<PAGE>
As filed with the Securities and Exchange Commission on February 13, 1998
REGISTRATION NO. 333-41227
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4812 13-3956940
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
PRICE COMMUNICATIONS CELLULAR INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4812 13-3504402
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
----------------
45 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10020
(212) 757-5600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT PRICE
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
45 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10020
(212) 757-5600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
RICHARD D. TRUESDELL, JR.
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 13, 1998
PROSPECTUS
, 1998
$153,400,000
OFFER TO EXCHANGE
13 1/2% SERIES B SENIOR SECURED DISCOUNT NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING
13 1/2% SERIES A SENIOR SECURED DISCOUNT NOTES DUE 2007
OF
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
FULLY AND UNCONDITIONALLY GUARANTEED AS SET FORTH HEREIN BY
PRICE COMMUNICATIONS CELLULAR INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED
Price Communications Cellular Holdings, Inc. ("Holdings"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal (which together constitute the
"Exchange Offer"), to exchange $1,000 principal amount at maturity of 13 1/2%
Series B Senior Secured Discount Notes due 2007 (the "New Notes") of Holdings
for each $1,000 principal amount at maturity of the issued and outstanding 13
1/2% Series A Senior Secured Discount Notes due 2007 (the "Old Notes" and,
together with the New Notes, the "Notes") of Holdings. As of the date of this
Prospectus there were outstanding $153,400,000 principal amount at maturity of
Old Notes. The terms of the New Notes are identical in all material respects
to the Old Notes, except that the offer of the New Notes will have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), and therefore, the New Notes will not be subject to certain transfer
restrictions, registration rights and related liquidated damage provisions
applicable to the Old Notes.
The Notes will mature on August 1, 2007. The 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 Notes prior to August 2, 2002. Commencing on
February 1, 2003, cash interest on the 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
Notes will be 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
herein, plus accrued and unpaid interest, if any, thereon to the redemption
date. The Notes will be redeemable at the option of Holdings, in whole or in
part, at any time on or after August 1, 1998 in cash at the redemption prices
set forth herein, plus accrued and unpaid interest, if any, thereon to the
redemption date; provided that the trading price of the common stock, par
value $0.01 per share (the "Common Stock"), of Price Communications
Corporation ("PCC") shall equal or exceed certain levels. See "Description of
Notes."
The Notes are senior obligations of Holdings. The Notes will rank pari passu
in right of payment with all future senior indebtedness of Holdings and will
rank senior in right of payment to all future subordinated indebtedness of
Holdings. The Notes are unconditionally guaranteed (the "Guarantee") by Price
Communications Cellular Inc. (the "Guarantor"), the Company's direct parent
and a direct wholly owned subsidiary of PCC. The Guarantee is secured by a
lien on and security interest in all of the issued and outstanding capital
stock of Holdings. The Guarantee is a senior obligation of the Guarantor. See
"Description of the Guarantee." The Notes are effectively subordinated to all
liabilities of Holdings's subsidiaries. On a pro forma basis after giving
effect to the issuance and sale of the Old Notes and warrants to purchase
527,696 shares of PCC Common Stock (the "Warrants," together with the Old
Notes, the "Units") and the Acquisition (as defined herein) and related
financings as of September 30, 1997, Holdings would have had outstanding
approximately $77.3 million of Indebtedness (as defined herein) and Holdings's
subsidiaries would have had outstanding $620.0 million of Indebtedness,
including Indebtedness under the Senior Subordinated Notes (as defined herein)
and the New Credit Facility (as defined herein) and $312.8 million of other
liabilities including $230.4 million of deferred income tax liabilities
recorded in connection with the purchase accounting treatment of the
Acquisition and including trade payables.
The New Notes are being offered hereunder in order to satisfy certain
obligations of Holdings under the Registration Rights Agreement, dated August
11, 1997, among Holdings and the other signatories thereto (the "Registration
Rights Agreement"). Based upon interpretations contained in letters issued to
third parties by the staff of the Securities and Exchange Commissions (the
"SEC"), including Exxon Capital Holdings Corporation, SEC No-Action Letter
(avail. May 13, 1988), Morgan Stanley & Co. Incorporated, SEC No-Action Letter
(avail. June 5, 1991) and Shearman & Sterling, SEC No-Action Letter (avail.
July 2, 1993) (collectively, the "Exchange Offer No-Action Letters"), Holdings
believes that the New Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by
each Holder thereof (other than a broker-dealer, as set forth below, and any
such Holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder has no arrangement or understanding with any person to participate in
the distribution of such New Notes. Eligible Holders wishing to accept the
Exchange Offer must represent to Holdings in the Letter of Transmittal that
such conditions have been met. Each broker-dealer that receives New Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Notes received in exchange of Old
Notes where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. Holdings has agreed
that, for a period of 90 days after the Expiration Date (as defined herein),
it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
Holdings will not receive any proceeds from the Exchange Offer. Holdings
will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. In the event Holdings terminates the Exchange Offer and does
not accept for exchange any Old Notes, Holdings will promptly return tendered
Old Notes to the Holders thereof. See "The Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the Notes.
Holdings does not currently intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active public market for the New
Notes will develop.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE
CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE EXCHANGE
OFFER.
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in
this Prospectus (this "Prospectus") in connection with the offer made hereby
and, if given or made, such information or representations must not be relied
upon as having been authorized by Holdings or any other person. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of Holdings since the date hereof or that the information contained or
incorporated by reference herein is correct as of any time subsequent to its
date. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy the securities offered hereby by anyone in any jurisdiction
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to anyone to
whom it is unlawful to make such offer or solicitation.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information (including the financial statements and the notes thereto) included
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Unless otherwise indicated, all references herein
to "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. As used in this Prospectus, the terms "PCW" and
"Palmer" include their respective subsidiaries and predecessors. 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 sales of the Fort Myers and Georgia-1
systems of Palmer, as described below under "The Acquisition." EXCEPT FOR
HISTORICAL FINANCIAL INFORMATION AND UNLESS OTHERWISE INDICATED, ALL
INFORMATION PRESENTED BELOW RELATING TO THE COMPANY AND PCW INCLUDING POPS, NET
POPS AND THE SYSTEMS, GIVES EFFECT TO THE CONSUMMATION OF THE ACQUISITION
(INCLUDING THE SALES OF THE FORT MYERS AND GEORGIA-1 SYSTEMS). SEE "CERTAIN
TERMS" FOR DEFINITIONS OF CERTAIN TERMS USED HEREIN.
THE COMPANY
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. At
September 30, 1997, after giving effect to the Acquisition, the Company
provided cellular telephone service to 295,162 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 principally through its network of retail stores. The
Company markets all of its products and services under the nationally
recognized service mark CELLULAR ONE.
