at January 1, 1992 to
326,721 at March 31, 1998. 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 1997, cellular telephone service revenues represented 94.6% of the
Company's total revenues, with equipment sales and installation representing the
balance. For the quarter ended March 31, 1998, cellular telephone service
revenues represented 94.0% of the Company's total revenues.
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. The Company's sales staff has a two-tier structure.
A retail sales force handles walk-in traffic, and a targeted
47
<PAGE>
sales staff solicits certain industries and government subscribers. The Company
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. 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 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, 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
the Company offers its cellular products and services. As of March 31, 1998, the
Company maintained 34 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 the Company as "Superstores," seven of which
are located in the Company'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 the Company's larger markets currently have at least one
Superstore. In addition, to enhance convenience for its customers, the Company
has begun to open smaller stores in locations such as shopping malls. 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
CELLULARONE-Registered Trademark-. The national advertising campaign conducted
by Cellular One Group enhances the Company's advertising exposure at a fraction
of what could be achieved by the Company alone. The Company also obtains
substantial marketing benefits from the name recognition associated with this
widely used service mark, both with existing subscribers traveling outside the
Company's service areas and with potential new subscribers moving into the
Company's service areas. In addition, travelers who subscribe to
CELLULARONE-Registered Trademark- service in other markets may be more likely to
use the Company's service when they travel in the Company's service areas.
Cellular telephones of non-wireline subscribers are either programmed to select
the non-wireline carrier (such as the Company) when roaming, unless the
non-wireline carrier in the roaming area is not yet operational, or the
subscriber dials a special code or has a cellular telephone equipped with an
"A/B" (non-wireline/wireline) switch and selects the wireline carrier.
Through its membership in NACN and other special networking arrangements,
the Company provides extended regional and national service to its subscribers,
thereby allowing them to make and receive calls while in other cellular service
areas without dialing special access codes. This service distinguishes the
Company's 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, the Company 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 the subscriber while
enhancing airtime use and revenues for the Company. In general, rate plans which
include a higher monthly access fee typically include a lower usage rate per
minute. An ongoing review of equipment and service pricing is maintained to
ensure the
48
<PAGE>
Company's competitiveness. As appropriate, revisions to pricing of service plans
and equipment are made to meet the demands of the local marketplace. In
addition, the Company has recently added paging as an accessory to its offered
services.
The following table sets forth a breakdown of the Company's revenues after
giving effect to the Fort Myers and Georgia-1 Sales from the sale of its
services and equipment for the periods indicated.
<TABLE>
<CAPTION>
COMPANY PALMER
---------------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS OCTOBER 1, NINE MONTHS
ENDED 1997 THROUGH ENDED FOR THE YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, SEPTEMBER 30, -------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------- ------------- ------------- ---------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenue:
Access and usage(1)............ $ 31,853 $ 31,786 $ 89,339 $ 105,006 $ 61,607 $ 37,063 $ 20,324
Roaming(2)..................... 5,505 5,691 14,447 13,099 11,157 5,844 3,075
Long distance(3)............... 2,155 2,014 5,949 6,632 3,634 2,218 1,309
Other(4)....................... 1,171 891 2,061 2,596 2,585 2,745 1,230
------------- ------------- ------------- ---------- --------- --------- ---------
Total service revenue...... 40,684 40,382 111,796 127,333 78,983 47,870 25,938
Equipment sales and installation
(5)............................ 2,591 2,308 6,242 7,027 6,830 6,381 5,238
------------- ------------- ------------- ---------- --------- --------- ---------
Total...................... $ 43,275 $ 42,690 $ 118,038 $ 134,360 $ 85,813 $ 54,251 $ 31,176
------------- ------------- ------------- ---------- --------- --------- ---------
------------- ------------- ------------- ---------- --------- --------- ---------
</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 the Company's service areas.
(3) Long distance revenue is derived from long distance telephone calls placed
by the Company'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 roaming agreements between each of the Company'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 the Company. For 1997, roaming
revenues accounted for 13.2% of the Company's service revenues and 12.5% of the
Company's total revenue. For the quarter ended March 31, 1998, roaming revenues
accounted for 13.5% of the Company's service revenues and 12.2% 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, the Company
provides retail distribution of cellular telephones and maintains inventories of
cellular telephones. The Company 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
49
<PAGE>
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 uses the
intervals between voice traffic on cellular channels to send packets of data
instead of tying up dedicated cellular channels, allowing data to be transmitted
more quickly and efficiently. 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 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 1997 Palmer began 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, 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
customer activations, account adjustments and rate plan changes. Local offices
and installation and repair facilities enable the Company 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 the Company 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
CELLULARONE-Registered Trademark- service mark. In 1997, the Company was awarded
the #1 MSA in certain categories in CELLULARONE-Registered Trademark-'s National
Customer Satisfaction Survey. The Company has held number one rankings in
certain categories in five out of the last six years. The Company 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 the Company 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. The Company's equipment
is built by
50
<PAGE>
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, the Company 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 the
Company in integrating its cellular telephone systems within its region and has
permitted the Company to offer cellular telephone service to its subscribers
throughout a large portion of the United States, Canada, Mexico and Puerto Rico.
NACN has provided the Company 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, the Company 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 the Company's operational cell sites (including cell sites where the
Company has interim operating authority).
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MARCH 31, -------------------------------------
1998 1997 1996 1995
--------------- ----- ----- -----
<S> <C> <C> <C> <C>
Georgia/Alabama.................................................. 207 207 181 121
Panama City, FL.................................................. 13 12 11 9
--- --- --- ---
Total............................................................ 220 219 192 130
--- --- --- ---
--- --- --- ---
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Georgia/Alabama.................................................. 70 39
Panama City, FL.................................................. 7 7
-- --
Total............................................................ 77 46
-- --
-- --
</TABLE>
The Company estimates that in 1997 the capacity of its existing cellular
telephone systems increased 30%. During 1997, the Company spent $55.3 million of
which $3.5 million related to properties which were sold and approximately $6.0
million related to purchases of equipment for cell sites to be completed in 1998
and, based on projected growth in subscriber demand, expects to spend
approximately $16 million in 1998 in order to build out its cellular service
areas, install an additional microwave network and implement certain digital
radio technology. The Company constructed 27 new cell sites in 1997 and
increased capacity in many of its other systems and plans to construct 30
additional cell sites with respect to its existing cellular systems during 1998
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 the Company 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, the Company
spent $1.0 million to build additional microwave connections. In addition, in
1996 the Company spent $2.6 million to build a fiber optic network between
Dothan, Alabama
51
<PAGE>
and Panama City, Florida. The installation of this network resulted in savings
to the Company from a reduction in fees paid to telephone companies for landline
charges, as well as giving the Company the ability to lease out a significant
portion of capacity.
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 exact timing and
overall costs of such conversion from analog to digital are not yet known.
The Company began offering TDMA standard digital service, one of three
standards for digital service, during 1997. This digital network allows the
Company to offer advanced cellular features and services such as caller-ID,
short message paging and extended battery life. The Company 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, 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
the Company'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.
Palmer entered the cellular telephone business in 1987, when it constructed
a cellular telephone system for the Fort Myers, Florida MSA. Palmer 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.
52
<PAGE>
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, 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 interim
operating authority to provide cellular service to the southern portions of the
South Carolina-7 RSA, which serves 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 Georgia-1
for an aggregate purchase price of $31.6 million. The cellular telephone system
in the acquired RSA serves a geographic territory of northwest Georgia between
Chattanooga and Atlanta. Georgia-1 was sold in October 1997 in connection with
the Acquisition.
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 January 31, 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 $31.5 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.
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
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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 (2) and BellSouth (1)
Georgia-8 RSA.................................. ALLTEL
Georgia-9 RSA.................................. ALLTEL and Public Service Cellular (1)
Georgia-10 RSA................................. Cellular Plus (2) 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 DEG. Communications Company (2)
</TABLE>
- ------------------------
(1) The wireline service area has been subdivided into two service areas by the
purchasers of the authorization for the RSA.
(2) Currently under contract to be acquired by ALLTEL.
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, the Company
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 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
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<PAGE>
churn among existing subscribers. The perceived greater value also increases the
number of potential customers in the marketplace. The Company believes that this
strategy will enable it to increase its share of the wireless market.
SERVICE MARKS
CELLULARONE-Registered Trademark- is a registered service mark with the U.S.
Patent and Trademark Office. The service mark is owned by Cellular One Group, a
Delaware general partnership of Cellular One Marketing, Inc., a subsidiary of
Southwestern Bell Mobile Systems, Inc., together with Cellular One Development,
Inc., a subsidiary of AT&T and Vanguard Cellular Systems, Inc. The Company uses
the CELLULARONE-Registered Trademark- service mark to identify and promote its
cellular telephone service pursuant to licensing agreements with Cellular One
Group. In 1997, the Company paid $303,000 in licensing and advertising fees
under these agreements. See "Risk Factors--Reliance on Use of Third-Party
Service Mark."
DESCRIPTION OF CELLULAR ONE AGREEMENTS
The Company is currently party to sixteen license agreements with Cellular
One Group, which cover separate cellular telephone system areas. The terms of
each agreement (each, a "Cellular One Agreement" and collectively, the "Cellular
One Agreements") are substantially identical. Pursuant to each Cellular One
Agreement, Cellular One Group has granted a license to use the
"CELLULARONE-Registered Trademark-" mark (the "Mark") in its FCC-licensed
territory (the "Licensed Territory") to promote its cellular telephone service.
Cellular One Group has agreed not to license such Mark in connection with
cellular telephone service to any other cellular telephone service provider in
such territory during the term of the agreement. Cellular One Group may,
however, license the Mark to other persons in such territory in connection with
cellular telephone equipment and other products and services other than the type
licensed by the Company.
In connection with each Cellular One Agreement, the Company has agreed to
pay an annual licensing fee equal to $0.02 per person in the Licensed Territory
based on the total population of the market, subject to a minimum payment of
$3,000, and, in certain circumstances, will pay an annual advertising fee not in
excess of $0.05 per person in the Licensed Territory.
Each Cellular One Agreement has a term of five years and is renewable,
subject to the conditions described herein, at the option of the Company for
three additional five-year terms subject to provision of advanced written notice
by the Company. In connection with any renewal, the Company must execute
Cellular One Group's then-current form of license renewal agreement, which form
may contain provisions materially different than those in the Cellular One
Agreement.
Cellular One Group may terminate the Cellular One Agreements at any time
without written notice to the Company upon certain events, including bankruptcy,
insolvency and dissolution of the Company.
In addition, Cellular One Group may terminate the Cellular One Agreements at
any time, without giving the Company an opportunity to cure the event giving
rise to Cellular One Group's right of termination subject to delivery of written
notice (i) if the Company, while on probation pursuant to a Cellular One
Agreement, fails to achieve 85% customer satisfaction (or such higher percentage
established by Cellular One Group) for a prescribed amount of time, (ii) if the
Company fails to achieve 65% customer satisfaction in any survey other than an
initial customer satisfaction survey by Cellular One Group, (iii) if any
principal stockholder or officer of the Company is convicted of a felony, fraud
or other crime that Cellular One Group believes is reasonably likely to have an
adverse effect on the Mark, (iv) if a threat or danger to public health or
safety results from the operation of the Company's cellular telephone business,
(v) if the Company violates certain undertakings in the Cellular One Agreement,
including limitations on assignment and confidentiality restrictions, (vi) if
the Company knowingly submits false reports or information to Cellular One Group
or any other entity conducting a customer satisfaction survey or (vii) if the
Company contests in any proceeding the validity or registration of, or Cellular
One Group's
55
<PAGE>
ownership of, the Mark. The Company's customer satisfaction ratings have
consistently far exceeded the minimum requirements of such Agreements.
Finally, after notice of a default to the Company, Cellular One Group may
terminate the Cellular One Agreements if the Company does not cure the default
within a specified period of time because it (i) fails to pay any amounts
thereunder when due or fails to submit information required to be provided
pursuant to the Cellular One Agreement when due or makes a false statement in
connection therewith, (ii) fails to operate its business in conformity with FCC
directives, technical industry standards and other standards specified from time
to time by Cellular One Group, (iii) misuses, makes unauthorized use of or
materially impairs the goodwill of the Mark, (iv) engages in any business under
a name that is confusingly similar to the Mark, or (v) permits a continued
violation of any law or regulation applicable to it, in each case subject to a
thirty-day cure period.
The Cellular One Agreements are terminable by the Company at any time
subject to 120 days' written notice.
The Company has agreed to indemnify Cellular One Group and its employees and
affiliates, including its constituent partners, against all claims arising from
the operation of its cellular phone business and the costs, including attorneys
fees, of defending against them.
REGULATION
As a provider of cellular telephone services, the Company 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 the Company, 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. The Company's cellular licenses expire in the following years with
respect to the following number of service areas: 1998 (three); 2000 (two); 2001
(four); 2002 (two); 2006 (one); and 2007 (four). 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
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 the end of such
five-year period, other persons are permitted to apply to serve areas within the
licensed
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<PAGE>
market that are not served by the licensee and current FCC Rules provide that
competing applications for these "unserved areas" are to be resolved through the
auction process. The Company has no material unserved areas in any of its
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 the Company of other cellular
telephone systems licensed by the FCC and transfers by the Company 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 the Company'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 the Company 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 the Company
requiring divestiture of alien ownership to bring the Company 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 the Company
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 LECs 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 the Company's renegotiation of interconnection agreements with
the incumbent local exchange carrier in each of the Company's markets. LECs and
state regulators filed appeals of the FCC Order, which were consolidated in the
US Court of Appeals for the Eighth Circuit (the "Eighth Circuit"). The Eighth
Circuit in 1996 and 1997 vacated and stayed the effective date of pricing and
other portions of the rules established in the FCC Order. In 1998, the United
States Supreme Court agreed to hear an appeal of the Eighth Circuit's decisions
and a decision of the Court is expected later this year.
The Company has 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 the Company.
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.
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<PAGE>
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 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. The Company anticipates that, as a result of 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
being established by the FCC. Carrier payments to the universal service fund are
based on end-user interstate telecommunications revenues multiplied by a
universal service contribution percentage proposed by the fund administrator and
adopted by the FCC. Certain of the universal service costs may be passed through
to customers. The FCC first 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 March 31, 1998, the Company had 582 full-time employees, 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 March 31, 1998, the Company had
approximately 33 leases for retail stores used in conjunction with its
operations and three leases for administrative offices and owned one retail
store. The Company also had approximately 145 leases to accommodate cell
transmitters and antennas as of March 31, 1998.
LEGAL PROCEEDINGS
The Company is not currently involved in any pending legal proceedings
likely to have a material adverse impact on the Company.
In May 1998, a complaint in respect of a class action lawsuit was filed in
Lee County, Florida against the Company and Cellular One, Inc. alleging certain
causes of action in connection with the Company's practice of "rounding up" its
billing to the nearest minute. The Company believes that such practice is
customary among cellular service providers. Although the Company believes that
its position will prevail, it does not believe that such lawsuit, if determined
adversely to the Company, would have a material adverse effect on its business,
financial condition or results of operations.
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BUSINESS OF PRICE COMMUNICATIONS CORPORATION
PCC has historically been a nationwide communications company owning and
then disposing of a number of television, radio, newspaper, cellular telephone
and other communications and related properties. PCC's business strategy is to
acquire communications properties at prices PCC considers attractive, finance
such properties on terms satisfactory to PCC, manage such properties in
accordance with its operating strategy and dispose of them if and when PCC
determines such dispositions to be in its best interests. Prior to 1997 PCC
owned a number of television, radio, newspaper and other media and related
properties which were disposed of pursuant to PCC's long-standing policy of
buying and selling media properties at times deemed advantageous by PCC's Board
of Directors. On October 6, 1997, PCW acquired Palmer in the Acquisition.
PCC is currently engaged through PCW in the construction, development,
management and operation of cellular telephone systems in the southeastern
United States.
PCC was organized in New York in 1979 and began active operations in 1981.
Its principal executive offices are located at 45 Rockefeller Plaza, New York,
New York 10020, and its telephone number is (212) 757-5600.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
director and executive officers of PCC, of Holdings and of PCW.
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert Price......................................... 65 Director, President, Chief Executive Officer and
Treasurer of PCC, Director of Holdings
Kim I. Pressman...................................... 41 Executive Vice President, Secretary and Chief
Financial Officer of PCC and Holdings
William J. Ryan...................................... 66 Chairman of the Board of PCW (1)
M. Wayne Wisehart.................................... 52 President and Chief Executive Officer of PCW (1)
Jeffrey L. Green..................................... 36 Vice President--Finance and Chief Financial Officer
of PCW
Victor M. Landau..................................... 58 Vice President--Technical Operations of PCW(1)
K. Patrick Meehan.................................... 40 Vice President-General Counsel and Secretary of PCW
</TABLE>
- ------------------------
(1) The positions of Messrs. Ryan, Wisehart and Landau were effective April 1,
1998. Prior to their promotions to such positions, Mr. Ryan served as
President and Chief Executive Officer of PCW, Mr. Wisehart served as
Executive Vice President, Treasurer and Chief Financial Officer of PCW and
Mr. Landau served as Director of Property Management/Site Acquisitions of
PCW.
EXECUTIVE OFFICERS
The following is a biographical summary of the experience of the executive
officers and directors of the PCC, and the executive officers of PCW named above
(each of whom served as an executive officer and director of Palmer prior to its
acquisition by PCW).
ROBERT PRICE has served concurrently as a Director and the Chief Executive
Officer, President and Treasurer of PCC since 1979, and has been a Director of
Holdings and PCW since 1997. Mr. Price was a Director of PriCellular from 1990
until June 1998. Mr. Price was the President and Assistant Treasurer of
PriCellular from 1990 until May 1997 and served as Chairman of PriCellular from
May 1997 until June 1998. 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 of 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.
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KIM I. PRESSMAN, a Certified Public Accountant, is a graduate of Indiana
University and holds an M.B.A. from New York University. Before assuming her
present office as Executive Vice President and Secretary of PCC in October 1994
(in which she served until August 1997 and again from December 1997 to the
present), and as Chief Financial Officer of PCC in May 1998, Ms. Pressman was
Vice President and Treasurer of PCC from November 1987 to December 1989, and
Senior Vice President of PCC from January 1990 to September 1994. She was also
Secretary of PCC from July 1989 to February 1990. Ms. Pressman was Vice
President--Broadcasting and Vice President, Controller, and Assistant Treasurer
of PCC from 1984 to October 1987. Prior to joining PCC in 1984, Ms. Pressman was
employed for three years by Peat, Marwick, Mitchell & Co., a national certified
public accounting firm, and for more than three years thereafter was Supervisor,
Accounting Policies for International Paper Company and then Manager, Accounting
Operations for Corinthian Broadcasting of Dun & Bradstreet Company, a large
group owner of broadcasting stations. Ms. Pressman is a Director, Executive Vice
President and Secretary of PriCellular Corporation. Ms. Pressman has served as
Executive Vice President, Secretary and Chief Financial Officer of Holdings
since May 4, 1998.
WILLIAM J. RYAN, Chairman of the Board of PCW since April 1, 1998, served as
Chief Executive Officer and President of Palmer from 1984 until its acquisition
by PCW on October 6, 1997, and served in such capacities with PCW until April 1,
1998. Mr. Ryan was Chief Operating Officer and President of Palmer from 1982 to
1984. Mr. Ryan has over 40 years of communications and telecommunications
experience. He joined Palmer 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, President and Chief Executive Officer of PCW since April
1, 1998, served as Chief Financial Officer of Palmer from 1982 until its
acquisition by PCW on October 6, 1997, and served in such capacity with PCW
until April 1, 1998. He was promoted to Treasurer of Palmer in 1983 and to Vice
President in 1987. Mr. Wisehart has over 21 years of communications and
telecommunications experience. In his capacity as Chief Financial Officer of
Palmer, he was instrumental in the financial management and direction of the
Company. Prior to joining Palmer, 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.