During the first nine months of 1997, on a pro forma basis, after giving
effect to the Acquisition, the Company's subscriber base increased from 243,204
to 295,162 or 21.4%. On a pro forma basis for the first nine months of 1997,
Holdings's operating income before depreciation and amortization ("EBITDA") was
$49.9 million and Holdings would have incurred net losses of $32.0 million. See
"Summary Historical and Unaudited Pro Forma Financial and Operating Data."
OPERATIONS
The Company has developed its business through the acquisition and
integration of cellular telephone systems, clustering multiple systems in order
to provide broad areas of uninterrupted service and achieve certain economies
of scale, including centralized marketing and administrative functions as well
as multi-system capital expenditures. The Company devotes considerable
attention to engineering, maintenance and improvement of its cellular telephone
systems in an effort to deliver high-quality service to its subscribers and to
implement new technologies as soon as economically practicable. Through its
participation in the North American Cellular Network ("NACN"), the Company is
able to offer seven-digit dialing access to its subscribers when they travel
outside the Company's service areas, providing them with convenient roaming
access throughout large areas of the United States, Canada, Mexico and Puerto
Rico served by other NACN participants. By marketing its products and services
under the CELLULAR ONE name, the Company also enjoys the benefits of
association with a nationally recognized service mark.
The Company's cellular telephone systems include 15 contiguous licensed
service areas in Georgia, Alabama and South Carolina, as well as a system in
Panama City, Florida. The following table sets forth as of November 14, 1997,
after giving effect to the Acquisition, 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.
3
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED OWNERSHIP DATE SYSTEM
SERVICE AREA(1) POPULATION(2) PERCENTAGE NET POPS OPERATIONAL
<S> <C> <C> <C> <C>
Albany, GA.................... 118,527 86.5% 102,526 4/88
Augusta, GA................... 439,116 100.0 439,116 4/87
Columbus, GA.................. 254,150 85.2 216,518 11/88
Macon, GA..................... 313,686 99.2 311,234 12/88
Savannah, GA.................. 283,878 98.5 279,578 3/88
Georgia-6 RSA................. 199,516 95.0 189,560 4/93
Georgia-7 RSA................. 134,376 100.0 134,376 10/91
Georgia-8 RSA................. 157,451 100.0 157,451 10/91
Georgia-9 RSA................. 119,410 100.0 119,410 9/92
Georgia-10 RSA................ 149,699 100.0 149,699 10/91
Georgia-12 RSA................ 211,799 100.0 211,799 10/91
Georgia-13 RSA................ 147,392 86.5 127,494 10/90
Dothan, AL.................... 136,160 94.6 128,807 2/89
Montgomery, AL................ 318,371 92.8 295,430 8/88
Alabama-8 RSA................. 173,993 100.0 171,993 7/93
--------- ---------
Subtotal.................... 3,155,524 3,034,991
--------- ---------
Panama City, FL............... 146,018 78.4 114,493 9/88
--------- ---------
Total....................... 3,301,542 3,149,484
========= =========
</TABLE>
- --------------------
(1) Does not include the Alabama-5 RSA, South Carolina-7 RSA and South
Carolina-8 RSA where 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 and South Carolina-8 RSA, but instead provides
roaming access to its own subscribers and others when they travel in these
two service areas, utilizing its existing cell sites. Construction permits
were granted to third parties ("Permittees") for the Alabama-5 RSA and
South Carolina-8 RSA on May 20, 1997. The Permittees are required to
complete construction of their respective RSA within 18 months. After
completing construction, a Permittee may give the Company ten days prior
written notice, at which point the Company would be required to sell its
subscribers to the Permittee at cost. The application for a construction
permit for the South Carolina-7 RSA has been remanded by the FCC to the
Wireless Bureau for further review.
(2) Based on population estimates for 1996 from the 1996 Donnelley Market
Information Service.
COMPANY STRATEGY
The Company's four strategic objectives are to: (1) expand its revenue base
by increasing penetration in existing service areas and encouraging greater
usage among its existing customers, (2) provide high-quality customer service
to create and maintain customer loyalty, (3) enhance performance by
aggressively pursuing opportunities to increase operating efficiencies and (4)
expand its regional wireless communications presence by selectively acquiring
additional interests in cellular telephone systems (including minority
interests). Specifically, the Company strives to achieve these objectives
through implementation of the following:
Aggressive, Direct Marketing. The Company employs a two-tier direct sales
force. A retail sales force handles walk-in traffic at the Company's 32 retail
outlets, and a targeted sales staff solicits certain industries and government
subscribers. The Company's management believes that its internal sales force is
more likely than independent agents to successfully select and screen new
subscribers and select pricing plans that realistically match subscriber means
and needs. In addition, the Company motivates its direct sales force to sell
appropriate rate plans to subscribers, thereby reducing churn, by linking
payments of commissions to subscriber retention. By lowering commissions and
reducing churn, the Company's use of a direct sales force keeps its marketing
costs among the industry's lowest.
4
<PAGE>
Flexible, Value-Oriented Pricing Plans. The Company provides a range of
pricing plans, each of which includes a monthly access fee and a bundle of
"free" minutes. Additional home rate minutes are charged at rates ranging from
$0.05 per minute to $0.30 per minute depending on usage plan and time of day.
In addition, the Company offers wide area home rate roaming in the Company's
systems and low flat rate roaming in a six state region in the Southeastern
United States.
The Company believes that an increase in its bundled minute offerings will
encourage greater customer usage. By increasing the number of minutes a
customer can use for one flat rate, subscribers perceive greater value in their
cellular service and become less usage sensitive, i.e., they can increase their
cellular phone usage without seeing large corresponding increases in their
cellular bill. These factors translate into more satisfied customers and lower
churn among existing subscribers and also increase the number of potential
customers in the marketplace.
Adopting State of the Art System Design. The Company's network 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 TDMA (Time Division Multiple Access) technology, one of three standards
and the one employed by AT&T 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 already reached an agreement
with AT&T with respect to PCS roaming and expects that other PCS operators may
choose, like AT&T, to concentrate PCS buildout in urban centers rather than the
more rural areas in which the Company concentrates.
Focusing on Customer Service. Customer service is an essential element of the
Company's marketing and operating philosophy. The Company is committed to
attracting new subscribers and retaining existing subscribers by providing
consistently high-quality customer service. In each of its cellular service
areas, the Company maintains a local staff, including a market manager,
customer service representatives, technical and engineering staff, sales
representatives and installation and repair facilities. Each cellular service
area handles its own customer-related functions such as credit evaluations,
customer evaluations, account adjustments and rate plan changes. In addition,
subscribers are able to report cellular telephone service or account problems
to the Company's headquarters 24 hours a day. To ensure high-quality service,
Cellular One Group authorizes a third-party marketing research firm to perform
customer satisfaction surveys of each of its licensees. Licensees must achieve
a minimum satisfaction level in order to continue using the Cellular One
service mark. The Company has repeatedly ranked number one in customer
satisfaction among all Cellular One operators (#1 MSA in 1996, 1995, 1993, and
1992; #1 RSA in 1995).