JEFFREY L. GREEN has been with PCW and its predecessor, Palmer since 1995.
Before assuming his current office as Vice President--Finance, and Chief
Financial Officer in March 1998, Mr. Green served as the Director of Corporate
Planning. While at the Company he has been extensively involved in strategic
planning, investor relations and company acquisitions. Prior to joining PCW, Mr.
Green spent five years with Forsch/Evanite Fiber Corporation, a leveraged buyout
firm, and six years at Arthur Andersen & Company, a national public accounting
firm. Mr. Green is a Certified Public Accountant and is a graduate of Miami
University.
VICTOR M. LANDAU has been with PCW and its predecessor, Palmer since 1984.
Before assuming his current role as Vice President--Technical Operations in
April 1998, Mr. Landau was the Director of Property Management/Site Acquisitions
from 1993 to 1998. From 1987 to 1993, Mr. Landau worked as the Technical
Operations Broadcast Division. Prior to joining the Company, Mr. Landau worked
as the Chief Engineer for the Collins Radio division of Rockwell International
from 1973-1975, and as a radio engineering consultant for E.H. Munn from
1977-1984. Mr. Landau attended Jacksonville University and the Milwaukee School
of Engineering.
K. PATRICK MEEHAN served as General Counsel and Assistant Secretary of
Palmer Communications, Inc. ("PCI"), from 1991 to March of 1995 when PCI was
acquired by Palmer. He continued in the same
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capacities with Palmer until its acquisition by PCW on October 6, 1997. Mr.
Meehan currently serves as Vice President--General Counsel and Secretary of PCW.
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 COMPENSATION
Directors of Holdings are not paid fees.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation paid to the executive officers of PCW for the three years ended
December 31, 1997.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
ANNUAL COMPENSATION SECURITIES
----------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTION (3) COMPENSATION($)
- ---------------------------------------------- --------- ----------- ----------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
William J. Ryan, Chairman of the Board (1).... 1997 370,769 212,500 195,313 30,991(4)
1996 339,731 34,000 0 31,422
1995 331,651 119,880 130,000(9) 55,356
M. Wayne Wisehart, President and Chief
Executive Officer of PCW(2)................. 1997 186,635 57,000 146,406 18,873(5)
1996 152,211 15,250 0 23,559
1995 145,256 34,800 75,000(9) 33,417
Jeffrey L. Green, Vice President--Finance and
Chief Financial Officer..................... 1997 91,692 55,750 39,063 7,490(6)
1996 78,848 11,250 0 8,381
1995 64,327 0 10,000(9) 51,019
Victor M. Landau, Vice President--Technical
Operations.................................. 1997 77,033 41,120 19,531 7,931(7)
1996 73,365 8,400 0 8,220
1995 69,824 11,375 0 7,919
K. Patrick Meehan, Vice President--General
Counsel and Secretary....................... 1997 147,115 54,500 58,594 9,237(8)
1996 124,423 12,500 0 19,386
1995 109,936 26,400 65,000(9) 15,108
Jim Fredrickson, Vice
President--Engineering...................... 1997 113,462 91,125 97,656 6,092(10)
1996 99,438 10,248 0 7,200
1995 85,115 14,400 50,000(9) 7,173
Steve Carlson, Vice President--Operations..... 1997 112,788 104,812 78,125 7,966(11)
1996 94,615 18,910 0 7,930
1995 82,105 21,780 40,000(9) 8,038
</TABLE>
- ------------------------
(1) Prior to his promotion to such position effective April 1, 1998 Mr. Ryan
served as President and Chief Executive Officer of PCW.
(2) Prior to his promotion to such position effective April 1, 1998, Mr.
Wisehart served as Executive Vice President, Treasurer and Chief Financial
Officer of PCW.
(3) Gives effect to five-for-four stock splits of the Company's Common Stock in
the form of stock dividends, paid on December 23, 1997, April 1, 1998 and
April 30, 1998.
(4) Includes the following: auto allowance of $6,943 (including insurance and
license), financial services of $3,755, tax services of $1,975 and club dues
of $5,291.
(5) Includes the following: auto allowance of $6,774 (including insurance and
license), financial services of $1,375, club dues of $6,106 and medical
reimbursements of $4,619.
(6) Includes the following: auto allowance of $6,404 (including insurance and
license) and medical re-imbursements of $1,086.
(7) Includes the following: auto allowance of $7,931 (including insurance and
license).
(8) Includes the following: auto allowance of $7,042 (including insurance and
license), tax services of $275, medical re-imbursements of $1,283 and club
dues of $637.
(9) These options were granted by Palmer.
(10) Includes the following: auto allowance of $6,092.
(11) Includes the following: auto allowance of $7,966 (including insurance).
62
<PAGE>
STOCK OPTIONS
The following table reflects the number of options for shares of PCC's
Common Stock subject to options granted under PCC's 1992 Long Term Incentive
Plan (the "LTIP") during the year ended December 31, 1997 to the named executive
officers of PCW.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATED FOR OPTION
UNDERLYING GRANTED TO TERM(3)
OPTIONS EMPLOYEES IN EXERCISE ------------------------------
NAME GRANTED(1)(2) FISCAL YEAR PRICE(2) EXPIRATION DATE 5% 10%
- --------------------------------- ------------- --------------- ----------- ----------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Ryan (4).............. 195,313 12.7% $4.67 10/09 $573,622 $1,453,671
M. Wayne Wisehart................ 146,406 9.5% 4.67 10/09 429,985 1,089,667
Jeffrey L. Green................. 39,063 2.5% 4.67 10/09 114,725 290,737
Victor M. Landau................. 19,531 1.3% 5.37 12/09 66,959 167,154
K. Patrick Meehan................ 58,594 3.8% 4.67 10/09 172,087 436,102
Jim Fredrickson.................. 97,656 6.4% 4.67 10/09 286,810 726,832
Steve Carlson.................... 78,125 5.1% 4.67 10/09 229,448 581,467
</TABLE>
- ------------------------------
(1) Upon the occurrence of a "change in control" of PCC, as defined in the LTIP,
PCC's Stock Option and Compensation Committee may, in its discretion,
provide for the purchase of any then outstanding options by PCC or a
designated subsidiary for an amount of cash equal to the excess of (i) the
product of the "change in control price" (as defined below) and the number
of shares of the PCC Common Stock subject to the options over (ii) the
aggregate exercise price of such options. The change in control price means
the higher of (i) the higher price per share of the PCC Common Stock paid in
any transaction related to a change in control of PCC and (ii) the highest
"fair market value" as defined in the LTIP, of the PCC Common Stock at any
time during the 60-day period preceding the change in control.
(2) Number of options and exercise price give effect to five-for-four stock
splits, in the form of stock dividends, paid on December 23, 1997, April 1,
1998 and April 30, 1998.
(3) In order to realize these potential values, the closing price of the PCC
Common Stock on October 7, 2009 would have to be $7.61 and $12.11 per share
and on December 4, 2009 would have to be $8.80 and $13.93 per share,
respectively.
(4) Mr. Ryan's options terminated unexercised on April 1, 1998. See
"--Employment Agreements."
The following table reflects the number of stock options held by the named
executive officers of the Company on December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
SHARES OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR IN-THE- MONEY OPTIONS AT
SHARES END(1) FISCAL YEAR END
ACQUIRED ON VALUE -------------------------- --------------------------
EXERCISE(1) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Ryan (2)............ -- -- -- 195,313 -- $154,204
M. Wayne Wisehart.............. -- -- -- 146,406 -- 118,589
Jeffrey L. Green............... -- -- -- 39,065 -- 31,641
Victor M. Landau............... -- -- -- 19,531 -- 2,148
K. Patrick Meehan.............. 58,596 47,461
Jim Fredrickson................ -- -- -- 97,656 -- 79,097
Steve Carlson.................. -- -- -- 78,125 -- 63,278
</TABLE>
- ------------------------------
(1) Numbers of shares gives effect to five-for-four stock splits, in the form of
stock dividends, paid on December 23, 1997, April 1, 1998 and April 30,
1998.
(2) Mr. Ryan's options terminated unexercised on April 1, 1998. See
"--Employment Agreements."
63
<PAGE>
EMPLOYMENT AGREEMENTS
In 1997, PCW entered into an employment agreement with Mr. Ryan (the "Ryan
Agreement") for a term ending on December 31, 1999. The base salary rate per
annum under the Ryan Agreement for 1997 was $500,000, plus an annual bonus based
upon PCW's financial performance commencing in 1998. In connection with Mr.
Ryan's desire to serve as Chairman of the Board of the Company commencing
effective April 1, 1998, Mr. Ryan and PCW agreed that (i) Mr. Ryan will serve as
Chairman of the Board until December 31, 1998; (ii) in lieu of the other
compensation and benefits under the Ryan Agreement, Mr. Ryan received on April
1, 1998 a single lump sum payment of $875,000 and will participate in the
Company's Bonus Plan for 1998; and (iii) all options for the Company's Common
Stock held by Mr. Ryan be terminated.
In 1997, PCW 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 rate per annum under the Wisehart Agreement for 1997
was $300,000, plus an annual bonus based upon PCW's financial performance.
Pursuant to the Wisehart Agreement, when William J. Ryan ceased to be President
of PCW upon his promotion to Chairman of the Board of PCW, Mr. Wisehart assumed
the position of President for an annual base salary of $500,000, plus an annual
bonus based on PCW's financial performance. The Wisehart Agreement specifies
that if Mr. Wisehart is terminated by PCW other than for Cause (as defined
therein), disability or death or if Mr. Wisehart terminates the agreement for
Good Reason (as defined therein), PCW 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, for two years after the date of termination (to be
paid at the time such payments are due).
In 1997, PCW entered into an employment agreement with Mr. Green (the "Green
Agreement") for an initial term ending on December 31, 1998. The Green Agreement
has an automatic one-year renewal on each anniversary date thereof. The base
salary rate per annum under the Green Agreement for 1997 was $113,000. A
separate agreement also provides for an annual bonus based on PCW's financial
performance. The Green Agreement specifies that if Mr. Green is terminated by
PCW other than for Cause (as defined therein), disability or death or if Mr.
Green terminates the agreement for Good Reason (as defined therein), PCW will
pay to Mr. Green the full base salary and benefits which would otherwise have
been paid to Mr. Green, as well as pro-rated bonus, through the first
anniversary of the date of termination (to be paid at the time such payments are
due).
Jim Fredrickson was terminated as of May 1, 1998 and Steve Carlson was
terminated as of April 15, 1998. Pursuant to their employment agreements, each
of Mr. Fredrickson and Mr. Carlson is entitled to severance payments, including
regular salary over the twelve months subsequent to their respective
terminations.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires directors and executive officers
of PCC to file with the Commission initial reports of ownership and reports of
changes in ownership of securities of PCC. Directors and executive officers are
required by Commission regulation to furnish PCC with copies of all Section
16(a) forms that they file. To PCC's knowledge, based solely on review of the
copies of such reports furnished to PCC and written representations that no
other reports were required, all Section 16(a) filing requirements applicable to
directors and executive officers were timely satisfied during the fiscal year
ended December 31, 1997.
64
<PAGE>
PRINCIPAL STOCKHOLDER
All of Holdings' issued and outstanding capital stock is owned indirectly by
PCC.
DESCRIPTION OF THE 13 1/2% HOLDINGS NOTES
The Company issued the 13 1/2% Notes on August 11, 1997 pursuant to an
indenture (the "13 1/2% Holdings Indenture") as part of an offering of Units
consisting of the 13 1/2% Holdings Notes and warrants to purchase PCC Shares.
The 13 1/2% Holdings Notes are senior obligations of Holdings and rank PARI
PASSU in right of payment with all existing and future senior Indebtedness of
Holdings and rank senior in right of payment to all future subordinated
Indebtedness of Holdings.
The issue price of the 13 1/2% Holdings Notes represents a yield to maturity
of 13 1/2% from August 7, 1997. The 13 1/2% Holdings Notes accrete at a rate of
13 1/2%, compounded semiannually, to an aggregate principal amount at maturity
of approximately $153.4 million by August 1, 2002. Cash interest will not
commence to accrue on the 13 1/2% Holdings Notes prior to August 2, 2002.
Commencing on February 1, 2003, cash interest on the 13 1/2% Notes will be
payable, at a rate of 13 1/2% per annum, semi-annually in arrears on each
February 1 and August 1. The 13 1/2% Holdings Notes are redeemable at the option
of Holdings, in whole or in part, at any time on or after August 1, 2002 in cash
at the redemption prices set forth below, plus accrued and unpaid interest, if
any, thereon to the redemption date:
<TABLE>
<CAPTION>
REDEMPTION
<S> <C>
YEAR PRICE
- ------------------------------------------------------------- -----------
2002......................................................... 106.750%
2003......................................................... 104.500%
2004......................................................... 102.250%
2005 and thereafter.......................................... 100.000%
</TABLE>
On or after August 1, 1998, the Company has the right to redeem all or any
part of the 13 1/2% Holdings Notes in cash at 120.000% of the Accreted Value (as
defined in the 13 1/2% Holdings Indenture) thereof, including accrued and unpaid
interest, if any, to the applicable redemption date (subject to the right of
holders of record on the relevant regular record date to receive interest due on
an interest payment date that is on or prior to the redemption date) if redeemed
during the 12-month period beginning August 1 of the years indicated below;
provided that redemptions may be made only if the closing price of PCC Shares
equals or exceeds the prices set forth below for ten consecutive trading days
prior to the redemption date in each period:
<TABLE>
<CAPTION>
PCC
<S> <C>
STOCK
YEAR PRICE
- ----------------------------------------------------------------- ---------
1998............................................................. $ 7.68
1999............................................................. $ 10.24
2000............................................................. $ 12.80
2001............................................................. $ 15.36
</TABLE>
The 13 1/2% Holdings Notes are unconditionally guaranteed (the "13 1/2%
Holdings Guarantee") by Price Communications Cellular, Inc. ("PCCI"), Holdings'
direct parent and the direct wholly owned subsidiary of PCC. The 13 1/2%
Holdings Guarantee is secured by a lien on and security interest in all of the
issued and outstanding capital stock of Holdings. PCCI is required to own 100%
of the common stock of Holdings.
Upon the occurrence of a Change of Control (as defined) each holder of the
13 1/2% Holdings Notes will have the right, subject to certain limitations, to
require the Company to repurchase such holder's 13 1/2% Holdings Notes at 101%
of the Accreted Value (as defined) thereof, plus accrued and unpaid interest
thereon, if any, to the repurchase date.
65
<PAGE>
The 13 1/2% Holdings Indenture contains covenants which are substantially
similar to those in the Indenture relating to the Notes and which impose 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), and merge or consolidate with any other person or
transfer all or substantially all of their properties and assets.
DESCRIPTION OF THE 11 3/4% PCW NOTES
PCW issued the 11 3/4% PCW Notes on July 10, 1997 pursuant to an indenture
(the "11 3/4% PCW Indenture"). The 11 3/4% PCW Notes are general unsecured
obligations of PCW and subordinated in right of payment to all existing and
future senior Indebtedness of PCW and rank PARI PASSU in right of payment to all
future senior subordinated Indebtedness of PCW and rank senior to all
subordinated indebtedness of PCW.
Commencing on January 15, 1998, cash interest on the 11 3/4% PCW Notes
became payable, at a rate of 11 3/4% per annum, semi-annually in arrears on each
January 15 and July 15. The 11 3/4% PCW Notes are redeemable at the option of
Holdings, in whole or in part, at any time on or after July 15, 2002 in cash at
the redemption prices set forth below, plus accrued and unpaid interest, if any,
thereon to the redemption date:
<TABLE>
<CAPTION>
REDEMPTION
<S> <C>
YEAR PRICE
- ------------------------------------------------------------- -----------
2002......................................................... 105.875%
2003......................................................... 104.406%
2004......................................................... 102.938%
2005......................................................... 101.469%
2006 and thereafter.......................................... 100.000%
</TABLE>
The 11 3/4% PCW Indenture contains covenants which are substantially similar
to those in the Indenture relating to the Notes and which impose certain
limitations on the ability of PCW 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), and merge or consolidate with any other person or transfer
all or substantially all of their properties and assets.
On November 14, 1997, in order to satisfy certain obligations of the Company
under the Registration Rights Agreement dated July 10, 1997, among the Company
and other signatories thereto, the Company offered to exchange registered $1,000
principal amount of 11 3/4% Series B Senior Subordinated Notes due 2007 (the
"Series B 11 3/4% PCW Notes") for each $1,000 principal amount of the issued and
outstanding 11 3/4% PCW Notes. The terms of the Series B 11 3/4% PCW Notes are
identical in all respect to the original 11 3/4% PCW Notes, except that the
offer of the Series B 11 3/4% PCW Notes were registered under the Securities Act
of 1933, as amended.
66
<PAGE>
DESCRIPTION OF THE SENIOR SECURED PCW NOTES
PCW issued the Secured PCW Notes on June 16, 1998 pursuant to an indenture
(the "Secured PCW Indenture"). The Secured PCW Notes are senior obligations of
PCW and rank (i) senior in right of payment to all subordinated Indebtedness of
PCW and (ii) effectively senior in right of payment to all unsecured
Indebtedness of PCW to the extent of the value of the Collateral (as defined in
the Secured PCW Indenture) available for the payment of the Secured PCW Notes.
Commencing December 15, 1998, cash interest on the Secured PCW Notes will be
payable, at 9 1/8% per annum, semi-annually in arrears on each June 15 and
December 15.
The Secured PCW Notes are guaranteed (the "Guarantees") by certain of PCW's
subsidiaries (the "Guarantors") and the Secured PCW Notes and the Guarantees are
secured by (a) the capital stock of certain subsidiaries (the "Securing
Subsidiaries") owned by PCW or any Guarantors and certain other assets of the
Securing Subsidiaries as can be perfected by the filing of a UCC-1 financing
statement with filing offices in the relevant jurisdictions and (b) certain cash
collateral and eligible investments from time to time pledged by PCW or the
Guarantors.
The Secured PCW Notes are redeemable at the option of PCW, at any time on or
after June 15, 2002 in cash at the redemption prices set forth below, plus
accrued and unpaid interest, if any, thereon to the redemption date:
<TABLE>
<CAPTION>
REDEMPTION
<S> <C>
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
2002............................................................................. 104.56250%
2003............................................................................. 102.28125%
2004 and thereafter.............................................................. 100.00000%
</TABLE>
The Secured PCW Indenture contains covenants which impose certain
limitations on the ability of PCW 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), and merge or consolidate with any other person or transfer
all or substantially all of their properties and assets.
The PCW Offering has not been registered under the Securities Act. However,
PCW is under an obligation to use its reasonable best efforts to cause a
registration statement to be declared effective with respect to an offer to
exchange the Secured PCW Notes within 150 days of the original issuance of the
Secured PCW Notes. If (i) such registration statement has not been declared
effective within such 150-day period, (ii) PCW has not consummated the exchange
offer within 180 days after the original issuance of the Secured PCW Notes or
(iii) a Shelf Registration Statement (as defined) is filed and declared
effective but thereafter ceases to be effective without being succeeded by an
additional Registration Statement filed and declared effective, then in such
case, PCW will be required to pay liquidated damages to the holders of the
Secured PCW Notes.
67
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Notes will be issued under an Indenture, dated as of July 31, 1998 (the
"Indenture"), by and between Holdings and Bank of Montreal Trust Company, as
trustee (the "Trustee"). 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 those documents. Unless the context otherwise
requires, all references to "Holdings" in this section refer to Price
Communications Cellular Holdings, Inc. only and not its subsidiaries.
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to them in the Indenture. Wherever particular provisions of the
Indenture are referred to in this summary, such provisions are incorporated by
reference as a part of the statements made and such statements are qualified in
their entirety by such reference.
The Notes will be general obligations of Holdings ranking senior to all
subordinated Indebtedness of Holdings and PARI PASSU in right of payment to all
other existing and future senior unsecured Indebtedness of Holdings. As of March
31, 1998, on a PRO FORMA basis after giving effect to the Offering and the PCW
Offering, in each case, including the application of the net proceeds therefrom.
Holdings, on a consolidated basis, would have had outstanding approximately
$900.0 million of Indebtedness. Holdings is a holding company and, therefore,
the Notes will be effectively subordinated to all liabilities (including trade
payables) of Holdings' subsidiaries (including the PCW Notes). At March 31,
1998, on a PRO FORMA basis as described above, Holdings' subsidiaries would have
had outstanding approximately $700.0 million of Indebtedness, including
Indebtedness under the PCW Notes, and $362.7 million of deferred taxes and other
liabilities. The Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and integral multiples thereof.
The Notes will mature on August 15, 2008. Each Note will bear interest
initially at the rate of 11 1/4% per annum from the date of issuance, or from
the most recent date to which interest has been paid or provided for, and will
be payable semiannually on February 15 and August 15 of each year, commencing on
February 15, 1999 (each an "Interest Payment Date"), to holders of record at the
close of business on the February 1 or August 1 immediately preceding the
Interest Payment Date (each a "Regular Record Date"). The interest rate on the
Notes will be permanently reduced by 0.50% once cash interest begins to accrue
on the Notes. Cash interest will begin to accrue on the Notes on February 15,
2003; PROVIDED that at any time prior to February 15, 2003, the Company may make
an election on any interest payment date to commence the accrual of cash
interest from and after such interest payment date, in which case, cash interest
will be payable on each interest payment date thereafter. Interest payable on
any interest payment date prior to the earlier of February 15, 2003 and the
Company's election to commence the accrual of cash interest shall be payable
through the issuance of additional Notes (valued at 100% of the principal amount
thereof). Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. There can be no assurances that the Company will not make
an election to pay cash interest and thereby permanently reduce the interest
rate shortly after consummation of this Offering.
The Indenture will not contain provisions which would afford Holders of the
Notes protection in the event of a decline in Holdings' credit quality resulting
from highly leveraged or other similar transactions involving Holdings.
Subject to the covenants described below, the Company may issue additional
notes under the Indenture having the same terms in all respects as the Notes (or
in all respects except for the payment of interest on the Notes (i) scheduled
and paid prior to the date of issuance of such notes or (ii) payable on the
first Interest Payment Date following such date of issuance). The Notes offered
hereby and any such additional notes would be treated as a single class for all
purposes under the Indenture.
68
<PAGE>
Principal of, premium, if any, and interest on the Notes will be payable,
and, subject to the following provisions, the Notes may be presented for
registration of transfer or exchange, at the office or agency of Holdings
maintained for such purpose, which office or agency shall be maintained in the
Borough of Manhattan, The City of New York. At the option of Holdings, 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 Holdings. No service charge will
be made for any registration of transfer or exchange of Notes, but Holdings may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. Until otherwise designated by Holdings,
Holdings' office or agency will be the corporate trust office of the Trustee
presently located at 88 Pine Street, 19th floor, New York, NY 10005.
Because Holdings conducts its operations through its subsidiaries, Holdings'
ability to meet its cash obligations is dependent upon the ability of its
subsidiaries to make cash distributions to Holdings. Furthermore, any right of
Holdings 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), except to the extent that Holdings is
itself recognized as a creditor of such subsidiary, in which case the claims of
Holdings would still be subordinate to any indebtedness of such subsidiary
senior in right of payment to that held by Holdings. In the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or any assignment for the benefit of the creditors of Holdings or a
marshalling of assets or liabilities of Holdings, Holders of the Notes may
receive ratably less than other such creditors or interest holders.
SINKING FUND
There will be no sinking fund payments for the Notes.
RANKING
The Notes will be general obligations of Holdings ranking senior to all
subordinated indebtedness of Holdings and PARI PASSU in right of payment to all
other existing and future senior unsecured Indebtedness of Holdings. The Notes
will be effectively subordinated to all liabilities of Holdings' subsidiaries.
As of March 31, 1998 on, a PRO FORMA basis after giving effect to the Offering
and the PCW Offering, in each case, including the application of the net
proceeds therefrom, Holdings, on a consolidated basis, would have had
outstanding approximately $900.0 million of Indebtedness. At March 31, 1998, on
a pro forma basis as described above, Holdings' subsidiaries would have had
outstanding approximately $700.0 million of Indebtedness, including Indebtedness
under the PCW Notes and $362.7 million of deferred taxes and other liabilities.
NEGATIVE PLEDGE
Holdings will not be permitted to pledge the stock of PCW or the stock of
any Restricted Subsidiary that owns common stock of PCW except pursuant to the
Credit Facility. Holdings will be required to own, directly or indirectly, 100%
of the common stock of PCW.
OPTIONAL REDEMPTION
Except as described under "Mandatory Exchange" and "Special Mandatory
Redemption" below, Holdings will not have the right to redeem any Notes prior to
August 15, 2003. On or after August 15, 2003, Holdings will have the right to
redeem all or any part of the Notes in cash at the redemption prices (expressed
as a percentage of the aggregate principal amount thereof) set forth below, in
each case including accrued and unpaid interest, if any, to the applicable
Redemption Date (subject to the right of Holders of record on the relevant
Regular Record Date to receive interest due on an Interest Payment
69
<PAGE>
Date that is on or prior to the Redemption Date) if redeemed during the 12-month
period beginning August 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2003........................................................................ 105.625%
2004........................................................................ 103.750%
2005........................................................................ 101.875%
2006 and thereafter......................................................... 100.000%
</TABLE>
In the case of a partial redemption, the Trustee shall select the Notes or
portion 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.
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.
SPECIAL MANDATORY REDEMPTION
All (but not less than all) of the Notes shall be redeemed on August 4, 1998
at a cash price equal to 101% of the principal amount thereof together with
accrued and unpaid interest to the date of redemption if all of the 13 1/2%
Holdings Notes have not been redeemed prior thereto, without any notice of
redemption.
MANDATORY EXCHANGE
In the event the Trading Price equals or exceeds 115% of the Exchange Price
for ten out of 15 consecutive Trading Days, each outstanding Note will be
mandatorily exchanged on the fifth Trading Day (the "Exchange Date") immediately
succeeding such tenth Trading Day (unless Holdings shall have elected on or
prior to the second Trading Day immediately succeeding such tenth Trading Day to
permanently terminate the mandatory exchange provisions of the Notes) into 25
PCC Shares (as defined in the Indenture) (subject to adjustment for certain
events) per $1,000 principal amount of Notes (initially equivalent to a price of
$40.00 per share (the "Exchange Price")).
Subject to the following paragraph, on and after the Exchange Date, interest
will cease to accrue on the Notes. Each holder will be obligated to surrender
its Notes at the specified office of the Exchange Agent and PCC will be
obligated to issue the PCC Shares exchangeable therefor (the "Exchange Shares").
Such exchange will be effected through the facilities of The Depository Trust
Company ("DTC"), with each Holder being deemed to have automatically tendered
its Notes for exchange on the Exchange Date in accordance with applicable DTC
procedures. In the event the Exchange Date occurs on any date after a Regular
Record Date and on or before the next succeeding Interest Payment Date, Notes
surrendered for exchange must be accompanied by payment in next day funds of an
amount equal to the interest thereon, if any, which the registered Holder on
such Regular Record Date is to receive. Except as described in the preceding
sentence, no interest will be payable by the Company on the Notes with respect
to any Interest Payment Date subsequent to the Exchange Date. Each Holder's
automatic exchange will be subject to the delivery of the PCC Shares to the
Paying Agent prior to the Exchange Date.
Exchange of the Notes into the Exchange Shares shall be subject to
compliance with any reporting requirements or approvals established by the
Commission as may be amended, supplemented or superseded from time to time. In
the event that the mandatory exchange of Notes into PCC Shares on the Exchange
Date is prohibited by law, Holdings shall give notice thereof to the Trustee and
the Paying Agent and the Notes shall remain outstanding and the exchange shall
not occur until the first Trading Day thereafter when both (i) such exchange is
no longer prohibited by applicable law and (ii) the Trading Price equalled or
exceeded 115% of the Exchange Price for ten out of the 15 consecutive Trading
Days immediately preceding such Trading Day.
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GENERAL
The Exchange Price will be subject to adjustment in certain events,
including: (i) dividends (and other distributions) payable on any class of PCC's
capital stock in PCC Shares, (ii) the issuance to all holders of PCC Shares of
rights, options or warrants, or negotiable obligations, debentures or securities
convertible into PCC Shares or exercisable or exchangeable therefor, in each
case, entitling them to subscribe for or purchase or exchange for PCC Shares at
less than the current market price per PCC Share (as determined pursuant to the
Indenture), (iii) subdivisions, combinations and reclassifications of PCC
Shares, (iv) dividends or distributions to all holders of PCC Shares of any
shares of Capital Stock of PCC (other than shares of PCC Shares of any class) or
capital stock of PCC's subsidiaries or evidence of indebtedness of Holdings or
assets (including cash and securities, but excluding those dividends, rights,
options, warrants and distributions referred to above) and (v) mergers,
consolidations, reorganizations or spin-offs. No adjustments to the Exchange
Price will be required to be made until cumulative adjustments amount to 1% or
more of the Exchange Price as last adjusted and any adjustment below 1% will be
carried forward.
In the event that PCC shall distribute rights, options or warrants (other
than those referred to in (ii) in the preceding paragraph) ("Rights") PRO RATA
to holders of PCC Shares, so long as any such Rights have not expired or been
redeemed, the Holder of any Note surrendered for exchange will be entitled to
receive upon exchange, in addition to the Exchange Shares, a number of Rights to
be determined as follows: (i) if such exchange occurs on or prior to the date
for the distribution to the holders of Rights of separate certificates
evidencing such rights (the "Distribution Date"), the same number of Rights to
which a holder of a number of shares of PCC Shares equal to the number of
Exchange Shares is entitled at the time of such exchange in accordance with the
terms and provisions of and applicable to the Rights and (ii) if such exchange
occurs after such Distribution Date, the same number of Rights to which a holder
of the number of shares of PCC Shares into which such Note was exchangeable
immediately prior to such Distribution Date would have been entitled on such
Distribution Date in accordance with the terms and provisions of and applicable
to the Rights. The Exchange Price will not be subject to adjustments on account
of any declaration, distribution or exercise of such Rights.
On exchange of a Note, a Holder will not receive any cash payment
representing an accrued discount or premium payment. PCC's delivery to such
Holder of the Exchange Shares (or cash adjustment, as described below) into
which the Note is exchangeable will be deemed to satisfy Holdings' obligation to
pay the principal amount and any accrued discount or premium attributable to the
period from the Issue Date to the date of exchange.
Fractional PCC Shares are not to be issued upon exchange, but, in lieu
thereof, PCC will pay a cash adjustment based upon the market price of the PCC
Shares.
Bank of Montreal Trust Company will act as paying and exchange agents (the
"Exchange Agent") for the Notes. PCC will notify the Exchange Agent of all the
exchange price adjustments made as described above and a copy of such
calculation shall be maintained at the Exchange Agent's office.
CERTAIN COVENANTS
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
The Indenture will provide that in the event that a Change of Control has
occurred, each Holder will have the right, at such Holder's option, pursuant to
an irrevocable and unconditional offer by Holdings (the "Change of Control
Offer"), to require Holdings 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 principal amount thereof,
together with any accrued and unpaid interest to the Change of Control Purchase
Date. The Change of Control Offer shall be made within 20 Business Days
following a Change of Control and shall
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remain open for 20 Business Days following its commencement (the "Change of
Control Offer Period"). Upon expiration of the Change of Control Offer Period,
Holdings shall purchase all Notes properly tendered in response to the Change of
Control Offer.
On or before the Change of Control Purchase Date, Holdings 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 Holdings. The Paying Agent promptly will deliver to the
Holders of Notes so accepted payment in an amount equal to the Change of Control
Purchase Price (together with any accrued and unpaid interest), and the Trustee
will promptly authenticate and mail or deliver to such Holders a new Note equal
in principal amount to any unpurchased portion of the Note surrendered. Any
Notes not so accepted will be promptly mailed or delivered by Holdings to the
Holder thereof. Holdings 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 Holdings or its Parent, and, thus, the removal of
incumbent management. The Change of Control purchase feature resulted from
negotiations between Holdings and the Underwriters and is not the result of any
intention on the part of Holdings or its Parent or their management to
discourage the acquisition of Holdings 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 Holdings may modify a Change of Control Offer to the extent
necessary to effect such compliance.
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS
The Indenture will provide that after the Issue Date Holdings 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, (x) Holdings may Incur
Indebtedness if Holdings' Annualized Operating Cash Flow Ratio, after giving
effect to the Incurrence of such Indebtedness, would have been less than 8.5 to
1 and (y) any Restricted Subsidiary may Incur Indebtedness if such Restricted
Subsidiary's Annualized Operating Cash Flow Ratio, after giving effect to the
Incurrence of such Indebtedness, would have been less than 8.0 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 Holdings 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 under "Limitation on Asset Sales and Sales of Subsidiary
Stock" below and by repayments and permanent reductions in amounts outstanding
pursuant to scheduled amortizations 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 Facility, reduced by (a)
repayments of and permanent reductions in commitments in satisfaction of the Net
Cash Proceeds application requirement set forth in the
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"Limitation on Asset Sales and Sales of Subsidiary Stock" covenant and (b) an
amount equal to the sum of (A) the outstanding principal amount of the PCW
Secured Notes and (B) the aggregate amount of Indebtedness Incurred pursuant to
clause (x) below to refinance the PCW Secured Notes or the Credit Facility 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, Holdings and its Restricted Subsidiaries may Incur
Indebtedness pursuant to this clause (ii) so long as the proceeds from such
Incurrence are not used, directly or indirectly, 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, (iii) Indebtedness of
Holdings evidenced by the Notes, (iv) (A) Permitted Acquisition Indebtedness of
Holdings or any Restricted Subsidiaries that satisfies the provisions of clause
(x) of the definition thereof or (B) Permitted Acquisition Indebtedness of any
Restricted Subsidiary that satisfies the provisions of clause (y) of the
definition thereof, (v) Indebtedness between Holdings and any Restricted
Subsidiary of Holdings or between Restricted Subsidiaries of Holdings; PROVIDED,
HOWEVER, that, in the case of Indebtedness of Holdings, 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 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,
(vii) Indebtedness of Holdings 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 Holdings 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
Holdings 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) Indebtedness of Holdings 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, (ix) Indebtedness of Holdings or any Restricted
Subsidiary (other than Indebtedness permitted by the first paragraph hereof or
clauses (i) through (viii) or (x) hereof) not to exceed $100,000,000 at any one
time outstanding and (x) Refinancing Indebtedness Incurred to extend, renew,
replace or refund Indebtedness permitted under the first paragraph hereof or
clauses (i) (as so reduced in amount), (ii) (as so reduced in amount), (iii),
(iv) and (x) of this paragraph.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
described above or is entitled to be incurred pursuant to the second paragraph
of the covenant described above, Holdings shall, in its sole discretion,
classify such item of Indebtedness in any manner that complies with the covenant
described above and such item of Indebtedness will be treated as having been
incurred pursuant to only one of such clauses or pursuant to the second
paragraph above. In addition, Holdings may, at any time, change the
classification of an item of Indebtedness (or any portion thereof) to any other
clause or to the second paragraph hereof, provided that Holdings would be
permitted to Incur such item of Indebtedness (or such portion thereof) pursuant
to such other clause or the second paragraph hereof, as the case may be, at such
time of reclassification.
Indebtedness of any Person that is not a Restricted Subsidiary of Holdings
(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 Holdings or is merged with or into or consolidated with Holdings
or a Restricted Subsidiary of Holdings shall be deemed to have been Incurred, as
the case may be, at the time such Person becomes such a Restricted Subsidiary of
Holdings, or is merged with or into or consolidated with Holdings or a
Restricted Subsidiary of Holdings.
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LIMITATION ON RESTRICTED PAYMENTS
The Indenture will provide that after the Issue Date Holdings 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) Holdings'
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 Holdings
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 Holdings 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 Holdings for the Computation Period,
plus (ii) the aggregate Net Proceeds received by Holdings from (x) Equity
Offerings (other than to a Subsidiary of Holdings) after the Issue Date and on
or prior to the date of such Restricted Payment or (y) Capital Contributions to
the Company after the Issue Date, 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
Holdings or any Wholly Owned Restricted Subsidiary of Holdings 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 Holdings 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 $15,000,000 to be used for Restricted Payments not otherwise
permitted by this "Limitation on Restricted Payments" covenant, and (ii) 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 (x) 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 (y) the redemption, defeasance, repurchase or other
acquisition or retirement of any Indebtedness or Capital Stock of Holdings or
its Restricted Subsidiaries either in exchange for or out of the Net Proceeds of
a substantially concurrent Equity Offering (in the case of any redemption,
defeasance, repurchase or other acquisition or retirement of any Junior
Indebtedness or Capital Stock of Holdings or its Restricted Subsidiaries and
other than to a Subsidiary of Holdings) or sale of Junior Indebtedness (in the
case of any redemption, defeasance, repurchase or other acquisition or
retirement of any Indebtedness of Holdings or its Restricted Subsidiaries) of
Holdings.
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), (ii), (x) and (y) of the immediately preceding paragraph
shall be included as Restricted Payments from and after the Issue Date.
LIMITATION ON RESTRICTING SUBSIDIARY DIVIDENDS
The Indenture will provide that Holdings 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 Holdings to pay dividends or make
other distributions on the Capital Stock of any Restricted Subsidiary of
Holdings or pay or satisfy any obligation to Holdings or any of its Restricted
Subsidiaries or otherwise transfer assets or make or pay loans or advances to
Holdings or any of its
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Restricted Subsidiaries, except encumbrances and restrictions existing under (i)
any Indebtedness permitted by the Indenture to be incurred by any Restricted
Subsidiary, (ii) the indentures governing the Notes and the PCW Notes, (iii) any
Existing Indebtedness, (iv) the Credit Facility, (v) any applicable law or any
governmental or administrative regulation or order, (vi) Refinancing
Indebtedness permitted under the Indenture, PROVIDED, HOWEVER, 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 (in the good faith judgment of
Holdings' Board of Directors) being refinanced immediately prior to such
refinancing, (vii) restrictions with respect solely to a Restricted Subsidiary
of Holdings 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, HOWEVER, that such restrictions
apply solely to the Capital Stock or assets (in the good faith judgment of
Holdings' Board of Directors) being sold of such Restricted Subsidiary, (viii)
restrictions contained in any agreement relating to the financing of the
acquisition of a Person or property, business or assets after the Issue Date
which are not applicable to any Person or property, business or assets 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 (ix) any agreement (other
than those referred to in clause (viii)) of a Person acquired by Holdings or a
Restricted Subsidiary of Holdings, 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 nor (b) Permitted
Liens, 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 will provide that, after the Issue Date, Holdings will not,
and will not permit any of its Restricted 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 Holdings or such Subsidiary, as the case may be, and (ii) are at
least as favorable as the terms which could be obtained by Holdings 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 Holdings 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,
Holdings 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 Holdings 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 Holdings 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 Holdings and any of its Restricted
Subsidiaries or between or among Restricted Subsidiaries of Holdings, (iii) any
Restricted Payment not prohibited by the "--Limitation on Restricted Payments"
above, (iv) any loan or advance by Holdings or a Restricted Subsidiary to
employees of Holdings 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
Holdings and any other Person with which Holdings
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is required or permitted to file a consolidated tax return or with which
Holdings 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
Holdings and its Restricted Subsidiaries (as a consolidated group).