Aggressive Cost Control Efforts. The Company believes that its monthly
operating costs per subscriber rank among the lowest in the industry. The
Company's management attributes this competitive advantage to a variety of
factors, including the efficiencies associated with its direct sales force, the
Company's low churn experience, extensive use of in-house technical and
engineering staff, maintenance of aggressive fraud control procedures and in-
house billing capabilities, as well as general efforts to reduce corporate
general and administrative expenses. The Company has also realized substantial
savings on its interconnection charges from landline carriers by using its own
microwave and fiber optic network to connect cellular switching equipment to
cell sites without the use of landline carriers.
THE ACQUISITION
Prior to the Merger, neither Holdings nor the Guarantor had any assets,
liabilities or operations other than the proceeds from the issuance of the
Units and liabilities with respect thereto. Holdings is a wholly owned indirect
subsidiary of PCC, which was incorporated in 1979, and a wholly owned direct
subsidiary of the Guarantor.
5
<PAGE>
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, the Company assumed all outstanding indebtedness of Palmer of
approximately $378.0 million ("Palmer Existing Indebtedness"). As a result, the
aggregate purchase price for Palmer (not including transaction fees and
expenses) was $864.4 million. The Company refinanced all of the Palmer Existing
Indebtedness concurrently with the consummation of the Merger.
PCW entered into an agreement (the "Fort Myers Sale Agreement") to sell
Palmer's Fort Myers, Florida MSA covering approximately 382,000 Pops for $168.0
million (the "Fort Myers Sale"). On October 6, 1997, the Fort Myers Sale was
consummated, and generated proceeds to the Company of approximately $166.0
million. The proceeds of the Fort Myers Sale were used to fund a portion of the
acquisition of Palmer.
On October 21, 1997, PCC and PCW entered into an Asset Purchase Agreement
with MJ Cellular Company, L.L.C. (the "Georgia Sale Agreement") which provides
for the sale by PCW, for $25 million, of substantially all of the assets used
or useful in the operation of the non-wireline cellular telephone system
serving the Georgia-1-Whitfield Rural Service Area (Market No. 0371-A)
("Georgia-1"), including the FCC licenses to operate Georgia-1 (the "Georgia
Sale"). The sale of the assets of Georgia-1 was consummated on December 30,
1997. The proceeds from the Georgia Sale will be used to retire a portion of
the debt used to fund the acquisition of Palmer.
In order to fund the Acquisition and pay related fees and expenses, PCW
issued $175.0 million aggregate principal amount of 11 3/4% Senior Subordinated
Notes due 2007 (the "Senior Subordinated Notes") and entered into a syndicated
senior loan facility providing for term loan borrowings in the aggregate
principal amount of approximately $325.0 million and revolving loan borrowings
of $200.0 million (the "New Credit Facility"). On October 6, 1997, PCW borrowed
all term loans available thereunder and approximately $120.0 million of
revolving loans. DLJ Capital Funding, Inc. ("DLJ Capital Funding") provided and
syndicated the New Credit Facility. See "Description of New Credit Facility."
The acquisition of Palmer was funded in part through a $77.4 million equity
contribution from PCC (the "PCC Equity Contribution") which was in the form of
cash and common stock of Palmer. An additional amount of approximately $47.5
million of the purchase price for the Acquisition was raised as a portion of
the proceeds from the issuance and sale of the Units (the "Offering").
6
<PAGE>
The following table sets forth the estimated sources and uses of funds for
the Acquisition, the redemption of the outstanding senior payment-in-kind
increasing rate preferred stock (the "PIK Preferred Stock") of PCC and certain
warrants to purchase PCC Common Stock and related fees and expenses:
<TABLE>
<CAPTION>
TOTAL SOURCES: (IN MILLIONS)
<S> <C>
New Credit Facility:
Term loan............................................... $325.0
Revolving credit facility............................... 120.0
11 3/4% Senior Subordinated Notes due 2007................ 175.0
Units..................................................... 80.0
PCC Equity Contribution................................... 77.4
Proceeds from Fort Myers and Georgia Sales................ 191.0
------
Total sources......................................... $968.4
======
TOTAL USES:
Cash consideration for Palmer common stock................ $486.4
Palmer Existing Indebtedness (as of September 30, 1997) .. 378.0
Estimated transaction fees and expenses................... 37.8
Cash for redemption of PIK Preferred Stock and warrants to
purchase
PCC Common Stock......................................... 29.2
Excess cash............................................... 37.0
------
Total uses............................................ $968.4
======
</TABLE>
The foregoing table does not reflect any provision for any taxes payable in
connection with the Fort Myers Sale or the Georgia Sale. Although the Company
has a tax planning strategy which it believes may avoid the payment of the
$50.9 million tax which would otherwise be payable in connection with the Fort
Myers Sale and Georgia Sale, there is substantial uncertainty that the
Company's position will prevail if challenged. Because of such uncertainty, the
Company has recorded a $50.9 million deferred tax liability on its consolidated
balance sheet based on management's best estimate. See "The Acquisition."
7
<PAGE>
THE EXCHANGE OFFER
Securities Offered.......... Up to $153,400,000 principal amount of 13 1/2%
Series B Senior Secured Discount Notes due 2007.
The terms of the New Notes and the Old Notes are
identical in all material respects, except that
the offer of the New Notes will have been
registered under the Securities Act and
therefore, the New Notes will not be subjected to
certain transfer restrictions, registration
rights and related liquidated damage provisions
applicable to the Old Notes.
The Exchange Offer.......... The Company is offering, upon the terms and
subject to the conditions of the Exchange Offer,
to exchange $1,000 principal amount at maturity
of New Notes for each $1,000 principal amount at
maturity of Old Notes. See "The Exchange Offer"
for a description of the procedures for tendering
Old Notes. The Exchange Offer is intended to
satisfy obligations of the Company under the
Registration Rights Agreement, dated August 11,
1997, between Holdings, the Guarantor and NatWest
Capital Markets Limited and Wasserstein Perella
Securities, Inc. (the "Initial Purchasers").
Tenders, Expiration Date; The Exchange Offer will expire at 5:00 p.m., New
Withdrawal.................. York City time, on , 1998, or such later
date and time to which it is extended. The tender
of Old Notes pursuant to the Exchange Offer may
be withdrawn at any time prior to the Expiration
Date. Any Old Notes not accepted for exchange for
any reason will be returned without expense to
the tendering Holder thereof as promptly as
practicable after the expiration or termination
of the Exchange Offer.