LIMITATION ON ASSET SALES AND SALES OF SUBSIDIARY STOCK
The Indenture will provide that after the Issue Date Holdings 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 Holdings whether by Holdings
or a Restricted Subsidiary (any such transaction 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") is applied to
the optional redemption of the Notes in accordance with the terms of the
Indenture and other Indebtedness of Holdings ranking on a parity with the Notes
from time to time outstanding with similar provisions requiring Holdings 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 in cash (the "Asset Sale
Offer Price") of 100% of the principal amount thereof (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 assets and property (other than
notes, obligations or securities), which in the good faith reasonable judgment
of the Board of Directors of Holdings are of a type used in a Related Business,
or Capital Stock of a Person (which, if such Person becomes a Subsidiary of
Holdings 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 Holdings) are of
a type used in a Related Business (PROVIDED, HOWEVER, 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 any Senior Indebtedness of Holdings or any Indebtedness of a
Restricted Subsidiary (other than a Non-Recourse 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 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 "--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, HOWEVER, 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;
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(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 other Senior Indebtedness of Holdings or
Indebtedness of any Restricted Subsidiary, and
(4) the Board of Directors of Holdings determines in good faith that
Holdings or such Restricted Subsidiary, as applicable, would receive fair market
value in consideration of such Asset Sale.
The Indenture will provide 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, Holdings 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 second preceding paragraph:
(i) Holdings 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) Holdings and its Restricted Subsidiaries may convey, sell, lease,
transfer, assign or otherwise dispose of assets pursuant to and in
accordance with "--Limitation on Merger, Sale or Consolidation";
(iii) Holdings 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 Holdings or such Restricted Subsidiary, as
applicable;
(iv) Holdings and its Restricted Subsidiaries may convey, sell, lease,
transfer, assign or otherwise dispose of assets to Holdings or any of its
Restricted Subsidiaries; and
(v) Holdings 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
Holdings 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 are, 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 Holdings 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, HOWEVER, that (a) there shall not exist immediately
prior or subsequent thereto a Default or an Event of Default, (b) a majority
of the independent directors of the Board of Directors of Holdings shall
have approved a Board Resolution that such exchange is fair to Holdings or
such Restricted Subsidiary, as the case may be, and (c) 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
Holdings or a Restricted Subsidiary and, when combined with the Capital
Stock of such Person already owned by Holdings and its Restricted
Subsidiaries, shall constitute a majority of the voting power and Capital
Stock of such Person, unless (A) (I) Holdings 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
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such Person) will distribute to Holdings in cash an amount equal to
Holdings's Annualized Operating Cash Flow (determined as of the date of such
Asset Sale) attributable to the property, business or assets of Holdings 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 Holdings 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 Cellular Systems wireless communications systems in which
Holdings 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 Holdings 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 1.0 to 1, or (B) in the
case of Capital Stock of a Person that is not a Subsidiary of Holdings owned
by Holdings 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 "--Limitation on Restricted Payments" above, 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.
LIMITATION ON LIENS
The Indenture will provide that Holdings will not and will not permit any
Restricted Subsidiary, directly or indirectly, to Incur or suffer to exist any
Lien upon any of its property or assets, whether now owned or hereafter acquired
other than Permitted Liens unless contemporaneously therewith effective
provision is made to secure the Notes equally and ratably with such Indebtedness
with a Lien on the same properties and assets securing such Indebtedness for so
long as such Indebtedness is secured by such Lien.
LIMITATION ON STATUS AS INVESTMENT COMPANY
The Indenture will prohibit Holdings 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 will provide that Holdings 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 and its Restricted Subsidiaries'
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) Holdings 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 Holdings
in connection with the Notes and the Indenture
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PROVIDED, HOWEVER, that in the case of a sale, lease, conveyance, transfer or
other disposition of all or substantially all of Holdings' and its Restricted
Subsidiaries' assets, the provisions of this clause (i)(B) need not be met if
all of the consideration in respect of such transaction is received by Holdings
and its Restricted Subsidiaries (other than any Non-Recourse Restricted
Subsidiary); (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 (or, in the case
contemplated by the proviso to clause (i)(B), Holdings) 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 "--Limitation on Incurrence of Additional Indebtedness"
above or (B), if the requirement of clause (A) is not satisfied, (x) any
Indebtedness of the resulting surviving or transferee entity (or, in the case
contemplated by the proviso to clause (i)(B), Holdings) in excess of the amount
of Holdings' 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) Holdings 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 Holdings in accordance with the foregoing, the successor
corporation formed by such consolidation or into which Holdings is merged or to
which such transfer is made, shall (other than as provided in the proviso to
clause (i)(B) of the preceding paragraph) succeed to, and be substituted for,
and may exercise every right and power of, Holdings under the Indenture with the
same effect as if such successor corporation had been named therein as Holdings,
and Holdings shall be released from the obligations under the Notes and the
Indenture.
LIMITATION ON LINES OF BUSINESS
The Indenture will provide that neither Holdings 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 Holdings, is a Related Business.
RESTRICTION ON SALE AND ISSUANCE OF SUBSIDIARY STOCK
The Indenture will provide that Holdings 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 Holdings to any Person other than Holdings or a
Wholly Owned Restricted Subsidiary of Holdings, except for shares of common
stock with no preferences or special rights or privileges and with no redemption
or prepayment provisions ("Special Rights"); PROVIDED, HOWEVER, that, in the
case of a Restricted Subsidiary that is a partnership or joint venture
partnership (a "Restricted Partnership"), Holdings 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 Holdings or such Restricted Subsidiary in such Restricted
Partnership.
REPORTS
The Indenture will provide that whether or not Holdings is subject to the
reporting requirements of Section 13 or 15 (d) of the Exchange Act, Holdings
shall deliver to the Trustee and to each Holder, within 15 days after it is or
would have been required to file such with the Commission, annual and quarterly
financial statements substantially equivalent to financial statements that would
have been included in reports filed with the Commission, if Holdings 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
Holdings' certified independent public accountants as such would be required in
such reports to the Commission,
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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 will define an Event of Default as (i) the failure by Holdings
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 Holdings 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 Holdings 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 Holdings by the Trustee or to Holdings 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
Holdings 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 Holdings or
any Restricted Subsidiary of Holdings 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 Holdings or any of its Restricted
Subsidiaries and not stayed, bonded or discharged within 60 days.
The Indenture provides that the Trustee thereunder shall, within 90 days
after the occurrence of any Default or Event of Default, give the Holders notice
of all uncured Defaults or Events of Default thereunder known to it; PROVIDED,
HOWEVER, that, except in the case of an Event of Default in payment with respect
to such Notes the Trustee shall be protected in withholding such notice if and
so long as a committee of its trust officers in good faith determines that the
withholding of such notice is in the interest of the Holders.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv) above relating to Holdings or any Significant
Restricted Subsidiary), then in every such case, unless the principal amount 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 Holdings (and to the Trustee if given by
Holders) (an "Acceleration Notice"), may declare the aggregate principal amount
and accrued interest thereon, if applicable, 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 Facility and Holdings has guaranteed the repayment
of principal and interest on the Credit Facility, shall become immediately due
and payable upon the first to occur of an acceleration under the Credit Facility
or five business days after receipt by Holdings and the representative of the
holders of the Indebtedness under the Credit Facility 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 Holdings or any Significant
Restricted Subsidiary occurs, the principal and accrued interest, if applicable,
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 amount of, premium, if any, and interest on the
Notes which have become due solely by such acceleration, have been cured or
waived.
The Indenture will provide 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
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clause (v) (without any payment of 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 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 the 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 will provide that Holdings 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 Holdings 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) Holdings'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 Holdings's obligations in connection
therewith; and (iv) the Legal Defeasance provisions of the Indenture. In
addition, Holdings may, at its option and at any time, elect to have the
obligations of Holdings 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)
Holdings 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 applicable 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, Holdings shall have delivered
to the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that (A) Holdings 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, Holdings shall
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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 (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit or such deposit) shall have
occurred and be continuing on the date of such deposit, or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance shall not result in a breach or violation of,
or constitute a default under any other material agreement or instrument to
which Holdings or any of its Subsidiaries is a party or by which Holdings or any
of its Subsidiaries is bound; (vi) Holdings shall have delivered to the Trustee
an Officers' Certificate stating that the deposit was not made by Holdings with
the intent of preferring the Holders of such Notes over any other creditors of
Holdings or with the intent of defeating, hindering, delaying or defrauding any
other creditors of Holdings or others; and (vii) Holdings 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 will contain provisions permitting Holdings 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,
Holdings and the Trustee are permitted to amend or supplement the Indenture or
any supplemental indenture or modify the rights of the Holders; PROVIDED,
HOWEVER, 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 redemption provisions or the mandatory exchange provisions or the
provisions (including related definitions) of the "Repurchase of Notes at the
Option of the Holder Upon a Change of Control" covenant in each case 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, Holdings and the Trustee are permitted
to change the Change of Control Purchase Date and the Asset Sale Offer Period.
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture will provide that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of Holdings or any
successor entity shall have any personal liability in respect of the obligations
of Holdings under the Indenture or the Notes by reason of his or its status as
such stockholder, employee, officer or director.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms to be contained in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"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 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 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 any Indebtedness on
such Transaction Date) 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 or
thereafter and on or prior to the Transaction Date 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 Holdings and its Restricted
Subsidiaries, references to a Person and its Subsidiaries in the foregoing
definition shall be deemed to refer to Holdings and its Restricted Subsidiaries
and when used in connection with any Restricted Subsidiary and its Subsidiaries
shall be deemed to refer to such Restricted Subsidiary and its Subsidiaries that
are Restricted Subsidiaries.
"ASSET SALE" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales and Sales of Subsidiary Stock" above.
"ASSET SALE OFFER" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales and Sales of Subsidiary Stock" above.
"ASSET SALE OFFER PERIOD" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales and Sales of Subsidiary Stock" above.
"ASSET SALE OFFER PRICE" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales and Sales of Subsidiary Stock" above.
"BUSINESS DAY" means a day that is not a Legal Holiday.
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"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.
"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.
"CASH EQUIVALENTS" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) in each case maturing within
one year after the date of acquisition, (ii) time deposits and certificates of
deposit and commercial paper issued by the parent corporation of any domestic
commercial bank of recognized standing having capital and surplus in excess of
$500 million and commercial paper issued by others rated at least A-2 or the
equivalent thereof by S&P or at least P-2 or the equivalent thereof by Moody's,
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.
"CELLULAR SYSTEM" means a domestic public cellular mobile radio
telecommunications system.
"CHANGE OF CONTROL" means (i) other than any transaction in which the
resulting transferee Person need not assume the Notes as provided in the proviso
to clause (i)(b) of "--Certain Covenants-- Limitation on Merger, Sale or
Consolidation" above, any sale, transfer or other conveyance, whether direct or
indirect, of a majority of the fair market value of the assets of Holdings or
Parent, on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction, any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable), other than an Excluded
Person or Excluded Group is or becomes the "beneficial owner" (as such term is
used in Rule 13d-3 promulgated pursuant to the Exchange Act), directly or
indirectly, of more than 50% of the equity of the transferee, (ii) any person or
"group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable), other than an Excluded Person or
Excluded Group, is or becomes the "beneficial owner" (as such term is used in
Rule 13d-3 promulgated pursuant to the Exchange Act), directly or indirectly, of
more than 50% of the equity of Holdings 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 Holdings or Parent
(together with any new directors whose election by such Board or whose
nomination for election by the shareholders of Holdings 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 Holdings or Parent then in office.
"CHANGE OF CONTROL OFFER" has the meaning set forth under "--Certain
Covenants -- Repurchase of Notes at the Option of the Holder upon a Change of
Control" above.
"CHANGE OF CONTROL OFFER PERIOD" has the meaning set forth under "--Certain
Covenants -- Repurchase of Notes at the Option of the Holder upon a Change of
Control" above.
"CHANGE OF CONTROL PURCHASE PRICE" has the meaning set forth under
"--Certain Covenants -- Repurchase of Notes at the Option of the Holder upon a
Change of Control" above.
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"CHANGE OF CONTROL PUT DATE" means the earlier of (a) the third Business Day
prior to the Change of Control Purchase Date and (b) the third Business Day
following the expiration of the Change of Control Offer.
"COMPANY SYSTEMS" has the meaning set forth under "--Certain Covenants --
Limitation on Asset Sales and Sales of Subsidiary Stock" above.
"COMPUTATION PERIOD" has the meaning set forth under "--Certain Covenants --
Limitation on Restricted Payments" above.
"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 Holdings 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 Holdings and its Restricted
Subsidiaries, references to a Person and its Subsidiaries in the foregoing
definition shall be deemed to refer to Holdings and its Restricted Subsidiaries
and when used in connection with any Restricted Subsidiary and its Subsidiaries
shall be deemed to refer to such Restricted Subsidiary and its Subsidiaries that
are 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, and (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. When the foregoing definition is
used in connection with Holdings and its Restricted Subsidiaries, references to
a Person and its Subsidiaries in the foregoing definition shall be deemed to
refer to Holdings and its Restricted Subsidiaries and when used in connection
with any Restricted Subsidiary and its Subsidiaries shall be deemed to refer to
such Restricted Subsidiary and its Subsidiaries that are Restricted
Subsidiaries.
"COVENANT DEFEASANCE" has the meaning set forth under "--Legal Defeasance
and Covenant Defeasance" above.
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"CREDIT FACILITY" means, at any time of determination, any credit agreement
or indenture designated by Holdings to be the "Credit Facility," 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
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring or adding
Restricted Subsidiaries of Holdings 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.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect against
fluctuation in currency values.
"DEFAULT" means any event or condition that is, or after notice or passage
of time or both would be, an Event of Default.
"DISQUALIFIED CAPITAL STOCK" means, with respect to any Person, Capital
Stock of such Person that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the happening
of any event or the passage of time would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by such Person or
any of its Subsidiaries, in whole or in part, on or prior to the Stated Maturity
of the Notes; PROVIDED, HOWEVER, 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 Holdings or Parent.
"DLJ POP BOOK" means The Wireless Communications Industry survey published
by Donaldson, Lufkin & Jenrette Securities Corporation.
"EQUITY OFFERING" means with respect to any Person, the sale or offering of
any Capital Stock of such Person that is not Disqualified Capital Stock.
"EXCHANGE CAPITAL STOCK" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales and Sales of Subsidiary Stock" above.
"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,
HOWEVER, that the voting power of the Capital Stock of Holdings 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 Robert Price, Parent (so long as not controlled by
anyone other than Robert Price) and any Affiliate of any of the foregoing that
is wholly owned by any of the foregoing.
"EXISTING INDEBTEDNESS" means Indebtedness of Holdings 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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"INCUR" has the meaning set forth under "--Certain Covenants -- Limitation
on Incurrence of Additional Indebtedness" above.
"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 Holdings 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 Holdings or any of its
Restricted Subsidiaries at the time any
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such Investment is made; provided that, for purposes of this sentence, the fair
market value of net assets in excess of $5,000,000 shall be as determined by an
independent appraiser of national reputation.
"ISSUE DATE" means the time and date of the first issuance of the Notes
under the Indenture.
"JUNIOR INDEBTEDNESS" means Indebtedness of Holdings that (i) requires no
payment of principal prior to or on the date on which all principal of and
interest on the Notes is paid in full and (ii) is subordinate and junior in
right of payment to the Notes in all respects.
"LEGAL DEFEASANCE" has the meaning set forth under "--Legal Defeasance and
Covenant Defeasance" above.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in New York, New York are authorized or obligated by law or
executive order to close.
"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).
"MOODY'S" means Moody's Investors Service, Inc.
"NET CASH PROCEEDS" means the aggregate amount of cash and Cash Equivalents
received by Holdings 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 Holdings) of income, franchise, sales and other applicable taxes
required to be paid by Holdings or any Restricted Subsidiary of Holdings in
connection with such Asset Sale and (ii) the aggregate amount of cash so
received which is used to retire any existing Indebtedness of Holdings ranking
on a parity with the Notes 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 Holdings or any of its
Restricted Subsidiaries, as the case may be.
"NET POPS"' of any Person with respect to any Cellular System means the Pops
of the MSA or RSA served by such Cellular 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 Cellular 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 in an amount reasonably determined by the
Board of Directors of Holdings for amounts less than or equal to $5,000,000 and
by a financial advisor or appraiser of national reputation for equal or greater
amounts) received by a Person from the sale of Qualified Capital Stock (other
than to a Subsidiary of such Person) after payment of out-of-pocket expenses,
commissions and discounts incurred in connection therewith.
"NON-RECOURSE RESTRICTED SUBSIDIARY" has the meaning specified in the
definition of "Permitted Acquistion Indebtedness."
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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 Holdings 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 Holdings and
its Restricted Subsidiaries, references to a Person and its Subsidiaries in the
foregoing definition shall be deemed to refer to Holdings and its Restricted
Subsidiaries and when used in connection with any Restricted Subsidiary and its
Subsidiaries shall be deemed to refer to such Restricted Subsidiary and its
Subsidiaries that are Restricted Subsidiaries.
"PARENT" shall mean PCC or any directly or indirectly wholly owned
subsidiary of PCC that directly or indirectly wholly owns Holdings.
"PCC" means Price Communications Corporation, a New York corporation, and
its successors and assigns.
"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 Holdings or its Restricted Subsidiaries, as applicable, (x) (i)
Holdings' or any of its Restricted Subsidiaries', as the case may be, 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) Holdings' or such
Restricted Subsidiary's, as the case may be, consolidated Indebtedness, divided
by the Net Pops of Holdings or such Restricted Subsidiary, as the case may be,
and its Restricted Subsidiaries, in each case giving pro forma effect to the
acquisition and such Incurrence, does not exceed $175, and (iii) after giving
effect to such acquisition and such Incurrence the acquired property, businesses
or assets or such Capital Stock is owned directly by Holdings or such Restricted
Subsidiary, as the case may be, or a Wholly Owned Restricted Subsidiary thereof
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 Holdings or
any Restricted Subsidiary of Holdings other than the obligor of such
Indebtedness and its Subsidiaries or any of their property or assets other than
the Capital Stock of such obligor or its Subsidiaries, (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 1.0 to 1, (iii) since the Issue Date no
Permitted Investment (other than as permitted by clause (viii) of the definition
of "Permitted Investment" below) shall have been made in such obligor or its
Subsidiaries and (iv) immediately subsequent to the Incurrence of such
Indebtedness, the obligor thereof shall be a Restricted Subsidiary and shall
have been designated by Holdings (as evidenced by an Officers' Certificate
delivered promptly to the Trustee) to be a "Non-Recourse Restricted Subsidiary."