Federal Income Tax The exchange pursuant to the Exchange Offer will
Consequences................ not result in any income, gain or loss to the
Holders for federal income tax purposes. See
"United States Federal Income Tax Consequences of
the Exchange Offer."
Use of Proceeds............. There will be no proceeds to the Company from the
issuance of the New Notes pursuant to the
Exchange Offer.
Exchange Agent.............. Bank of Montreal Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer.
8
<PAGE>
CONSEQUENCE OF EXCHANGING OLD NOTES
PURSUANT TO THE EXCHANGE OFFER
Based upon interpretations contained in letters issued to third parties by
the staff of the SEC as set forth in the Exchange Offer No-Action Letters, the
Company believes that, generally, any Holder of Old Notes (other than a broker-
dealer, as set forth below, and any Holder who is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) who exchanges Old
Notes for New Notes pursuant to the Exchange Offer may offer such New Notes for
resale, resell such New Notes, or otherwise transfer such New Notes without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided such New Notes are acquired in the ordinary course of
the Holder's business and such Holder has no arrangement or understanding with
any person to participate in a distribution of such New Notes. Eligible Holders
wishing to accept the Exchange Offer must represent to the Company in the
Letter of Transmittal that such conditions have been met and must represent, if
such Holder is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for Old Notes, that neither such
Holder nor the person receiving such New Notes, if other than the Holder, is
engaged in or intends to participate in the distribution of such New Notes.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes must represent that the Old Notes tendered in exchange therefor were
acquired as a result of market-making activities or other trading activities
and must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. See "Plan of Distribution." To comply with the
securities laws of certain jurisdictions, it may be necessary to qualify for
sale or register the New Notes prior to offering or selling such New Notes. The
Company does not currently intend to take any action to register or qualify the
New Notes for resale in any such jurisdictions. If a Holder of Old Notes does
not exchange such Old Notes for New Notes pursuant to the Exchange Offer, such
Old Notes will continue to be subject to the restrictions on transfer contained
in the legend thereon. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. Any Holder who tenders in the Exchange Offer with the
intention to participate, or for the purpose of participating, in a
distribution of New Notes could not rely on the position of the staff of the
SEC enunciated in Exxon Capital Holdings Corporation (available May 13, 1988)
or similar no-action letters and, in the absence of an exemption therefrom,
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Failure to
comply with such requirements in such instance may result in such Holder
incurring liability under the Securities Act for which the Holder is not
indemnified by the Company. See "The Exchange Offer--Consequences of Failure to
Exchange" and "Description of Notes--Registration Rights; Liquidated Damages."
9
<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except that the offer of the New Notes will have been registered
under the Securities Act and, therefore, the New Notes will not be subject to
certain transfer restrictions, registration rights and related provisions
applicable to the Old Notes.
Notes Offered............... Up to $153,400,000 aggregate principal amount at
maturity of 13 1/2% Series B Senior Secured
Discount Notes due 2007.
Maturity Date............... August 1, 2007.
Yield and Interest.......... 13 1/2% (computed on a semi-annual bond
equivalent basis) calculated from August 7, 1997.
The New Notes will accrete at a rate of 13 1/2%,
compounded semi-annually, to an aggregate
principal amount of $153.4 million by August 1,
2002. Cash interest will not commence to accrue
on the New Notes prior to August 2, 2002.
Commencing February 1, 2003, cash interest on the
New Notes will be payable, at a rate of 13 1/2%
per annum, semi-annually in arrears on each
February 1 and August 1.
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 1, 2002, at the redemption prices
set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption. See
"Description of Notes--Redemption."
Provisional Redemption...... On or after August 1, 1998, the Company will have
the right to redeem all or any part of the Notes
in cash at 120.000% of the Accreted Value (as
defined herein) 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 Common Stock equals or exceeds the
prices set forth below, for the ten consecutive
trading days prior to the redemption date in each
period:
<TABLE>
<CAPTION>
STOCK
YEAR PRICE
---- ------
<S> <C>
1998.................................................. $15.00
1999.................................................. $20.00
2000.................................................. $25.00
2001.................................................. $30.00
</TABLE>
Guarantee and Security...... The Notes are unconditionally guaranteed (the
"Guarantee") by the Guarantor, the Company's
direct parent and the direct wholly owned
subsidiary of PCC. The Guarantee is secured by a
lien on and security interest in all of the
issued and outstanding capital stock of Holdings.
The Guarantor is required to own 100% of the
common stock of Holdings. The Guarantee is a
senior obligation of the Guarantor. See
"Description of the Guarantee."
10
<PAGE>
Negative Pledge............. Holdings is not permitted to pledge the stock of
PCW except pursuant to the Credit Agreement (as
defined). Holdings is required to own 100% of the
common stock of PCW.
Ranking.....................
The Notes are senior obligations of Holdings and
rank pari passu in right of payment with all
existing and future senior Indebtedness of
Holdings and will rank senior in right of payment
to all future subordinated Indebtedness of
Holdings. The Notes are effectively subordinated
to all liabilities of Holdings's subsidiaries. As
of September 30, 1997, on a pro forma basis after
giving effect to the Offering, the application of
the estimated net proceeds therefrom, and the
Acquisition and related financings, Holdings
would have had outstanding $77.3 million of
Indebtedness and Holdings's subsidiaries would
have had outstanding $620.0 million of
Indebtedness, including Indebtedness under the
Senior Subordinated Notes and the New Credit
Facility, and $312.8 million of other liabilities
including $230.4 million of deferred income tax
liabilities recorded in connection with the
purchase accounting treatment of the Acquisition
and including trade payables.
Change of Control........... Upon the occurrence of a Change of Control (as
defined), 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 Accreted Value thereof, plus accrued
and unpaid interest thereon, if any, to the
repurchase date. A redemption upon a Change of
Control would be an Event of Default under the
terms of the New Credit Facility. The Company may
not have sufficient funds or financing available
to satisfy its obligations to repurchase the
Notes or meet other debt obligations that may
come due upon a Change of Control.
Certain Covenants...........
The Indenture imposes certain limitations on the
ability of the Company and its subsidiaries to,
among other things, incur Indebtedness (as
defined), make Restricted Payments (as defined),
effect certain Asset Sales (as defined), enter
into certain transactions with Related Persons
(as defined), merge or consolidate with any other
person or transfer all or substantially all of
their properties and assets. The Indenture also
imposes certain restrictions on the Guarantor.
See "Description of Notes--Certain Covenants."
11
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL AND OPERATING DATA
The following table sets forth summary historical data for Palmer and the
unaudited pro forma financial data for the Guarantor 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 Guarantor'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 Guarantor's financial position or results of operations at any
future date or for any future period. The following data should be read in
conjunction with "Selected Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Unaudited Pro Forma Condensed Consolidated Financial Statements" and the
consolidated financial statements and notes thereto of Palmer included
elsewhere herein. The audited statements of operations, statements of
stockholders' equity and statements of cash flows of the Guarantor are not
included in the Registration Statement. While immediately prior to the
consummation of the offering of the Old Notes the Guarantor was an empty shell
corporation which had no assets, other than the stock of Holdings, liabilities
or operations, in prior years the Guarantor did have some operations. However,
the documentation necessary to audit its operations for such prior periods is
not readily available and the historical results of such operations are not
relevant to the Holders of the Notes and would not reflect the current or
future operations of the Guarantor. As a result, the audited financial
statements for such periods are not included herein or available.
The following table also sets forth certain summary operating data for Palmer
as of the dates and for the periods indicated.
<TABLE>
<CAPTION>
GUARANTOR
--------------------------
PALMER PRO FORMA
---------------------------------------------- --------------------------
NINE
YEAR MONTHS
YEAR ENDED NINE MONTHS ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------ ------------ -------------
1994(1) 1995(2) 1996(3) 1996 1997 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF
OPERATIONS DATA:
Revenue:
Service................ $61,021 $96,686 $151,119 $111,803 $134,123 $127,334 $112,061
Equipment sales and
installation.......... 7,958 8,220 8,624 6,349 7,613 7,026 6,260
------- ------- -------- -------- -------- -------- --------
Total revenue........ 68,979 104,906 159,743 118,152 141,736 134,360 118,321
------- ------- -------- -------- -------- -------- --------
Engineering, technical
and other
direct expenses........ 12,776 18,184 28,717 22,100 23,301 22,999 18,658
Cost of equipment....... 11,546 14,146 17,944 12,271 16,111 15,179 13,250
Selling, general and
administrative
expenses............... 19,757 30,990 46,892 33,842 41,014 42,665 36,489
Depreciation and
amortization........... 9,817 15,004 25,013 18,167 23,313 35,413 30,442
------- ------- -------- -------- -------- -------- --------
Operating income........ 15,083 26,582 41,177 31,772 37,997 18,104 19,482
Other income (expense):
Interest, net.......... (12,715) (21,213) (31,462) (23,654) (24,468) (72,055) (53,768)
Other, net............. (70) (687) (429) (242) 208 (366) 208
------- ------- -------- -------- -------- -------- --------
Total other expense.. (12,785) (21,900) (31,891) (23,896) (24,260) (72,421) (53,560)
Minority interest share
of income.............. (636) (1,078) (1,880) (1,562) (1,310) (1,880) (1,310)
Income taxes (expense)
benefit................ 0 (2,650) (2,724) (1,578) -- 1,764 3,366
------- ------- -------- -------- -------- -------- --------
Net income (loss)....... $ 1,662 $ 954 $ 4,682 $ 4,736 $ 12,427 ($54,433) $(32,022)
======= ======= ======== ======== ======== ======== ========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
--------------------------
NINE
YEAR MONTHS
YEAR ENDED NINE MONTHS ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
----------------------------------- --------------------- ------------ -------------
1994(1) 1995(2) 1996(3) 1996 1997 1996 1997
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Capital expenditures.... $ 22,541 $ 36,564 $ 41,445 $ 30,174 $ 40,757 N/A N/A
Operating income before
depreciation and
amortization
("EBITDA")(4).......... $ 24,900 $ 41,586 $ 66,190 $ 49,939 $ 61,310 N/A N/A
EBITDA margin on service
revenue................ 40.8% 43.0% 43.8% 44.7% 45.7% N/A N/A
Net cash provided by
(used in):
Operating activities... $ 7,238 $ 27,660 $ 30,130 $ 21,920 $ 38,791 N/A N/A
Investing activities... $(116,580) $(196,776) $(110,610) $(102,806) $(73,759) N/A N/A
Financing activities... $ 110,940 $ 169,554 $ 78,742 $ 80,230 $ 36,851 N/A N/A
Penetration(5).......... 4.58% 6.41% 7.45% 6.92% 8.60% 7.73% 8.88%
Subscribers at end of
period(6).............. 117,224 211,985 279,816 261,625 337,345 243,204 295,162
Cost to add a net
subscriber(7).......... $ 247 $ 276 $ 407 $ 387 $ 513 $ 436 $ 503
Average monthly service
revenue per
subscriber(8).......... $ 60.02 $ 56.68 $ 52.20 $ 53.26 $ 47.52 $ 50.23 $ 45.44
Average monthly
churn(9)............... 1.55% 1.55% 1.84% 1.73% 1.89% 1.89% 1.88%
Ratio of earnings to
fixed charges(10)...... 1.17(x) 1.21(x) 1.28(x) 1.32(x) 1.54(x)
CONSOLIDATED BALANCE
SHEET DATA:
Cash.................... $ 1,698 $ 3,581 $ 67,239
Working capital......... 296 7,011 63,400
Property, plant and
equipment, net......... 132,438 161,351 145,441
Licenses and other
intangibles, net....... 387,067 406,878 817,892
Total assets............ 549,942 599,815 1,054,715
Total debt.............. 343,662 378,000 697,327
Stockholders' equity.... 164,930 178,356 44,544
</TABLE>
- --------
(1) Includes the Georgia Acquisition (as defined herein), which occurred on
October 31, 1994. For the two months ended December 31, 1994, the Georgia
Acquisition resulted in revenues to Palmer of $1,803 and operating loss of
$645.
(2) Includes the GTE Acquisition (as defined herein), which occurred on
December 1, 1995. For the one month ended December 31, 1995, the GTE
Acquisition resulted in additional revenues to Palmer of $2,126 and
additional operating income of $208.
(3) Includes the acquisition of the cellular telephone systems of USCOC (as
defined herein) (Georgia-1 RSA), which occurred on June 20, 1996, and
Horizon (as defined herein) (Georgia-6 RSA), which occurred on July 5,
1996. The acquisition of USCOC and Horizon resulted in revenues to Palmer
of $1,239 and $2,682, respectively, and operating income (loss) of $(278)
and $743, respectively, during such year.
(4) EBITDA should not be considered in isolation or as an alternative to net
income (loss), operating income (loss) or any other measure of performance
under generally accepted accounting principles ("GAAP"). The Company
believes that EBITDA is viewed as a relevant supplemental measure of
performance in the cellular telephone industry.
(5) Determined by dividing the aggregate number of subscribers by the
estimated population.
(6) Each billable telephone number in service represents one subscriber.
(7) Determined for a period by dividing (i) all costs of sales and marketing,
including salaries, commissions and employee benefits and all expenses
incurred by sales and marketing personnel, agent commissions, credit
reference expenses, losses on cellular telephone sales, rental expenses
allocated to retail operations, net installation expenses and other
miscellaneous sales and marketing charges, by (ii) the net subscribers
added during such period.
(8) Determined for a period by dividing (i) the sum of the access, airtime,
roaming, long distance, features, connection, disconnection and other
revenues for such period by (ii) the average number of subscribers for
such period, divided by the number of months in such period.