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"PERMITTED INVESTMENT" means (i) Investments in Cash Equivalents; (ii)
Investments in Holdings 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 Holdings or any of its Restricted
Subsidiaries (other than a Non-Recourse Restricted Subsidiary) and the surviving
Person is Holdings 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, Holdings or any of its Restricted
Subsidiaries (other than a Non-Recourse Restricted Subsidiary); (iv) Investments
in accounts and notes receivable acquired in the ordinary course of business;
(v) any securities received in connection with an Asset Sale (other than those
of a Non-Recourse Restricted Subsidiary) and any investment with the Net Cash
Proceeds from any Asset Sale in Capital Stock of a Person, all or substantially
all of whose assets are of a type used in a Related Business, that complies with
the "Limitation on Asset Sales and Sales of Subsidiary Stock" covenant; (vi) any
guarantee issued by a Restricted Subsidiary Incurred in compliance with the
Indenture; (vii) advances and prepayments for asset purchases in the ordinary
course of business in a Related Business of Holdings or a Restricted Subsidiary;
(viii) Investments in Non-Recourse Restricted Subsidiaries with the proceeds of
contributions irrevocably and unconditionally received without restriction by
Holdings from Parent; and (ix) customary loans or advances made in the ordinary
course of business to officers, directors or employees of Holdings 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 Holdings 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, HOWEVER, 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 Holdings 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 Holdings or any of its Restricted Subsidiaries) or interfere
with the ordinary conduct of the business of Holdings 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 pari passu Indebtedness or Indebtedness of a
Restricted Subsidiary 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 Holdings 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; (1) 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
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Indebtedness; and (n) Liens in favor of Holdings or a Wholly Owned Restricted
Subsidiary (other than a Non-Recourse 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, as of any date of determination, the greater of the estimate
of the population of a Metropolitan Statistical Area ("MSA") or Rural Service
Area ("RSA") derived from (i) the most recent Donnelly Market Service and (ii)
the most recent DLJ Pop Book; PROVIDED, HOWEVER, that (x) if such statistics are
no longer printed in either the Donnelly Market Service or the DLJ Pop Book, or
either such source is no longer published, the then currently published source
of the two containing such information shall be used; (y) if such statistics are
no longer printed in either such source, or both sources are no longer
published, the statistics in the most recent Rand McNally Commercial Atlas shall
be used; and (z) if such statistics are no longer printed in the Rand McNally
Commercial Atlas or the Rand McNally Commercial Atlas is no longer published,
another nationally recognized source of such information shall be used.
"PREFERRED STOCK" means Capital Stock, other than common stock of an issuer
having no preferences or privileges as to the payment of dividends or the
distribution of the issuer's assets over any other class of such issuer's
Capital Stock.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of Holdings or its
Restricted Subsidiaries Incurred in connection with the purchase of property or
assets for the business of Holdings 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
Holdings or any of its Restricted Subsidiaries.
"QUALIFIED CAPITAL STOCK" means any Capital Stock of a Person that is not
Disqualified Capital Stock.
"RECORD DATE" means the Record Date specified on the Notes whether or not
such Record Date is a Business Day.
"REDEMPTION DATE" when used with respect to any Note to be redeemed means
the date fixed for such redemption pursuant to the Indenture and the Note.
"REDEMPTION PRICE" when used with respect to any Note to be redeemed, means
the redemption price for such redemption pursuant to Article 3 of the Indenture
and Paragraph 5 in the form of Note, which shall include, without duplication,
in each case, any accrued and unpaid interest to the Redemption Date.
"REFERENCE PERIOD" with regard to any Person means the last full fiscal
quarter of such Person for which financial information (which Holdings 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
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paid in connection with such refinancing pursuant to the terms of such
Indebtedness and (z) all other customary fees and expenses of Holdings or such
Restricted Subsidiary reasonably Incurred in connection with such refinancing;
provided that (A) Refinancing Indebtedness issued by any Restricted Subsidiary
of Holdings 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 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.
"REGISTRAR" means the office or agency in the Borough of Manhattan, The City
of New York, where the Notes may be presented for registration of transfer or
for exchange.
"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.
"RELATED PERSON TRANSACTION" has the meaning set forth under "--Certain
Covenants -- Limitation on Transactions with Related Persons" above.
"RESTRICTED PARTNERSHIP" has the meaning set forth under "--Certain
Covenants -- Restriction on Sale and Issuance of Subsidiary Stock" above.
"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 (other
than any Non-Recourse Restricted Subsidiary), (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 Holdings (other than the scheduled repayment thereof at maturity and any
mandatory redemption or mandatory repurchase thereof pursuant to the terms
thereof) by such Person or a Subsidiary of such Person that is subordinate in
right of payment to, 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 Holdings
or any Restricted Subsidiary solely in shares of Qualified Capital Stock, and
(ii) any dividend, distribution or other payment to Holdings, or any dividend to
any of its Restricted Subsidiaries (other than any Non-Recourse Restricted
Subsidiary), by any of its Subsidiaries, and (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 Holdings or any of its Restricted Subsidiaries.
"RESTRICTED SUBSIDIARY" means any Subsidiary of Holdings which at the time
of determination is not an Unrestricted Subsidiary. The Board of Directors of
Holdings may designate any Unrestricted Subsidiary to
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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
Holdings 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.
"S&P" means Standard & Poor's Corporation.
"SENIOR INDEBTEDNESS" means any Indebtedness of Holdings, including the
Notes, other than Indebtedness of Holdings as to which the instrument creating
or evidencing the same, or pursuant to which the same is outstanding, provides
that such Indebtedness shall be subordinated or junior in right of payment to
the Notes.
"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 Holdings and its Restricted Subsidiaries on a
consolidated basis.
"SPECIAL RIGHTS" has the meaning set forth under "--Certain Covenants --
Restriction on Sale and Issuance of Subsidiary Stock" above.
"STATED MATURITY" means the date fixed for the payment of any principal or
premium pursuant to the Indenture and the Notes, including the Maturity Date,
upon redemption, acceleration, Asset Sale Offer, Change of Control Offer or
otherwise.
"SUBSIDIARY" with respect to any Person, means (i) a corporation at least
fifty percent of whose Capital Stock with voting power, under ordinary
circumstances to elect directors is at the time, directly or indirectly, owned
by such Person, by such Person and one or more Subsidiaries of such Person or by
one or more Subsidiaries of such Person, or (ii) a partnership in which such
Person or a Subsidiary of such Person is, at the time, a general partner of such
partnership, or (iii) any Person in which such Person, one or more Subsidiaries
of such Person, or such Person and one or more Subsidiaries of such Person,
directly or indirectly, at the date of determination thereof has (x) at least a
fifty percent ownership interest or (y) the power to elect or direct the
election of the directors or other governing body of such Person.
"TIA" means the Trust Indenture Act of 1939, as amended from time to time.
"TRADING DAY" means a Business Day other than a day on which trading on the
American Stock Exchange (or such other nationally recognized exchange or
automated quotation system on which the PCC Shares are then traded) generally is
not being conducted.
"TRADING PRICE" means, on any Trading Day, the highest price at which PCC
Shares are quoted on the American Stock Exchange or such other nationally
recognized exchange or automated quotation system on which the PCC Shares are
then traded.
"TRUSTEE" means Bank of Montreal Trust Company or any successor appointed
pursuant to the terms of the Indenture.
"UNRESTRICTED SUBSIDIARY" shall mean any Subsidiary of Holdings that, at the
time of determination, shall be an Unrestricted Subsidiary (as designated by the
Board of Directors of Holdings, as provided below). The Board of Directors of
Holdings may designate any Subsidiary of Holdings (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 so long as (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,
Holdings 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 Holdings or any of its Restricted Subsidiaries (except
that such Subsidiary and its Subsidiaries may
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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 Holdings having generally the right to
vote in the election of a majority of the directors of Holdings or having
generally the right to vote with respect to the organizational matters of
Holdings.
"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 Holdings, (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.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Notes will initially be issued in the form of
one or more registered notes in global form (the "Global Notes"). Each Global
Note will be deposited on the date of the closing of the sale of the Notes (the
"Closing Date") with, or on behalf of, the Depository Trust Company (the
"Depository") and registered in the name of Cede & Co., as nominee of the
Depository.
The Depository has advised Holdings that it is a limited-purpose trust
company that was created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depository's
Participants include securities brokers and dealers (including the
Underwriters), banks and trust companies, clearing corporations and certain
other organizations. Access to the Depository's system is also available to
other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository will credit the
accounts of Participants designated by the Underwriters with an interest in the
Global Note and (ii) ownership of the Notes will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by the
Depository (with respect to the interests of Participants), the Participants and
the Indirect Participants. The laws of some states require that certain Persons
take physical delivery in definitive form of securities that they own and that
security interests in negotiable instruments can only be perfected by delivery
of certificates representing the instruments. Consequently, the ability to
transfer Notes or to pledge the Notes as collateral will be limited to such
extent.
So long as the Depository or its nominee is the registered owner of a Global
Note, the Depository or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by the Global Note for all
purposes under the Indenture. Except as provided below, the owners of beneficial
interests in a Global Note will not be entitled to have Notes represented by
such Global Note registered in
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their names, will not receive or be entitled to receive physical delivery of
Certificated Securities, and will not be considered the owners or holders
thereof under the Indenture for any purpose, including with respect to the
giving of any directions, instructions or approvals to the Trustee thereunder.
As a result, the ability of a Person having a beneficial interest in Notes
represented by a Global Note to pledge such interest to Persons or entities that
do not participate in the Depository's system or to otherwise take actions with
respect to such interest, may be affected by the lack of a physical certificate
evidencing such interest.
Accordingly, each Person owning a beneficial interest in a Global Note must
rely on the procedures of the Depository and, if such Person is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such Person owns its interest, to exercise any rights of a holder
under the Indenture or such Global Note. Holdings understands that under
existing industry practice, in the event Holdings requests any action of the
Holders or a Person that is an owner of a beneficial interest in a Global Note
desires to take any action that the Depository, as the holder of such Global
Note, is entitled to take, the Depository would authorize the Participants to
take such action and the Participants would authorize Persons owning through
such participants to take such action or would otherwise act upon the
instruction of such Persons. Neither Holdings nor the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of Notes by the Depository, or for maintaining,
supervising or reviewing any records of the Depository relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest of
any Notes represented by a Global Note registered in the name of the Depository
or its nominee on the applicable record date will be payable by the Trustee to
or at the direction of the Depository or its nominee in its capacity as the
registered Holder of the Global Note representing such Notes under the
Indenture. Under the terms of the Indenture, Holdings and the Trustee may treat
the Persons in whose names the Notes, including the Global Notes, are registered
as the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither Holdings nor the Trustee
has or will have any responsibility or liability for the payment of such amounts
to beneficial owners of Notes (including principal, premium, if any, and
interest), or to immediately credit the accounts of the relevant Participants
with such payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interest in the Global Note as shown on the
records of the Depository. Payment by the Participants and the Indirect
Participants to the beneficial owners of Notes will be governed by standing
instruction and customary practice and will be the responsibility of the
Participants or the Indirect Participants.
CERTIFICATED SECURITIES
If (i) Holdings notifies the Trustee in writing that the Depository is no
longer willing or able to act as a depository and Holdings is unable to locate a
qualified successor within 90 days or (ii) Holdings, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Notes in definitive
form under the Indenture ("Certificated Securities"), then, upon surrender by
the Depository of its Global Note, Certificated Securities will be issued to
each Person that the Depository identifies as the beneficial owner of the Notes
represented by the Global Note. In addition, subject to certain conditions, any
Person having a beneficial interest in a Global Note may, upon request to the
Trustee, exchange such beneficial interest for Certificated Securities. Upon any
such issuance, the Trustee is required to register such Certificated Securities
in the name of, and cause the same to be delivered to, such Person or Persons
(or the nominee of any thereof).
Neither Holdings nor the Trustee shall be liable for any delay by the
Depository or any Participant or Indirect Participant in identifying the
beneficial owners of the related Notes and each such Person may conclusively
rely on, and shall be protected in relying on, instructions from the Depository
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the Notes to be issued).
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Notes are exchangeable for shares of PCC Shares. The authorized capital
stock of PCC consists of 60,000,000 shares of PCC Shares, par value $0.01 per
share, of which 11,027,276 are currently outstanding and held of record by
holders other than PCC and 18,907,801 shares of preferred stock (the "Preferred
Stock"), par value $0.01 per share, issuable in series, of which no shares are
currently outstanding. The following is a summary of certain of the rights and
privileges pertaining to PCC Shares. For a full description of PCC's capital
stock, reference is made to PCC's Amended and Restated Certificate of
Incorporation currently in effect, a copy of which is on file with the
Commission.
COMMON STOCK
VOTING RIGHTS
The holders of PCC Shares are entitled to one vote per share at every
meeting of the shareholders of PCC. There is no provision for cumulative voting
with respect to the election of directors. Accordingly, the holders of more than
50% of the shares of PCC Shares can, if they choose to do so, elect the Board of
Directors of PCC and determine most matters on which stockholders are entitled
to vote.
DIVIDEND RIGHTS
Subject to the preferential rights of holders of outstanding shares of
Preferred Stock, holders of PCC Shares are entitled to share ratably in any
dividends that might be declared and paid by the Board of Directors of PCC out
of funds legally available therefor.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of the affairs of
PCC, voluntary or involuntary, the holders of the shares of PCC Shares are
entitled to share ratably in the net assets of PCC legally available for
distribution after payment of liabilities, subject to the rights of the holders
of outstanding shares of Preferred Stock. Holders of PCC Shares have no
conversion, redemption or preemptive rights.
PREFERRED STOCK
PCC's Amended and Restated Certificate of Incorporation provides that the
Board of Directors of PCC has the authority, without further action by the
holders of the outstanding PCC Shares, to issue up to 18,907,801 shares of
Preferred Stock from time to time in one or more series, and to fix the terms of
any such series, including voting powers, designations, preferences and
relative, participating, optional or other special rights. The Board of
Directors of PCC has authorized the issuance of 728,133 shares of Series A
Preferred Stock and 364,066 shares of Series B Preferred Stock. Each share of
Series A and B Preferred Stock is entitled to receive 1% of the dividends and
liquidation distributions payable with respect to a share of PCC Shares. Each
share of Series A Preferred Stock is entitled to one vote per share and each
share of Series B Preferred Stock is entitled to one-half vote per share.
SECTION 912 OF THE BUSINESS CORPORATION LAW OF THE STATE OF NEW YORK
PCC is a New York corporation and is subject to Section 912 of the Business
Corporation Law of the State of New York. Section 912 prohibits a company from
entering into a business combination (E.G., a merger, consolidation, sale of 10%
or more of a company's assets, or issuance of securities with an aggregate
market value of 5% or more of the aggregate market value of all of the company's
outstanding capital stock) with a beneficial owner of 20% or more of a company's
securities (a "20% shareholder") for a period of five years following the date
such beneficial owner became a 20% shareholder (the "stock
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acquisition date"), unless, among other things, such business combination or the
purchase of stock resulting in the 20% shareholder's beneficial ownership was
approved by the company's board of directors prior to the stock acquisition date
or the business combination is approved by the affirmative vote of the holders
of a majority of the outstanding voting stock exclusive of the stock
beneficially owned by the 20% shareholder. The applicability of this provision
to PCC may discourage unsolicited takeover bids by third parties.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
UNITED STATES FEDERAL INCOME TAXATION
This summary addresses certain material U.S. federal income tax consequences
to holder who are initial holders of the Notes, who purchase the Notes at the
issue price, and who will hold the Notes as capital assets within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). This
summary is based on the Code, administrative pronouncements, judicial decisions,
and existing Treasury Regulations, all as currently in effect, any of which may
be changed subsequent to the date of this Prospectus, thereby potentially
affecting the tax consequences described herein. This summary does not address
all aspects of the U.S. federal income taxation that may be relevant to a
particular holder in light of its individual circumstances or to certain types
of holders subject to special treatment under the U.S. federal income tax laws
(E.G., certain financial institutions, insurance companies, tax-exempt
organizations, dealers in options or securities, or persons who hold positions
other than the Note such that the Note is treated as being a part of a hedging
transaction, straddle, conversion or other integrated transaction). As the law
applicable to the U.S. federal income taxation of exchangeable debt instruments
such as the Notes is technical and complex, the discussion below necessarily
represents only a general summary. Moreover, the effect of any applicable state,
local or foreign tax laws is not discussed.
As used herein, the term "Holder" means a beneficial owner of a Note that
is, for U.S. federal income tax purposes, (i) a citizen or resident of the U.S.,
(ii) a corporation or other entity created or organized under the laws of the
U.S. or any political subdivision thereof, or (iii) an estate or trust the
income of which is subject to U.S. federal income taxation regardless of its
source.
PAYMENT OF INTEREST
A Note that is issued for an amount less than its stated redemption price at
maturity will generally be considered to have been issued at an original issue
discount for federal income tax purposes (an "original Issue Discount Note").
The "issue price" of a Note will equal the first price to the public (not
including bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesalers) at which a
substantial amount of the Notes is sold for money. The stated redemption price
at maturity of a Note will equal the sum of all payments required under the Note
other than payments of "qualified stated interest". "Qualified stated interest"
is stated interest unconditionally payable as a series of payments in cash or
property (other than debt instruments of the issuer) at least annually during
the entire term of the Note and equal to the outstanding principal balance of
the Note multiplied by a single fixed rate of interest. As a result of the
Company's right to pay interest by issuing additional Notes in lieu of cash for
the first five years, none of the interest payable over the entire term of the
Note will be qualified stated interest. Instead, the Holders of Notes will be
required to include original issue discount in income for federal income tax
purposes as it accrues, in accordance with a constant yield method based on a
compounding of interest, before the receipt of cash payments, (or the issuance
of additional Notes) attributable to such income. As a result of the Company's
ability to lower the interest rate on the Notes by electing to accrue interest
in cash, the yield to maturity for purposes of determining such original issue
discount inclusion will be 10.75%. However, the receipt of actual cash interest
payments or of additional Notes in lieu of such payments will not result in an
additional income inclusion.
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During any periods for which the Company is required to pay in cash, Holders
will generally include a constant amount of original discount in each annual
accrual period. However, in accrual periods following any Interest Payment Date
on which interest is paid in additional Notes instead of cash, each Holder will
be required to include a proportionately greater amount of original issue
discount than in the prior accrual period.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Although there is no Authority directly on point, a Holder's tax basis for
determining gain or loss on the sale or other disposition of a Note should
generally equal the holder's initial investment in a Note, increased by the
amount of accrued OID included in such Holder's gross income and both (i)
reduced by the amount of cash payments on the Notes, if any; and (ii) allocated
proportionately among the original Notes and any additional Notes received in
lieu of cash interest payments. Upon the sale, exchange (including an exchange
of a Note into PCC Shares) or retirement of a Note, a holder will recognize gain
or loss equal to the difference between the amount realized on the sale or other
disposition of the Note and the Holder's tax basis in such Note. As a result of
the proportional allocation of a Holder's basis among an original Note and any
additional Notes received with respect to such Note, a Holder may recognize gain
even when selling or exchanging a Note for an amount equal to its face value.
Gain or loss realized on the sale, exchange or retirement of a Note will
generally be capital gain or loss.