(9) Determined for a period by dividing total subscribers discontinuing
service by the average number of subscribers for such period and dividing
that result by the number of months in such period.
(10) The ratio of earnings to fixed charges is determined by dividing the sum
of earnings before 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
nine months ended September 30, 1997 and the year ended December 31, 1996,
on a pro forma basis, the deficit of earnings to fixed charges was $35,192
and $55,935, respectively.
13
<PAGE>
RISK FACTORS
In addition to the other matters described in this Prospectus, Holders of
the Old Notes should carefully consider the following risk factors before
accepting the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The
Company does not intend to register the Old Notes under the Securities Act.
The Company believes that, based upon interpretations contained in letters
issued to third parties by the staff of the SEC as set forth in the Exchange
Offer No-Action Letters, New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by each Holder thereof (other than a broker-dealer, as set forth
below, and any such Holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such Holder's
business and such Holder has no arrangement or understanding with any person
to participate in the distribution of such New Notes. Eligible Holders wishing
to accept the Exchange Offer must represent to the Company in the Letter of
Transmittal that such conditions have been met and must represent, if such
Holder is not a broker-dealer, or is a broker-dealer but will not receive New
Notes for its own account in exchange for Old Notes, that neither such Holder
nor the person receiving such New Notes, if other than the Holder, is engaged
in or intends to participate in the distribution of such New Notes. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must represent that the Old Notes tendered in exchange therefor
were acquired as a result of market-making activities or other trading
activities and must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with the resales of
New Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 90 days
after the Expiration Date (as defined herein), they will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." However, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdiction or an
exemption from registration or qualification is available and is complied
with. The Company does not currently intend to take any action to register or
qualify the New Notes for resale in any such jurisdictions. In addition, the
tender of Old Notes pursuant to the Exchange Offer will reduce the principal
amount of the Old Notes outstanding, which may have an adverse effect upon,
and increase the volatility of, the market price of the Old Notes due to a
reduction in liquidity.
EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and avoid the restrictions on Old
Notes, each Holder of Old Notes must transmit a properly completed Letter of
Transmittal, including all other documents required by such Letter of
Transmittal, to Bank of Montreal Trust Company (the "Exchange Agent") at the
address set forth below under "Exchange Agent" on or prior to the Expiration
Date. In addition, (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Old Notes, if such procedure is available, into the Exchange Agent's account
at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant
to the procedure for book-entry transfer described below, must be received by
the Exchange Agent prior to the Expiration Date or (iii) the Holder must
comply with the guaranteed delivery procedures described below. See "The
Exchange Offer."
14
<PAGE>
LEVERAGE, LIQUIDITY AND ABILITY TO MEET REQUIRED DEBT SERVICE
On a pro forma basis, after giving effect to the Offering, the application
of the estimated net proceeds therefrom and the Acquisition and related
financings, Holdings's consolidated ratio of long-term debt to stockholders'
equity would have been 13.17 to 1.00 at September 30, 1997 and its ratio of
EBITDA to interest expense would have been 0.74 to 1.00 for the year ended
December 31, 1996 and 0.93 to 1.00 for the nine months ended September 30,
1997. The Company's high degree of leverage could limit significantly its
ability to make acquisitions, withstand competitive pressures or adverse
economic conditions, obtain necessary financing or take advantage of business
opportunities that may arise.
Following the Acquisition, the Company's only committed source of liquidity
is the New Credit Facility, under which $80 million of revolving loans remains
available. The Company expects to have sufficient availability under the New
Credit Facility to meet its liquidity needs for the next 18 months. The
Company intends to use the availability under the New Credit Facility for
general corporate purposes and, if the Company's tax planning strategy is
unsuccessful, to finance the $50.9 million tax payment due with respect to the
Fort Myers Sale and Georgia Sale. See "Unaudited Pro Forma Condensed
Consolidated Financial Statements." Borrowings under the New Credit Facility
are subject to significant conditions, including compliance with certain
financial ratios and the absence of any material adverse change. The Company's
ability to meet its working capital and operational needs and to provide funds
for debt service, capital expenditures and other cash requirements is
dependent upon the availability of financing under the New Credit Facility. In
addition, the Company intends to pursue opportunities to acquire additional
cellular telephone systems which, if successful, will require the Company to
obtain additional equity or debt financing to fund such acquisitions. There
can be no assurances as to the availability or terms of any such financing or
that the terms of the Notes or the New Credit Facility will not restrict or
prohibit any such debt financing. See "Description of New Credit Facility" and
"Description of Notes."
The Company's ability to borrow is also limited by the terms of PCC's
outstanding PIK Preferred Stock, which limits the ability of PCC and its
subsidiaries, including the Company and its subsidiaries, to incur additional
indebtedness and to make certain restricted payments, including investments. A
portion of the proceeds of the Offering was used to redeem the PIK Preferred
Stock.
The Company's ability to meet its debt service requirements, including those
represented by the Notes, will require significant and sustained growth in the
Company's cash flow. In addition, the Company expects to fund its growth
strategy from cash from operations and borrowings under the New Credit
Facility. There can be no assurance that the Company will be successful in
improving its cash flow by a sufficient magnitude or in a timely manner or in
raising additional equity or debt financing to enable the Company to meet its
debt service requirements or to sustain its growth strategy. In addition, if
the Company is unable to avoid the $50.9 million tax payment due with respect
to the Fort Myers Sale and Georgia Sale, the Company may be required to obtain
additional equity or debt financing. There can be no assurances that the
Company would be successful in procuring any such financing.
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. Holdings does not have, and may not in the future have, any
assets other than the common stock of PCW. PCW entered into the New Credit
Facility and is a party to an indenture related to the Senior Subordinated
Notes (the "Senior Subordinated Note Indenture"), each of which imposes
substantial restrictions on PCW's ability to pay dividends to Holdings. Any
payment of dividends will be subject to the satisfaction of certain financial
conditions set forth in the Senior Subordinated Note Indenture and the New
Credit Facility. The ability of PCW to comply with such conditions in the
Senior Subordinated Note Indenture 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 Senior Subordinated Note Indenture and/or the New Credit
15
<PAGE>
Facility, and in the event of any such default, the holders of the Senior
Subordinated Notes or the lenders under the New Credit Facility could elect to
accelerate the maturity of all the Senior Subordinated Notes or the loans
under such facility. If the maturity of the Senior Subordinated Notes or the
loans under the New Credit Facility 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, including a merger of PCC and PriCellular Corporation, it is
possible that holders of Senior Subordinated Notes and loans under the New
Credit Facility would have the right to require PCW to repurchase the Senior
Subordinated Notes and to repay the loans under the New Credit Facility while
Holders of the Notes would not have a similar right to require the Company to
repurchase the Notes. See "Description of Notes--Change of Control." 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 Indenture.