TAX BASIS AND HOLDING PERIOD OF THE PCC SHARES
Holders that receive PCC Shares upon exchange of a Note will have an initial
tax basis equal to the fair market value of such PCC Shares on the date of such
exchange. The holding period for such PCC Shares will begin on the day following
the date of exchange.
Dividends, if any, paid on the PCC Shares generally will be includible in
the income of a Holder who has exchanged its Notes for PCC Shares as ordinary
income to the extent of PCC's current or accumulated earnings and profits.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A Holder of a Unit may be subject to information reporting and to backup
withholding at a rate of 31 percent of the amounts paid (or property delivered)
to the Holder, unless such Holder provides proof of an applicable exemption or a
correct taxpayer identification number, and otherwise complies with applicable
requirements of the backup withholding rules. The amounts withheld under the
backup withholding rules are not an additional tax and may be refunded, or
credited against the Holder's U.S. federal income tax liability, provided the
required information is furnished to the IRS.
DUE TO THE COMPLEXITY OF THE RULES GOVERNING EXCHANGEABLE DEBT INSTRUMENTS
SUCH AS THE NOTES, PROSPECTIVE PURCHASERS ARE STRONGLY URGED TO CONSULT THEIR
TAX ADVISORS REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN
NOTES, INCLUDING, IN PARTICULAR, THE EXTENT TO WHICH THEIR INDIVIDUAL
CIRCUMSTANCES MAY AFFECT THE GENERAL RESULTS OUTLINED ABOVE, AS WELL AS THE
EFFECT OF THE TAX LAWS OF ANY LOCAL, STATE, OR FOREIGN TAXING JURISDICTION.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
The Company expects that the Notes will be applicable high yield discount
obligations ("AHYDOs") as defined in the Code, because their yield to maturity
is expected to exceed the "applicable federal rate" in effect at the time of
their issuance (the "AFR") plus five percentage points. As a result, interest
will not be deductible by the Company, if it is otherwise deductible, until such
interest is paid in cash rather than through the issuance of additional Notes.
The Company believes that such provision of the Code relating to AHYDO may be
unconstitutional and currently intends to file a claim for a refund on a basis
that such interest is deductible.
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UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement by and
among Holdings and the institutions named below (the "Underwriters") dated July
22, 1998 (the "Underwriting Agreement"), the Underwriters have agreed to
purchase from Holdings, severally and not jointly, and Holdings has agreed to
sell to the Underwriters the principal amount of the Notes set forth opposite
its name below.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
NAME NOTES
- -------------------------------------------------------------------------------------------------- --------------
<S> <C>
NatWest Capital Markets Limited................................................................... $ 80,000,000
Donaldson, Lufkin & Jenrette Securities Corporation............................................... 40,000,000
Wasserstein Perella Securities, Inc. ............................................................. 30,000,000
Bear, Stearns & Co. Inc. ......................................................................... 25,000,000
NationsBanc Montgomery Securities LLC............................................................. 25,000,000
--------------
Total......................................................................................... $ 200,000,000
--------------
--------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the Notes are subject to certain conditions
precedent, and that the Underwriters are severally committed to take and pay for
all the Notes, if any are taken. Holdings has agreed in the Underwriting
Agreement to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act, and to contribute to payments the
Underwriters may be required to make in respect thereof.
The Underwriters propose to offer the Notes in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of 0.50% of the principal amount of the Notes. The Underwriters may
allow, and such dealers may reallow, a concession not to exceed 0.25% of the
principal amount of the Notes to certain brokers and dealers. After the Notes
are released for sale to the public, the offering price and other selling terms
may from time to time be varied by the Underwriters.
Prior to the Offering, there has been no active market for the Notes. None
of the Notes will be listed on any stock exchange or quotation system.
The Underwriters represented and agreed that they have (i) not offered or
sold and will not offer or sell any Notes to persons in the United Kingdom prior
to admission of the Notes as applicable, to listing in accordance with Part IV
of the Financial Services Act of 1986 (the "Financial Services Act"), except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for purpose of their
business or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulation 1995 or the Financial Services Act, (ii)
complied and will comply with all applicable provisions of the Financial
Services Act with respect to anything done by them in relation to the Notes in,
from or otherwise involving the United Kingdom, and (iii) only issued or passed
on, and will only issue or pass on, in the United Kingdom any document received
by them in connection with the issue of the Notes other than any document which
consists of or any part of listing particulars, supplementary listing
particulars or any other document required or permitted to be published by
listing particulars, supplementary listing particulars or any other document
required or permitted to be published by listing rules under Part IV of the
Financial Services Act, to a person who is of a kind described in Article 11(3)
of the Financial Services Act of 1986 (Investment Advertisements) (Exemptions)
Order 1996 or is a person to whom the document may otherwise lawfully be issued
or passed on.
In connection with the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain, or otherwise
affect the price of the Notes. Specifically, the Underwriters may, subject to
legal and regulatory restrictions, bid for and purchase Notes in the open market
to stabilize the price of the Notes. The Underwriters may also overallot the
Offering, crediting a syndicate short position, and may bid for and purchase
Notes in the open market to cover the syndicate short position. In addition, the
Underwriters may bid for and purchase the Notes in market making transactions
and impose penalty bids. These activities may stabilize or maintain the market
price of the Notes above
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market levels that may otherwise prevail. The Underwriters are not required to
engage in these activities, and may commence or end these activities at any
time.
In the ordinary course of its business, the Underwriters and certain of
their affiliates have engaged, and may in the future engage, in investment
banking or transactions of a financial nature with Holdings or PCC, including
the provision of certain advisory services and the making of loans to Holdings
or PCC and their affiliates for which they receive customary fees.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Davis Polk & Wardwell, New York, New York. Certain legal matters in
connection with the Notes offered hereby will be passed upon for the
Underwriters by Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements and schedule of PCC, as of and for the
years ending December 31, 1997, 1996 and 1995 incorporated by reference herein,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are incorporated herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The consolidated financial statements and schedule of Price Communications
Cellular Holdings, Inc., as of December 31, 1997 and for the period May 29, 1997
through December 31, 1997 and the consolidated statements of operations,
stockholders' equity and cash flows of Palmer Wireless, Inc. for the nine months
ended September 30, 1997, included herein, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are incorporated herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving said reports.
The consolidated balance sheet of Price Communications Cellular Holdings,
Inc. and subsidiaries (a holding company whose sole investment represents Price
Communications Wireless, Inc., formerly Palmer Wireless, Inc.) as of December
31, 1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the two year period ended
December 31, 1996, have been included herein, and the consolidated balance sheet
of Palmer Wireless, Inc. and subsidiaries as of December 31, 1996 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the two year period ended December 31, 1996, have
been incorporated by reference herein, in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere and
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
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 Offering Memorandum, unless otherwise indicated,
the term "Pops" means the estimate of the population of a MSA or RSA as derived
from the most recent DLJ Pop Book or if such statistics are no longer printed in
the DLJ Pop Book or the DLJ Pop Book 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. The term
"Net Pops" 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. 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.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
<TABLE>
<S> <C>
Auditors' Reports.................................................................... F-2
Consolidated Balance Sheets at December 31, 1997 and 1996............................ F-4
Consolidated Statements of Operations for the Years ended December 31, 1997, 1996 and
1995............................................................................... F-5
Consolidated Statements of Cash Flows for the Years ended December 31, 1997, 1996 and
1995............................................................................... F-6
Consolidated Statements of Stockholders' Equity for the Years ended December 31,
1997, 1996 and 1995................................................................ F-8
Notes to Consolidated Financial Statements........................................... F-9
Condensed Consolidated Balance Sheets at December 31, 1997 and March 31, 1998........ F-25
Condensed Consolidated Statements of Operations for the three months ended March 31,
1997 and 1998...................................................................... F-26
Condensed Consolidated Statements of Stockholders' Equity............................ F-27
Condensed Consolidated Statements of Cash Flows for the three months ended March 31,
1997 and 1998...................................................................... F-28
Notes to Condensed Consolidated Financial Statements................................. F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Price Communications Cellular Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Price
Communications Cellular Holdings, Inc. (a Delaware corporation,) and
subsidiaries as of December 31, 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for the period May 29, 1997
through December 31, 1997 (post acquisition basis). We have also audited the
accompanying consolidated statements of operations, stockholder's equity, and
cash flows of Price Communications Wireless, Inc. (a Delaware Corporation,
formerly Palmer Wireless, Inc.) and subsidiaries for the nine month period ended
September 30, 1997 (pre-acquisition basis). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Price Communications
Cellular Holdings, Inc. and subsidiaries as of December 31, 1997 and the results
of their operations and their cash flows for the periods May 29, 1997 to
December 31, 1997 (post-acquisition basis) and the results of operations and
cash flows of Price Communications Wireless, Inc. and subsidiaries for the
period January 1, 1997 to September 30, 1997 (pre-acquisition basis) in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
New York, New York
March 17, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Price
Communications Cellular Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Price
Communications Cellular Holdings, Inc. and subsidiaries (a holding company whose
sole investment represents Price Communications Wireless, Inc., formerly Palmer
Wireless, Inc.) as of December 31, 1996, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the years in the
two-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 Price
Communications Cellular Holdings, Inc. and subsidiaries as of December 31, 1996
and the results of their operations and their cash flows for each of the years
in the two-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
F-3
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (NOTE 1)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
DECEMBER 31, DECEMBER 31,
1996 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 1,698 $ 27,926
Trade accounts receivable, net of allowance for doubtful accounts of $1,791 in 1996
and $818 in 1997 18,784 15,940
Receivable from other cellular carriers............................................ 1,706 3,902
Prepaid expenses and deposits...................................................... 2,313 902
Inventory.......................................................................... 5,106 1,280
Deferred income taxes.............................................................. 830 5,402
------------- ------------
Total current assets............................................................. 30,437 55,352
Property and equipment:
Land and improvements.............................................................. 5,238 6,438
Buildings and improvements......................................................... 7,685 8,561
Equipment, communication systems, and furnishings.................................. 166,735 140,381
------------- ------------
179,658 155,380
Less accumulated depreciation and amortization..................................... 47,220 4,239
------------- ------------
Net property and equipment....................................................... 132,438 151,141
Licenses and goodwill, net of accumulated amortization of $30,188 in 1996 and $6,016
in 1997............................................................................ 375,808 918,488
Other intangible assets and other assets, at cost less accumulated amortization of
$7,311 in 1996 and $818 in 1997.................................................... 11,259 19,498
------------- ------------
Total assets..................................................................... $ 549,942 $1,144,479
------------- ------------
------------- ------------
LIABILITIES AND EQUITY
Current liabilities:
Current installments of long-term debt............................................. $ 5,296 $ 2,812
Notes payable...................................................................... 1,366 --
Payable to Price Communications Corporation........................................ -- 2,328
Accounts payable................................................................... 10,394 13,059
Accrued interest payable........................................................... 2,341 11,361
Accrued salaries and employee benefits............................................. 2,432 2,324
Other accrued liabilities.......................................................... 3,626 16,031
Deferred revenue................................................................... 3,929 3,755
Customer deposits.................................................................. 757 602
------------- ------------
Total current liabilities........................................................ 30,141 52,272
Long-term debt, excluding current installments....................................... 337,000 690,300
Accrued income taxes--long term...................................................... -- 50,491
Deferred income taxes................................................................ 11,500 308,901
Minority interests................................................................... 6,371 7,352
Commitments and contingencies........................................................ -- --
Stockholders' equity
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 in
1996; 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 in 1996;
17,293,578 shares issued in 1996................................................. 284 --
Class A Common Stock par value $.01 per share; 3,000 shares authorized in 1997; 100
shares issued in 1997............................................................ -- --
Additional paid-in capital......................................................... 166,975 44,015
Retained earnings (accumulated deficit)............................................ 6,535 (8,852)
------------- ------------
173,794 35,163
Less Class A Common stock in treasury at cost--600,000 shares in 1996.............. 8,864 --
------------- ------------
Total stockholders' equity....................................................... 164,930 35,163
------------- ------------
Total liabilities and stockholders' equity....................................... $ 549,942 $1,144,479
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------
COMPANY
FOR THE YEAR ENDED --------------------
DECEMBER 31, FOR THE NINE FOR THE PERIOD
---------------------- MONTHS ENDED MAY 29, 1997 THROUGH
1995 1996 SEPTEMBER 30, 1997 DECEMBER 31, 1997(A)
---------- ---------- ------------------ --------------------
<S> <C> <C> <C> <C>
Revenue:
Service...................................... $ 96,686 $ 151,119 $ 134,123 $ 41,365
Equipment sales and installation............. 8,220 8,624 7,613 2,348
---------- ---------- -------- -------
Total revenue.............................. 104,906 159,743 141,736 43,713
---------- ---------- -------- -------
Operating expenses:
Engineering, technical and other direct...... 18,184 28,717 23,301 5,978
Cost of equipment............................ 14,146 17,944 16,112 5,259
Selling, general and administrative.......... 30,990 46,892 41,014 12,805
Depreciation and amortization................ 15,004 25,013 25,498 11,055
---------- ---------- -------- -------
Total operating expenses................... 78,324 118,566 105,925 35,097
Operating income........................... 26,582 41,177 35,811 8,616
---------- ---------- -------- -------
Other income (expense):
Interest income.............................. 211 62 30 2,195
Interest expense............................. (21,424) (31,524) (24,497) (24,393)
---------- ---------- -------- -------
Interest expense, net...................... (21,213) (31,462) (24,467) (22,198)
Other (expense) income, net.................. (687) (429) 208 15
---------- ---------- -------- -------
Total other expense........................ (21,900) (31,891) (24,259) (22,183)
---------- ---------- -------- -------
Income (loss) before minority interest
share of income and income taxes......... 4,682 9,286 11,552 (13,567)
Minority interest share of income.............. 1,078 1,880 1,310 414
---------- ---------- -------- -------
Income (loss) before income tax expense
(benefit)................................ 3,604 7,406 10,242 (13,981)
Income tax expense (benefit)................... 2,650 2,724 4,153 (5,129)
---------- ---------- -------- -------
Net income (loss).......................... $ 954 $ 4,682 $ 6,089 $ (8,852)
---------- ---------- -------- -------
---------- ---------- -------- -------
</TABLE>
- ------------------------
(a) Includes results of operations only for the period October 1, 1997 through
December 31, 1997 (see Note 1).
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------------------------- -----------------
FOR THE PERIOD
FOR THE YEAR ENDED FOR THE NINE MAY 29, 1997
DECEMBER 31, MONTHS ENDED THROUGH
-------------------- SEPTEMBER 30, DECEMBER 31,
1995 1996 1997 1997
--------- --------- ------------- -----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 954 $ 4,682 $ 6,089 $ (8,852)
--------- --------- ------------- -----------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 15,004 25,013 25,498 11,055
Minority interest share of income..................... 1,078 1,880 1,310 414
Deferred income taxes................................. 2,650 1,855 3,939 (2,454)
Interest deferred and added to long-term debt......... 607 355 -- 4,400
Payment of deferred interest.......................... -- (1,080) (1,514) --
Changes in current assets and liabilities:
(Increase) decrease in trade accounts receivable...... (2,741) (1,561) 473 124
Decrease (increase) in inventory...................... 4,076 (2,595) 2,800 458
Increase (decrease) in accounts payable............... 2,623 (841) (1,390) 3,598
(Decrease) increase in accrued interest payable....... (14) (167) (374) 9,394
Increase (decrease) in accrued salaries and employee
benefits............................................ 241 165 251 (341)
Increase (decrease) in other accrued liabilities...... 583 (507) 2,049 (4,529)
Increase (decrease) in deferred revenue............... 658 912 4 (1,046)
(Decrease) increase in customer deposits.............. (53) 134 (94) 15
(Decrease) increase in accrued income tax-long-term... -- -- -- (2,675)
Other................................................. 1,994 1,885 (250) 1,752
--------- --------- ------------- -----------------
Total adjustments................................... 26,706 25,448 32,702 20,165
--------- --------- ------------- -----------------
Net cash provided by operating activities........... 27,660 30,130 38,791 11,313
--------- --------- ------------- -----------------
Cash flows from investing activities:
Capital expenditures.................................. (36,564) (41,445) (40,757) (14,499)
Increase in other intangible assets and other
assets.............................................. (310) (2,180) (778) --
Proceeds from sales of property and equipment......... 38 5 201 --
Acquisition of Predecessor net assets................. -- -- -- (497,856)
Purchase of cellular systems.......................... (158,397) (67,588) (31,469) --
Proceeds from sales of cellular systems............... -- -- -- 193,799
Collection of purchase price adjustment............... -- 2,452 -- --
Purchases of minority interests....................... (1,543) (1,854) (956) (794)
Distributions to minority interests................... -- -- -- (1,680)
--------- --------- ------------- -----------------
Net cash used in investing activities................. (196,776) (110,610) (73,759) (321,030)
--------- --------- ------------- -----------------
--------- --------- ------------- -----------------
Cash flows from financing activities:
Advance from Price Communications Corporation......... -- -- -- 2,328
Payment on advances from Palmer Communications
Incorporated........................................ (1,650) -- -- --
Increase (decrease) in short term notes payable....... -- 1,366 (1,366) --
Repayment of long-term debt........................... (65,125) (108,319) (3,782) (385,000)
Proceeds from long-term debt.......................... 171,000 100,000 41,000 695,712
Payment of debt issuance costs........................ (4,803) -- -- (19,412)
Public offering proceeds, net......................... 71,144 95,000 -- --
Issuance of common stock.............................. -- -- -- 44,015
Proceeds from stock options exercised................. 285 95 999 --
Payment of deferred offering costs.................... (1,297) (826) -- --
Purchase of treasury stock............................ -- (8,864) -- --
Proceeds from sales under stock purchase plans........ -- 290 -- --
--------- --------- ------------- -----------------
Net cash provided by financing activities........... 169,554 78,742 36,851 337,643
--------- --------- ------------- -----------------
Net (decrease) increase in cash and cash
equivalents....................................... 438 (1,738) 1,883 27,926
Cash and cash equivalents at the beginning of period...... 2,998 3,436 1,698 --
--------- --------- ------------- -----------------
Cash and cash equivalents at the end of period............ $ 3,436 $ 1,698 $ 3,581 $ 27,926
--------- --------- ------------- -----------------
--------- --------- ------------- -----------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
($ IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During 1995, the Predecessor committed to purchase certain minority
interests in 1996. This commitment totaling $451 was accrued in 1995 and paid in
1996.