Future borrowings by PCW can be expected to contain restrictions or
prohibitions on the payment of dividends by such subsidiaries to 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 the holding company structure of the Company, the Holders of
the Notes are structurally junior to all creditors of Holdings's 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's subsidiaries, Holdings will not receive any funds available to pay
to creditors of the subsidiaries. As of September 30, 1997, on a pro forma
basis after giving effect to the Offering, the application of the estimated
net proceeds therefrom and the Acquisition and related financings, Holdings's
subsidiaries would have had outstanding $620.0 million of Indebtedness,
including Indebtedness under the Senior Subordinated Notes and the New Credit
Agreement and $312.8 million of other liabilities, including $230.4 million of
deferred income tax liabilities recorded in connection with the purchase
accounting treatment of the Acquisition and trade payables.
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. See "Description of
Notes--Change of Control." 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 Credit Agreement and the Senior Subordinated Notes Indenture
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 Credit Agreement and the Senior Subordinated
Notes Indenture as a result of an Asset Sale. In certain circumstances,
including a merger of PCC and PriCellular Corporation, it is possible that
holders of Senior Subordinated Notes and loans under the New Credit Facility
would have the right to require PCW to repurchase the Senior Subordinated
Notes and to repay the loans under the New Credit Facility while Holders of
the Notes would not have a similar right to require the Company to repurchase
the Notes. See "Description of Notes--Change of Control."
16
<PAGE>
GUARANTEE AND SECURITY FOR THE NOTES
As of the closing of the Offering (the "Issue Date"), the Company's capital
stock is the only significant asset of the Guarantor and dividends on the
Company's capital stock will be the sole source of funds available to the
Guarantor to meet its obligations under the Guarantee. See "Description of the
Guarantee." The payment of dividends on the Company's capital stock, however,
is significantly restricted by certain covenants contained in the Indenture
and the New Credit Facility and may be restricted by other agreements entered
into by the Company in the future and by applicable law. See "Description of
Notes--Certain Covenants--Limitation on Restricted Payments," "Description of
New Credit Facility." The Guarantee is secured by a lien on and security
interest in all of the issued and outstanding capital stock of the Company.
See "Description of the Guarantee--Security." As of September 30, 1997, on a
pro forma basis after giving effect to the Offering, the application of the
estimated net proceeds therefrom and the Acquisition and related financings,
the Company would have had stockholders' equity of $44.5 million. In addition,
there is no existing public market for the Company's capital stock, and even
if such capital stock could be sold, there can be no assurance that the
proceeds from the sale of such capital stock would be sufficient to satisfy
the amounts due on the Notes in the event of a default. Furthermore, the
ability of the Holders of the Notes to realize upon the collateral may be
subject to certain bankruptcy law limitations in the event of a bankruptcy.
See "--Certain Other Bankruptcy Considerations." Absent an acceleration of the
Notes, the Guarantor will be able to vote, as it sees fit in its sole
discretion, the stock of the Company. Further, any transfer of the power to
vote the capital stock of the Company, including as a result of foreclosure on
pledged capital stock, will require FCC approval. In the event of a bankruptcy
or liquidation of the Company, the security interest in the Company's capital
stock may be of no value to Holders of Notes because holders of the Company's
capital stock would be entitled only to the assets which remained after all
indebtedness of the Company (including the Notes) had been paid in full.
LIMITATIONS ON HOLDERS' CLAIMS
Under the Indenture, in the event of an acceleration of the maturity of the
Notes upon the occurrence of an Event of Default, the Holders of the Notes may
be entitled to recover only the amount which may be declared due and payable
pursuant to the Indenture, which will be less than the principal amount at
maturity of such Notes. See "Description of Notes--Events of Default and
Remedies."
If a bankruptcy case is commenced by or against Holdings under the
Bankruptcy Code, the claim of a Holder of Notes with respect to the principal
amount thereof may be limited to an amount equal to the sum of (i) the issue
price of the Notes as set forth in the cover page hereof and (ii) that portion
of the original issue discount (as determined on the basis of such issue
price) which is not deemed to constitute "unmatured interest" for purposes of
the Bankruptcy Code (as defined herein). Accordingly, Holders of the Notes
under such circumstances may, even if sufficient funds are available, receive
a lesser amount than they would be entitled to under the express terms of the
Indenture. In addition, there can be no assurance that a bankruptcy court
would compute the accrual of interest under the same rules as those used for
the calculation of original issue discount under federal income tax law and
accordingly, a Holder might be required to recognize gain or loss in the event
of a distribution related to such a bankruptcy case.
NET LOSSES
On a pro forma basis after giving effect to the Offering and the financing
of the Acquisition, the Company would have incurred net losses of
approximately $54.4 million and $32.0 million, respectively, for the year
ended December 31, 1996 and the nine months ended September 30, 1997. There
can be no assurance that the Company's future operations will generate
sufficient earnings to pay its obligations. The Company expects to incur net
losses for several years. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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 the other
17
<PAGE>
licensee authorized to serve each cellular market in which the Company
operates, as well as from resellers of cellular service. Competition for
subscribers between cellular licensees is based principally upon the services
and enhancements offered, the technical quality of the cellular telephone
system, customer service, system coverage and capacity and price. The Company
competes with a wireline licensee in each of its cellular markets, some of
which are larger and have access to more substantial capital resources than
the Company.
The Company also faces competition from other existing communications
technologies such as conventional mobile telephone service, specialized mobile
radio ("SMR") and enhanced specialized mobile radio ("ESMR") systems and
paging services. ESMR is a 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. It
is expected that broadband PCS will involve a network of small, low-powered
transceivers placed throughout a neighborhood, business complex, community or
metropolitan area to provide customers with mobile and portable voice and data
communications. PCS may be capable of offering, and PCS operators claim they
will offer, additional services not offered by cellular providers. PCS
subscribers could have dedicated personal telephone numbers and would
communicate using small digital radio handsets that could be carried in a
pocket or purse. There can be no assurances that the Company will be able to
provide nor that it will choose to pursue, depending on the economics thereof,
such services and features. The Company currently believes that traditional
tested cellular is economically proven unlike many of these other technologies
and therefore does not intend to pursue such other technologies.
Although the Company believes that the technology, financing and engineering
of these other technologies is not as advanced as their publicity would
suggest, there can be no assurance that one or more of the technologies
currently utilized by the Company in its business will not become obsolete at
some time in the future. See "Business 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 in the regulation of cellular
activities could have a material adverse effect on the Company's operations.