During 1996, the Predecessor 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 1995, 1996 and
1997:
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------------------
FOR THE YEAR ENDED
DECEMBER 31, FOR THE NINE
--------------------- MONTHS ENDED
1995 1996 SEPTEMBER 30, 1997
---------- --------- ------------------
<S> <C> <C> <C>
Cash payment........................................................... $ 158,397 $ 67,588 $ 31,469
---------- --------- -------
---------- --------- -------
Allocated to:
Fixed assets......................................................... $ 22,846 $ 5,678 $ 3,197
Licenses and goodwill................................................ 136,940 61,433 27,738
Deferred income taxes................................................ (6,165) -- --
Current assets and liabilities, net.................................. 4,776 477 534
---------- --------- -------
$ 158,397 $ 67,588 $ 31,469
---------- --------- -------
---------- --------- -------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------- COMPANY
-----------------
FOR THE YEAR ENDED FOR THE PERIOD
DECEMBER 31, FOR THE NINE MAY 29, 1997
-------------------- MONTHS ENDED THROUGH
1995 1996 SEPTEMBER 30, 1997 DECEMBER 31, 1997
--------- --------- ------------------ -----------------
<S> <C> <C> <C> <C>
Income taxes paid (received), net.................... $ -- $ 1,591 $ (736) $ (40)
--------- --------- ------- ------
--------- --------- ------- ------
Interest paid........................................ $ 18,435 $ 29,733 $ 25,102 $ 9,924
--------- --------- ------- ------
--------- --------- ------- ------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($ IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
----------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCK COMMON STOCK
CLASS A CLASS B ADDITIONAL
---------------------- ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ----------- --------- ----------- -----------
Balances at December 31, 1994.............................. 706,422 $ 7 17,293,578 $ 173 $ 4,902
Partnership loss before business combination............... -- -- -- -- (1,066)
Public offering, net of issuance costs of $8,114........... 5,369,350 54 -- -- 68,345
Exercise of stock options.................................. 20,000 -- -- -- 285
Net income................................................. -- -- -- -- --
--------- ----------- --------- ----- -----------
Balances at December 31, 1995.............................. 6,095,772 61 17,293,578 173 72,466
Public offering, net of issuance costs of $5,826........... 5,000,000 50 -- -- 94,124
Exercise of stock options.................................. 6,666 -- -- -- 95
Employee and non-employee director stock purchase plans.... 17,243 -- -- -- 290
Treasury shares purchased.................................. -- -- -- -- --
Net income................................................. -- -- -- -- --
--------- ----------- --------- ----- -----------
Balances at December 31, 1996.............................. 11,119,681 111 17,293,578 173 166,975
Exercise of stock options.................................. 70,000 1 -- -- 998
Net income................................................. -- -- -- -- --
--------- ----------- --------- ----- -----------
Balances at September 30, 1997............................. 11,189,681 $ 112 17,293,578 $ 173 $ 167,973
--------- ----------- --------- ----- -----------
--------- ----------- --------- ----- -----------
</TABLE>
<TABLE>
<CAPTION>
TREASURY STOCK TOTAL
RETAINED -------------------- STOCKHOLDERS'
EARNINGS SHARES AMOUNT EQUITY
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994...................................... $ (167) -- $ -- $ 4,915
Partnership loss before business combination....................... -- -- -- (1,066)
Public offering, net of issuance costs of $8,114................... -- -- -- 68,399
Exercise of stock options.......................................... -- -- -- 285
Net income......................................................... 2,020 -- -- 2,020
--------- --------- --------- ------------
Balances at December 31, 1995...................................... 1,853 -- -- 74,553
Public offering, net of issuance costs of $5,826................... -- -- -- 94,174
Exercise of stock options.......................................... -- -- -- 95
Employee and non-employee director stock purchase plans............ -- -- -- 290
Treasury shares purchased.......................................... -- 600,000 (8,864) (8,864)
Net income......................................................... 4,682 -- -- 4,682
--------- --------- --------- ------------
Balances at December 31, 1996...................................... 6,535 600,000 (8,864) 164,930
Exercise of stock options.......................................... -- -- -- 999
Net income......................................................... 6,089 -- -- 6,089
--------- --------- --------- ------------
Balances at September 30, 1997..................................... $ 12,624 600,000 $ (8,864) $ 172,018
--------- --------- --------- ------------
--------- --------- --------- ------------
</TABLE>
<TABLE>
<CAPTION>
COMPANY
------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCK
CLASS A ADDITIONAL TOTAL
------------------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
----------- ----------- ----------- ------------ ------------
Balances at May 29, 1997............................... -- $ -- $ -- $ -- $ --
Capital contribution................................... 100 -- 44,015 -- 44,015
Net loss............................................... -- -- -- (8,852) (8,852)
--- --- ----------- ------------ ------------
Balances at December 31, 1997.......................... 100 $ -- $ 44,015 $ (8,852) $ 35,163
--- --- ----------- ------------ ------------
--- --- ----------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND ACQUISITION
Price Communications Cellular Holdings, Inc. ("Holdings" or the "Company"),
a wholly-owned subsidiary of Price Communications Cellular, Inc., a wholly-owned
subsidiary of Price Communications Corporation ("PCC"), was incorporated on May
29, 1997 in connection with the purchase of Palmer Wireless, Inc. and
subsidiaries ("Palmer" or the "Predecessor").
In May, 1997, PCC, Price Communications Wireless, Inc. ("PCW"), a wholly
owned subsidiary of Holdings and Palmer entered into an Agreement and Plan of
Merger (the "Merger Agreement"). The Merger Agreement provided, among other
things, for the merger of PCW with and into Palmer with Palmer as the surviving
corporation (the "Merger"). In October, 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 direct stock purchase plans
for an aggregate price of approximately $486,400. In addition, as a result of
the Merger, PCW assumed all outstanding indebtedness of Palmer of approximately
$378,000. Therefore, the aggregate purchase price for Palmer (including
transaction fees and expenses) was approximately $880,000. PCW refinanced all of
the Palmer Existing Indebtedness concurrently with the consummation of the
Merger.
In June, 1997, PCW entered into an agreement to sell Palmer's Fort Myers,
Florida MSA as part of the financing of the Merger (the "Fort Myers Sale"). In
October, 1997, the Fort Myers Sale was consummated, and generated proceeds to
the Company of approximately $166,000. The proceeds of the Fort Myers Sale were
used to fund a portion of the acquisition of Palmer. Accordingly, no gain or
loss was recognized on the Fort Myers Sale.
Also in connection with the Merger, on October 21, 1997, PCC and PCW entered
into an Asset Purchase Agreement with MJ Cellular Company, L.L.C. (the "Georgia
Sale Agreement") which provided for the sale by PCW of substantially all of the
assets used in the operation of the non-wireline cellular telephone system
serving the Georgia-1-Whitfield Rural Service Area ("Georgia-1"), including the
FCC licenses to operate Georgia-1 (the "Georgia Sale"). The sale of the assets
of Georgia-1 was consummated on December 30, 1997 for $24,200. In January, 1998
the proceeds from the Georgia Sale were used to retire a portion of the debt
used to fund the Palmer acquisition. Accordingly, no gain or loss was recognized
on the Georgia Sale.
In order to fund the Merger and pay related fees and expenses, in July,
1997, PCW issued $175,000 aggregate principal amount of 11 3/4% Senior
Subordinated Notes due 2007 and entered into a syndicated senior loan facility
providing for term loan borrowings in the aggregate principal amount of
approximately $325,000 and revolving loan borrowings of $200,000. In October,
1997, PCW borrowed all term loans available thereunder and approximately
$120,000 of revolving loans. DLJ Capital Funding, Inc. provided and syndicated
the New Credit Facility. See Notes 5(a) and 5(b).
The remaining acquisition price of Palmer was funded through a $44,015
equity contribution of PCC and $75,712 of borrowings of Holdings (See Note
5(c)).
F-9
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION
For financial reporting purposes, PCW revalued its assets and liabilities as
of October 1, 1997 to reflect the price paid by PCC to acquire 100% of its
Common Stock, a process generally referred to as "push down" the accounting. The
consolidated financial statements as of December 31, 1997 and for the period May
29, 1997 through December 31, 1997 reflect a preliminary allocation of the
purchase price to the assets acquired and liabilities assumed. Additional
purchase liabilities recorded include approximately $6,464 for severance and
related costs and $4,051 for costs associated with the shutdown of certain
acquired facilities. See Note 3, Other Accrued Liabilities, for amounts
outstanding as of December 31, 1997. The preliminary allocation of the purchase
price resulted in licenses of approximately $924,504 on the balance sheet, which
are being amortized on a straight-line basis over a period of 40 years.
The consolidated financial statements through September 30, 1997 reflect the
historical cost of its assets and liabilities and results of operations and are
referred to as the "Predecessor" consolidated financial statements. Accordingly,
the accompanying financial statements of the Predecessor and the Company are not
comparable in all material respects since those financial statements report
financial position, results of operations, and cash flows of these two separate
entities.
PRO FORMA INFORMATION
The following unaudited pro forma condensed consolidated financial
information was prepared assuming (i) the Predecessor was acquired on January 1,
1996, (ii) the acquisitions of the licenses had occurred on January 1, 1996 (See
Note 4), and (iii) and the Ft. Myers Sale and Georgia Sale occurred on January
1, 1996.
Proforma information is presented for comparative purposes only and does not
purport to be indicative of the results which would have been achieved had this
acquisition occurred as of January 1, 1996, nor does it purport to be indicative
of results that may be achieved in the future.
<TABLE>
<CAPTION>
UNAUDITED
YEAR ENDED DECEMBER 31
----------------------
<S> <C> <C>
1996 1997
---------- ----------
Total Revenue...................................................... $ 145,643 $ 161,468
---------- ----------
Loss Before Income Taxes........................................... $ (54,529) $ (51,532)
---------- ----------
Net Loss........................................................... $ (48,895) $ (43,911)
---------- ----------
</TABLE>
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries after the elimination of significant
intercompany accounts and transactions.
The Predecessor was 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 the Predecessor's outstanding stock and had 75 percent of its voting rights
and therefore the Predecessor was a subsidiary of PCI.
F-10
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On March 21, 1995 and April 18, 1995, the Predecessor 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, the Predecessor 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 Palmer Cellular Partnership (the
"Exchange"). The assets and liabilities received in the Exchange were recorded
at their historical cost to Palmer Cellular Partnership and not revalued at fair
value on the date of transfer. Since the Exchange was between related parties it
was accounted for in a manner similar to a pooling of interests.
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.
OPERATIONS
The Company has majority ownership in corporations and partnerships which
operate the non-wireline cellular telephone systems in eight Metropolitan
Statistical Areas ("MSA") in three states: Florida (one), 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 in Georgia
(seven) and Alabama (one).
The Predecessor had majority ownership in corporations and partnerships
which operated the non-wireline cellular telephone systems in nine MSA's in
three states: Florida (two), Georgia (five) and Alabama (two). The Predecessor's
ownership percentages in these entities ranged from approximately 78 percent to
100 percent. The Predecessor owned directly and operated eight non-wireline
cellular telephone systems in RSA's in Georgia (seven) and Alabama (one).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows the Company and the Predecessor
consider cash and repurchase agreements with a maturity of three months or less
to be cash equivalents.
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 AND EQUIPMENT
Property and equipment are stated at cost. The cost of additions and
improvements are capitalized while maintenance and repairs are charged to
expense when incurred. Depreciation is provided principally
F-11
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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). The
excess of the total consideration over the amounts assigned to identifiable
assets is recorded as goodwill. Licenses and goodwill are being amortized 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
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
Other intangibles consist principally of deferred financing costs 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 and the Predecessor account 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.
INTEREST RATE SWAP 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.
REVENUE RECOGNITION
Service revenue includes local subscriber revenue and outcollect roaming
revenue.
Local subscriber revenue is earned 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.
F-12
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Outcollect roaming revenue represents revenue earned for usage of its
cellular network by subscribers of other cellular carriers. Outcollect roaming
revenue is recognized when the services are rendered.
Equipment sales and installation revenues are recognized upon delivery to
the customer or installation of the equipment.
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
incollect roaming expense. Incollect roaming expense is the result of
subscribers using cellular networks of other cellular carriers. Incollect
roaming revenue is netted against the incollect roaming expense to determine net
incollect roaming expense.
STOCK OPTION PLANS
Prior to January 1, 1996, the Predecessor 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 Predecessor 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 Predecessor elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods and assumptions used to estimate the fair
value of 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.
F-13
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Rates currently available 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 5 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 financial instruments, fair value estimates are
based on judgments regarding current economic conditions and other factors.
These estimates are subjective in nature and involve uncertainties and matters
of judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
(2) TRADE ACCOUNTS RECEIVABLE
The Company and the Predecessor grant credit to its
customers. Substantially all of the customers are residents of the local areas
served. Generally, service is discontinued to customers whose accounts are 60
days past due.
The activity in the Predecessor's and the Company's allowance for doubtful
accounts for the years ended December 31, 1995, and 1996, the nine months ended
September 30, 1997 and the period from October 1, 1997 through December 31, 1997
consisted of the following:
<TABLE>
<CAPTION>
ALLOWANCE AT
BALANCE AT CHARGED DATES OF DEDUCTIONS,
BEGINNING TO ACQUISITIONS NET OF BALANCE ATEND
OF PERIOD EXPENSES (DISPOSITIONS) RECOVERIES OF PERIOD
----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Predecessor
Year ended December 31, 1995............................ $ 1,567 $ 2,078 $ 432 $ (2,197) $ 1,880
----------- ----------- ------ ----------- ------
----------- ----------- ------ ----------- ------
Predecessor
Year ended December 31, 1996............................ $ 1,880 $ 3,946 $ 1,270 $ (5,305) $ 1,791
----------- ----------- ------ ----------- ------
----------- ----------- ------ ----------- ------
Predecessor
Nine months ended September 30, 1997.................... $ 1,791 $ 3,614 $ 147 $ (4,212) $ 1,340
----------- ----------- ------ ----------- ------
----------- ----------- ------ ----------- ------
Company
Period from May 29, 1997 through December 31, 1997...... $ 1,340 $ 1,202 $ (206) $ (1,518) $ 818
----------- ----------- ------ ----------- ------
----------- ----------- ------ ----------- ------
</TABLE>
(3) OTHER ACCRUED LIABILITIES
Other accrued liabilities at December 31, 1996 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Accrued telecommunications expenses...................................... $ 892 $ 2,176
Accrued local taxes...................................................... 913 888
Accrued severance payments............................................... -- 6,155
Accrued shutdown costs of certain facilities............................. -- 3,818
Miscellaneous accruals................................................... 1,821 2,994
--------- ---------
$ 3,626 $ 16,031
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
(4) ACQUISITIONS AND PURCHASE OF LICENSES
On December 1, 1995, the Predecessor purchased all of the outstanding stock
of Augusta Metronet, Inc. and Georgia Metronet, Inc., which own 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 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 price was allocated to licenses and
goodwill.
On June 20, 1996, the Predecessor acquired the assets of and the license to
operate the non-wireline cellular telephone system serving the 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.
On July 5, 1996, two of the Predecessor's majority-owned subsidiaries
acquired the assets of and the license to operate the non-wireline cellular
telephone system serving the 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.
On January 31, 1997, a majority-owned subsidiary of the Predecessor acquired
the assets of and the license to operate the non-wireline cellular telephone
system serving the Georgia-13 RSA for an aggregate purchase price of $31,486.
The acquisition was accounted for by the purchase method of accounting. In
connection with the acquisition, $27,650 of the purchase price was allocated to
licenses.
See Note 1 for presentation of pro forma information.
(5) NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------- ----------
<S> <C> <C>
DECEMBER 31
-----------------------
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Credit agreement...................................................................... $ 337,000(d) $ 438,000(a)
11.75% Senior Subordinated Notes...................................................... -- 175,000(b)
13.5% Senior Secured Discount Notes................................................... -- 80,112(c)
Purchase obligations.................................................................. 5,296(e) --
----------- ----------
342,296 693,112
Less current installments............................................................. 5,296 2,812
----------- ----------
Long-term debt, excluding current installments........................................ $ 337,000 $ 690,300
----------- ----------
----------- ----------
</TABLE>
F-15
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
(5) NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
- ------------------------
(a) In October 1997, PCW entered into a credit agreement ("Credit Agreement")
with a syndicate of banks, financial institutions and other "accredited
investors" providing for loans of up to $525,000. The Credit Agreement
includes a $325,000 term loan facility and a $200,000 revolving credit
facility. The term loan facility is comprised of tranche A loans of up to
$100,000, which will mature on September 30, 2005, and tranche B term loans
of up to $225,000, which will mature on September 30, 2006. The revolving
credit facility will terminate on September 30, 2006. The Credit Agreement
bears interest at the alternate base rate, as defined in the Credit
Agreement, as 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) 2.5% for Euro-Dollar rate loans and (y) 1.5% 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. As of December 31, 1997, the Credit
Agreement was bearing interest at 8.5% for the tranche A loan and revolving
credit facility and 8.7% for the tranche B loan. The Credit Agreement
contains restrictions on the subsidiary's ability to engage in certain
activities, including limitations on incurring additional indebtedness,
liens and investments, payment of dividends and the sale of assets. Holdings
is a guarantor of the Credit Agreement. As of December 31, 1997 $87,000 of
the revolving credit facility was unused and available for borrowings.
(b) In July 1997, PCW issued $175,000 of 11.75% Senior Subordinated Notes
("11.75% Notes") due July 15, 2007 with interest payable semi-annually
commencing January 15, 1998. The 11.75% Notes contain covenants that
restrict the payment of dividends, incurrence of debt and sale of assets.
The carrying value of the 11.75% Notes approximates fair value as of
December 31, 1997.
(c) In August, 1997, Holdings issued 153,400 units, consisting of Notes and
warrants of PCC (the "Warrants"), in exchange for $80,000. The Notes accrete
at a rate of 13.5%, compounded semi-annually, to an aggregate principal
amount of approximately $153.4 million by August 1, 2002. Cash interest will
not commence to accrue on the Notes prior to August 2, 2002. Commencing on
February 1, 2003, cash interest on the Notes will be payable at a rate of
13.5% per annum, payable semi-annually. The Notes will be redeemable at the
option of Holdings, in whole or in part, at any time after August 1, 1998 in
cash at the redemption price as defined, plus accrued and unpaid interest,
if any, thereon to the redemption date; provided that the trading price of
the common stock of PCC shall equal or exceed certain levels. The Notes
mature on August 1, 2007 and contain covenants that restrict payments of
dividends, incurrence of debt and sale of assets. The Warrants have been
assigned a value of $4,288, which amount is accounted for as original issue
discount, resulting in an effective interest rate of approximately 14.13%
per annum. The fair value of the Notes was estimated as $80,112 as of
December 31, 1997.
(d) On December 1, 1995, the Predecessor entered into an amended and restated
credit agreement with 21 banks which provided for a revolving line of credit
of up to $500,000, subject to certain limitations through June 30, 2004.
Interest was payable at variable rates and under various interest rate
options. The interest rate at December 31, 1996 ranged from 7.42 to 8.88
percent before the affect of the interest rate swap and cap agreements
outlined below. The credit agreement also provided for a commitment fee of
.5 percent per year on any unused amounts of the credit agreement. Amounts
outstanding were secured by the assets of the Predecessor.
F-16
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
(5) NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
The credit agreement provided 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 Predecessor was in compliance with all but
one financial ratio covenant. This covenant was based on operating results
for the year ended December 31, 1996. The Predecessor obtained a waiver of
the noncompliance with this 1996 financial ratio covenant. In connection
with the acquisition of the Predecessor (see Note 1), the Predecessor credit
agreement was refinanced.
(e) In connection with the purchase of controlling interest in a non-wireline
cellular telephone system in 1991, the Predecessor incurred certain purchase
obligations. The obligations were retired in July 1996 and January 1997.
PCW has entered into interest rate swap and cap agreements to reduce the
impact of changes in interest rates on its floating rate debt and thus were
entered into for purposes other than trading. At December 31, 1997, PCW had
outstanding seven interest rate swap agreements and one interest rate cap
agreement having a total notional value of $370,000. These interest rate swap
and cap agreements effectively change PCW's interest rate exposure on a
quarterly basis on $370,000 of outstanding debt. The cap and swap agreements are
summarized as follows:
<TABLE>
<CAPTION>
MAXIMUM NOTIONAL
TYPE OF AGREEMENT MATURITY LIBOR VALUE
- -------------------------------------------------- ------------------ ------------- ----------
<S> <C> <C> <C>
Pay Later Cap (1)................................. Jan. 12, 1998 8.5% $ 20,000
Participating Swap (2)............................ Aug. 10, 1998 5.98% 15,000
Swap.............................................. Aug. 6, 1999 6.36% 25,000
Swap.............................................. Oct. 21, 1999 5.92% 185,000
Swap.............................................. Aug. 7, 2000 6.09% 50,000
Swap.............................................. Aug. 21, 2000 6.11% 25,000
Swap.............................................. Oct. 10, 2000 6.10% 25,000
Swap.............................................. Oct. 11, 2000 5.99% 25,000
----------
$ 370,000
----------
----------
</TABLE>
- ------------------------
(1) When the three-month LIBOR rate is 8.5 percent or higher PCW receives a
quarterly payment of $98.
(2) When the six-month LIBOR is less than 5.98 percent PCW participates in 45
percent of the difference.
The market value of the swap and cap agreements above, which has not been
reflected in the consolidated financial statements as of December 31, 1997, is a
loss of $1,076.
PCW is exposed to interest rate risk in the event of nonperformance by the
other party to the interest rate swap and cap agreements. However, PCW does not
anticipate nonperformance by any of the banks.
F-17
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
(5) NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
- ------------------------------------------------------------------------------------------------------ ----------
<S> <C>
1998.................................................................................................. $ 2,812
1999.................................................................................................. 4,750
2000.................................................................................................. 12,875
2001.................................................................................................. 15,375
2002.................................................................................................. 17,875
Thereafter............................................................................................ 639,425
----------
$ 693,112
----------
----------
</TABLE>
(6) INCOME TAXES
Components of income tax expense (benefit) consist of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Predecessor:
Year ended December 31, 1995:
Current......................................................................... $ -- $ -- $ --
--------- --------- ---------
Deferred........................................................................ 2,550 100 2,650
--------- --------- ---------
$ 2,550 $ 100 $ 2,650
--------- --------- ---------
--------- --------- ---------
Predecessor:
Year ended December 31, 1996:
Current......................................................................... $ -- $ 869 $ 869
Deferred........................................................................ 1,795 60 1,855
--------- --------- ---------
$ 1,795 $ 929 $ 2,724
--------- --------- ---------
--------- --------- ---------
Predecessor:
Period ended September 30, 1997
Current......................................................................... $ -- $ 214 $ 214
Deferred........................................................................ 3,553 386 3,939
--------- --------- ---------
$ 3,553 $ 600 $ 4,153
--------- --------- ---------
--------- --------- ---------
Company:
Period ended December 31, 1997
Current......................................................................... $ (2,244) $ (432) $ (2,676)
Deferred........................................................................ (2,116) (337) (2,453)
--------- --------- ---------
$ (4,360) $ (769) $ (5,129)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-18
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
(6) INCOME TAXES (CONTINUED)
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>
PREDECESSOR
---------------------------------------
COMPANY
YEAR ENDED NINE MONTHS ---------------
DECEMBER 31, ENDED PERIOD ENDED
-------------------- SEPTEMBER 30, DECEMBER 31,
1995 1996 1997 1997
--------- --------- ----------------- ---------------
<S> <C> <C> <C> <C>
Statutory United States federal tax rate.......................... 34.0% 34.0% 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 6.0 (3.6)
Recognition of deferred taxes related to the difference between
financial statement and income tax bases of certain assets and
liabilities in connection with the Exchange..................... 73.5% -- -- --
Non deductible interest expense................................... -- -- -- 1.1
Other............................................................. 7.2 4.8 1.0 (0.2)
--------- --------- --- -----
Consolidated effective tax rate................................... 73.5% 36.8% 41.0% (36.7)%
--------- --------- --- -----
--------- --------- --- -----
</TABLE>
In 1997, the Predecessor recorded additional deferred tax liability and a
corresponding increase in licenses for timing differences attributable to
pre-1997 acquisitions. The components of the deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts......................................................... $ 609 $ 327
Inventory reserve....................................................................... -- 144
Deferred revenue........................................................................ -- 400
Nondeductible accruals.................................................................. 221 6,495
Net operating loss carryforwards........................................................ 4,100 3,560
Valuation allowance..................................................................... -- (3,560)
----------- -----------
Total deferred tax assets............................................................... $ 4,930 $ 7,366
----------- -----------
Deferred tax liabilities:
Accumulated depreciation................................................................ (7,415) (8,559)
Licenses................................................................................ (8,185) (302,306)
----------- -----------
Total deferred tax liabilities.......................................................... (15,600) (310,865)
----------- -----------
Deferred tax liability, net............................................................. $ (10,670) $ (303,499)
----------- -----------
----------- -----------
</TABLE>
F-19
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
(6) INCOME TAXES (CONTINUED)
The net operating loss carryforwards totaled approximately $8,900 at
December 31, 1997 and expire in amounts ranging from approximately $300 to
$1,100 through 2012. For these carryforwards of approximately $12,350
utilization of these carryforwards is limited to the subsidiary that generated
the carryforwards, unless the Company utilizes alternative tax planning
strategies.
(7) COMMON STOCK AND STOCK PLANS
During 1994, the Predecessor 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 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 Predecessor; (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 Owners, 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 Predecessor 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 Predecessor 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 Predecessor.
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 Predecessor 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 the consolidated
financial statements. Had the Predecessor determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Predecessor's net
F-20
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
(7) COMMON STOCK AND STOCK PLANS (CONTINUED)
income (loss) and net income (loss) per share would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------- ----------------- -------------------
<S> <C> <C> <C>
Net income-as reported................................. $ 954 $ 4,682 $ 6,089
Net (loss) income-pro forma............................ $ (777) $ 2,850 $ 4,753
</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.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
($'S NOT IN
THOUSANDS)
NUMBER WEIGHTED AVERAGE
OF 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
Exercised..................................................................... (70,000) 14.25
-----------
Balance September 30, 1997...................................................... 668,334 14.60
-----------
-----------
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $14.25--$17.25 ($'s not in
thousands) and 8.3 years, respectively.
At December 31, 1996, the number of options exercisable was 250,000, and the
weighted average exercise price of those options was $14.34 ($'s not in
thousands).
In connection with the acquisition of Palmer, the Company retired all of the
options of Palmer that were outstanding.
The Predecessor 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 Predecessor 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 Predecessor. 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
F-21
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
(7) COMMON STOCK AND STOCK PLANS (CONTINUED)
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 $16.85 ($'s not
in thousands). 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.
(8) RELATED PARTY TRANSACTIONS
On January 1, 1997 the Predecessor purchased a building and certain towers
from PCI for $6,243. These assets were previously leased from PCI.
Concurrently with the Offering and the Exchange, the Predecessor and PCI
entered into both a transitional management and administrative services
agreement and a computer services agreement that extended each December 31 for
additional one-year periods unless and until either party notified the other.
The fees from these arrangements amounted to a total of $492, $534 and $88 for
the years ended December 31, 1995 and 1996 and the nine months ended September
30, 1997, respectively, and are include as a reduction of selling, general and
administrative expenses.
Concurrently with the Offering and the Exchange, the Predecessor and PCI
entered into a tax consulting agreement that extended each December 31 for
additional one-year periods unless and until either party notified the other.
The fees for tax consulting services amounted to a total of $84, $120 and $97
for the years ended December 31, 1995 and 1996 and the nine months ended
September 30, 1997, 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 Predecessor participated in this plan and was allocated 401(k)
retirement and matching expense of $493, $696 and $544 for the years ended
December 31, 1995, and 1996 and the nine months ended September 30, 1997,
respectively.
(9) COMMITMENTS AND CONTINGENCIES
LEASES
PCW occupies certain buildings and uses certain tower sites, cell sites and
equipment under noncancelable operating leases which expire through 2013.
F-22
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under noncancelable operating leases as of are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- -----------------------------------------------------------------------------------
<S> <C>
1998............................................................................... $ 2,950
1999............................................................................... 2,535
2000............................................................................... 1,981
2001............................................................................... 1,305
2002............................................................................... 843
Later years through 2013........................................................... 1,491
---------
Total minimum lease payments..................................................... $ 11,105
---------
---------
</TABLE>
Rental expense for the Predecessor was $2,487, $3,551, and $3,123 for the
years ended December 31, 1995, 1996 and the nine months ended September 30,
1997, respectively of which $269 and $278 was paid to related parties for 1995
and 1996, respectively. Rental expense for the Company was $806 for the period
from May 29, 1997 to December 31, 1997.
CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial statements.
F-23
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
(10) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Total Revenue...................................... $ 36,950(a) $ 40,031(a) $41,171(a) $ 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
----------- ----------- ----------- --------- ----------
----------- ----------- ----------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
COMPANY
-----------------
PREDECESSOR FOR THE PERIOD
------------------------------- MAY 29,1997
FIRST SECOND THIRD THROUGH
QUARTER QUARTER QUARTER DECEMBER 31, 1997
--------- --------- --------- -----------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Total Revenue................................................. $ 44,683 $ 48,545 $ 48,508 $ 43,713
--------- --------- --------- -------
--------- --------- --------- -------
Operating Income.............................................. $ 9,805 $ 13,022 $ 12,984 $ 8,616
--------- --------- --------- -------
--------- --------- --------- -------
Net Income (Loss)............................................. $ 1,177 $ 2,523 $ 2,389 $ (8,852)
--------- --------- --------- -------
--------- --------- --------- -------
</TABLE>
- ------------------------
(a) Certain reclassifications were made to conform to the fourth quarter
presentation.
(b) The decrease in revenue and operating income in the fourth quarter is a
result of customer acquisition costs, including advertising, commissions and
phone discounts, related to Holiday sales (consistent with prior years), the
Fort Myers Sale, and amortization of the additional license recorded in the
merger. The net loss is due to these reasons as well as the interest expense
on debt incurred to fund the Acquisition (see Note 1).
F-24
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......................................................... $ 7,823 $ 27,926
Trade accounts receivable, net of allowance for doubtful accounts.................. 16,441 15,940
Receivable from other cellular carriers............................................ 2,036 3,902
Deferred income taxes.............................................................. 4,807 5,402
Prepaid expenses and deposits...................................................... 1,848 902
Inventory.......................................................................... 2,005 1,280
------------ ------------
Total current assets............................................................. 34,960 55,352
Net property and equipment........................................................... 147,003 151,141
Licenses, net of amortization........................................................ 911,923 918,488
Other intangible assets and other assets, at cost less accumulated amortization...... 18,899 19,498
------------ ------------
$ 1,112,785 $1,144,479
------------ ------------
------------ ------------
Liabilities and Equity
Current liabilities:
Current installments of long-term debt............................................. $ 2,250 $ 2,812
Payable to Price Communications Corporation........................................ 658 2,328
Accounts payable................................................................... 8,791 13,059
Accrued interest payable........................................................... 5,285 11,361
Accrued salaries and employee benefits............................................. 2,028 2,324
Other accrued liabilities.......................................................... 16,237 16,031
Deferred revenue................................................................... 3,839 3,755
Customer deposits.................................................................. 739 602
------------ ------------
Total current liabilities........................................................ 39,827 52,272
Long-term debt, excluding current installments....................................... 681,624 690,300
Accrued income taxes--long term...................................................... 48,571 50,491
Deferred income taxes................................................................ 306,359 308,901
Minority interests................................................................... 7,812 7,352
Commitments and contingencies........................................................ -- --
Stockholder's equity................................................................. 28,592 35,163
------------ ------------
$ 1,112,785 $1,144,479
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-25
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------- -----------
<S> <C> <C>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenue:
Service................................................................................. $ 40,684 $ 42,220
Equipment sales and installation........................................................ 2,591 2,463
----------- -----------
Total revenue......................................................................... 43,275 44,683
----------- -----------
Operating expenses:
Engineering, technical and other direct................................................. 6,751 7,430
Cost of equipment....................................................................... 5,496 5,807
Selling, general and administrative..................................................... 11,717 13,360
Depreciation and amortization........................................................... 11,928 8,281
----------- -----------
Total operating expenses.............................................................. 35,892 34,878
----------- -----------
Operating income...................................................................... 7,383 9,805
----------- -----------
Other income (expense):
Interest expense, net................................................................... (17,285) (7,872)
Other income (expense), net............................................................. (37) 71
----------- -----------
Total other expense................................................................... (17,322) (7,801)
----------- -----------
Income (loss) before minority interest share of income and income taxes............... (9,939) 2,004
Minority interest share of income......................................................... (460) (331)
----------- -----------
Income (loss) before income taxes..................................................... (10,399) 1,673
Income tax (expense) benefit.............................................................. 3,828 (496)
----------- -----------
Net income (loss)..................................................................... $ (6,571) $ 1,177
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-26
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
($ IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK ADDITIONAL TOTAL
------------------------ PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balances at May 29, 1997................................. -- $ -- $ -- $ -- $ --
Capital contribution..................................... 100 -- 44,015 -- 44,015
Net loss................................................. -- -- -- (8,852) (8,852)
--- --- ----------- ---------- ------------
Balances at December 31, 1997............................ 100 -- 44,015 (8,852) 35,163
Net loss................................................. -- -- -- (6,571) (6,571)
--- --- ----------- ---------- ------------
Balances at March 31, 1998............................... 100 $ -- $ 44,015 $ (15,423) $ 28,592
--- --- ----------- ---------- ------------
--- --- ----------- ---------- ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-27
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
COMPANY PREDECESSOR
---------- -----------
<S> <C> <C>
1998 1997
---------- -----------
Cash flows from operating activities:
Net income (loss)...................................................................... $ (6,571) $ 1,177
---------- -----------
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization........................................................ 11,928 8,281
Minority interest share of income.................................................... 460 331
Deferred income taxes................................................................ (1,947) 496
Loss on disposal of property......................................................... 37 5
Interest deferred and added to long-term debt........................................ 2,886 --
Payment of deferred interest......................................................... -- (1,514)
Decrease (increase) in trade accounts receivable..................................... (501) 1,730
Decrease (increase) in inventory..................................................... (725) 1,223
Increase (decrease) in accounts payable and accrued expenses......................... (6,278) 1,252
Decrease in accrued interest payable................................................. (6,076) --
Change in other accounts............................................................. 1,182 (651)
---------- -----------
Total adjustments.................................................................. 966 11,153
---------- -----------
Net cash provided by (used in) operating activities................................ (5,605) 12,330
---------- -----------
Cash flows from investing activities:
Capital expenditures................................................................... (704) (16,987)
Proceeds from sales of property and equipment.......................................... -- 12
Purchase of cellular systems........................................................... -- (31,096)
Purchases of minority interests........................................................ -- (368)
Increase in other intangible assets and other assets................................... -- (48)
---------- -----------
Net cash used in investing activities.............................................. (704) (48,487)
---------- -----------
Cash flows from financing activities:
Increase in short-term notes payable................................................... -- 1,332
Repayment of long-term debt............................................................ (12,124) (3,782)
Repayment of advances from Price Communications Corporation............................ (1,670) --
Proceeds from long-term debt........................................................... -- 39,000
---------- -----------
Net cash provided by (used in) financing activities................................ (13,794) 36,550
---------- -----------
Net increase (decrease) in cash and cash equivalents............................... (20,103) 393
Cash and cash equivalents at the beginning of period..................................... 27,926 1,698
---------- -----------
Cash and cash equivalents at the end of period........................................... $ 7,823 $ 2,091
---------- -----------
---------- -----------
Supplemental disclosure of cash flow information:
Income taxes (received) paid, net...................................................... $ 63 $ (648)
---------- -----------
---------- -----------
Interest paid.......................................................................... $ 20,577 $ 8,615
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-28
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND ACQUISITION
Price Communications Cellular Holdings, Inc. ("Holdings" or the "Company"),
a wholly-owned subsidiary of Price Communications Cellular, Inc., a wholly-owned
subsidiary of Price Communications Corporation ("PCC"), was incorporated on May
29, 1997 in connection with the purchase of Palmer Wireless, Inc. and
subsidiaries ("Palmer" or the "Predecessor").
In May, 1997, PCC, Price Communications Wireless, Inc. ("PCW"), a wholly
owned subsidiary of Holdings and Palmer entered into an Agreement and Plan of
Merger (the "Merger Agreement"). The Merger Agreement provided, among other
things, for the merger of PCW with and into Palmer with Palmer as the surviving
corporation (the "Merger"). In October, 1997, the Merger was consummated and
Palmer changed its name to "Price Communications Wireless, Inc."
In June, 1997, PCW entered into an agreement to sell Palmer's Fort Myers,
Florida MSA as part of the financing of the merger (the "Fort Myers Sale"). In
October, 1997, the Fort Myers Sale was consummated, and generated proceeds to
the Company of approximately $166,000. The proceeds of the Fort Myers Sale were
used to fund a portion of the acquisition of Palmer. Accordingly, no gain or
loss was recognized on the Fort Myers Sale.
Also in connection with the merger, on October 21, 1997, PCC and PCW entered
into an Asset Purchase Agreement with MJ Cellular Company, L.L.C. (the "Georgia
Sale Agreement") which provided for the sale by PCW of substantially all of the
assets used in the operation of the non-wireline cellular telephone system
serving the Georgia-1-Whitfield Rural Service Area ("Georgia-1"), including the
FCC licenses to operate Georgia-1 (the "Georgia Sale"). The sale of the assets
of Georgia-1 was consummated on December 30, 1997 for $24,200. In January, 1998
the proceeds from the Georgia Sale were used to retire a portion of the debt
used to fund the Palmer acquisition. Accordingly, no gain or loss was recognized
on the Georgia Sale.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Price
Communications Cellular Holdings, Inc. and subsidiaries (the "Company") have
been prepared without audit pursuant to Rule 10-01 of Regulation S-X of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financials. In the opinion of management, all adjustments (none of
which were other than normal recurring items) considered necessary for a fair
presentation have been included. The results of operations for the interim
periods reported are not necessarily indicative of results to be expected for
the year.
For financial reporting purposes, PCW revalued its assets and liabilities as
of October 1, 1997 to reflect the price paid by PCC to acquire 100% of its
Common Stock, a process generally referred to as "push down" accounting.
The Company's condensed consolidated Statement of Operations and Statement
of Cash Flows for the first quarter 1997 reflect its historical results of
operations and are referred to as the "Predecessor" condensed consolidated
financial statements. Accordingly, the accompanying financial statements of the
F-29
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
($ IN THOUSANDS)
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Predecessor and the Company are not comparable in all material respects since
those financial statements report results of operations and cash flows of these
two separate entities.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 Statement of Operations
and Statement of Cash Flows to conform to the 1998 presentation.
F-30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER 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 THE UNDERWRITERS. 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............................... 5
Risk Factors..................................... 14
The Palmer Acquisition........................... 19
Use of Proceeds.................................. 20
Capitalization................................... 20
Unaudited Pro Forma Condensed Consolidated
Financial Statements........................... 21
Selected Consolidated Financial Data............. 33
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 35
Business of the Company.......................... 45
Business of Price Communications Corporation..... 59
Management....................................... 60
Principal Stockholder............................ 65
Description of the 13 1/2% Holdings Notes........ 65
Description of the 11 3/4% PCW Notes............. 66
Description of the Senior Secured PCW Notes...... 67
Description of Notes............................. 68
Description of Capital Stock..................... 96
Certain Federal Income Tax Consequences.......... 97
Underwriting..................................... 99
Legal Matters.................................... 100
Independent Accountants.......................... 100
Certain Terms.................................... 100
Index to Financial Statements.................... F-1
</TABLE>