In addition, all cellular licenses in the United States are granted for an
initial term of up to 10 years and are subject to renewal. The Company's
cellular licenses expire in the following years with respect to the following
number of service areas: 1997 (four); 1998 (three); 2000 (two); 2001 (four);
2002 (two) and 2006 (one). On September 22, 1997, the Company filed License
Renewal Applications with the FCC for the Savannah, Georgia MSA; the Albany,
Georgia MSA; the Montgomery, Alabama MSA; and the Panama City, Florida MSA.
Although these four licenses have since expired, the Company is permitted to
continue to operate in these areas during the pendency of its renewal
applications. While the Company believes that each of these licenses will be
renewed based upon FCC rules establishing a renewal expectancy in favor of
licensees that have complied with their regulatory 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. A non-renewal of all licenses that are currently pending would
have a material adverse effect on the Company's results of operations. See
"Business 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
18
<PAGE>
interests in its cellular licenses will depend significantly upon the success
of the Company's business. While there is a current market for the Company's
licenses, such market may not exist in the future or the values obtainable may
be significantly lower than at present. As a consequence, in the event of the
liquidation or sale of the Company's assets, there can be no assurance that
the proceeds would be sufficient to pay the Company's obligations, and a
significant reduction in the value of the licenses could require a charge to
the Company's results of operations.
RELIANCE ON USE OF THIRD-PARTY SERVICE MARK
The Company currently uses the registered service mark CELLULAR ONE to
market its services. The Company's use of this service mark is governed by
five-year contracts between the Company and Cellular One Group, the owner of
the service mark. See "Description of Cellular One Agreements." If these
agreements are not renewed upon expiration and the Company therefore is no
longer permitted to use the CELLULAR ONE service mark, the Company's ability
both to attract new subscribers and to retain existing subscribers could be
materially affected. In addition, if for some reason beyond the Company's
control, the name CELLULAR ONE were to suffer diminished marketing appeal, the
Company's ability both to attract new subscribers and retain existing
subscribers could be materially affected. AT&T Wireless Services, Inc., which
has been the single largest user of the CELLULAR ONE service mark, has
significantly reduced its use of the service mark as a primary service mark.
There can be no assurance that such reduction in use by AT&T Wireless will not
have an adverse effect on the marketing appeal of the brand name.
DEPENDENCE ON KEY PERSONNEL
The Company's affairs are managed by a small number of key management and
operating personnel, the loss of whom could have an adverse impact on the
Company. Robert Price, the Director of the Company and of PCW, and a Director,
the President, Chief Executive Officer and Treasurer of PCC, also serves as a
Director and Chairman of PriCellular Corporation ("PriCellular"), another
operator of cellular telephone systems. The Company believes that Mr. Price's
positions with the Company and PriCellular complement one another and benefit
both companies because the systems they operate are similar but do not
directly compete with one another. Mr. Price's employment agreement with
PriCellular provides that he may not be an employee of or have an ownership
interest in any company engaged in the operation of cellular telephone systems
in the United States other than PriCellular and that any such other company
may not acquire any additional cellular telephone system within the United
States, in each case, without the unanimous consent of the executive committee
of the Board of Directors of PriCellular. The executive committee of the Board
of Directors of PriCellular has approved the acquisition of Palmer by PCC.
Although the Company and PriCellular historically have not imposed
inconsistent demands on Mr. Price's availability, there can be no assurances
that such conflicts will not arise in the future.
The Company entered into employment contracts with William J. Ryan and M.
Wayne Wisehart to remain as officers of the Company and also entered into
employment contracts with other key employees prior to the consummation of the
Acquisition. The success of the Company's operations and expansion strategy
depends on its ability to retain and to expand its staff of qualified
personnel in the future.
RADIO FREQUENCY EMISSION CONCERNS
Media reports have suggested that certain radio frequency ("RF") emissions
from portable cellular telephones may be linked to certain types of cancer. In
addition, recently a limited number of lawsuits have been brought, not
involving the Company, alleging a connection between cellular telephone use
and certain types of cancer. Concerns over RF emissions and interference may
have the effect of discouraging the use of cellular telephones, which could
have an adverse effect upon the Company's business. As required by the Telecom
Act, in August 1996, the FCC adopted new guidelines and methods for evaluating
RF emissions from radio equipment, including cellular telephones. While the
new guidelines impose more restrictive standards on RF emissions from low
power devices such as portable cellular telephones, the Company believes that
all cellular telephones currently marketed and in use comply with the new
standards.
19
<PAGE>
The Company carries $4.0 million in General Liability insurance and $25
million in umbrella liability coverage. This insurance would cover any
liability suits with respect to human exposure to radio frequency emissions.
The Company believes that this coverage is adequate to cover potential
liabilities.
FRAUDULENT CONVEYANCE STATUTES
Various laws enacted for the protection of creditors may apply to the
Company's incurrence of indebtedness and other obligations in connection with
the Acquisition, including the issuance of the Notes and the provision of the
Guarantee by the Guarantor. If a court were to find in a lawsuit by an unpaid
creditor or representative of creditors of the Company or the Guarantor that
the Company or the Guarantor did not receive fair consideration or reasonably
equivalent value for incurring such indebtedness or obligation or providing
the Guarantee and, at the time of such incurrence, the Company or the
Guarantor (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 or the Guarantor 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 or the Guarantor.
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 or the Guarantor would be considered insolvent at a particular time if
the sum of its debts was then greater than all of its property at a fair
valuation or if the present fair saleable value of its assets was then less
than the amount that would be required to pay its probable liabilities on its
existing debts as they became absolute and matured. On the basis of its
historical financial information, its recent operating history as discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other factors, the Company's management believes that, after
giving effect to indebtedness incurred in connection with the Acquisition and
the other related financings, the Company will not be rendered insolvent, it
will have sufficient capital for the businesses in which it will be engaged
and it will be able to pay its debts as they mature; however, management has
not obtained any independent opinion regarding such issues. There can be no
assurance as to what standard a court would apply in making such
determinations.
In addition, the Guarantee may be subject to review under relevant federal
and state fraudulent conveyance and similar statutes in a bankruptcy or
reorganization case or a lawsuit by or on behalf of creditors of the
Guarantor. In such a case, the analysis set forth above would generally apply,
except that the Guarantee could also be subject to the claim that, since the
Guarantee was incurred for the benefit of the Company (and only indirectly for
the benefit of the Guarantor), the obligations of the Guarantor thereunder
were incurred for less than reasonably equivalent value or fair consideration.
A court could avoid the Guarantor's obligation under the Guarantee,
subordinate the Guarantee to other indebtedness of the Guarantor or take other
action detrimental to the Holders of the Notes.
To the extent the Guarantee was avoided as a fraudulent conveyance, limited
as described above, or held unenforceable for any other reason, Holders of the
Notes would, to such extent, cease to have a claim in respect of the Guarantee
and, to such extent, would be creditors solely of the Company. In such event,
the claims of the Holders of the Notes against the Guarantor would be subject
to the prior payment of all liabilities of the Guarantor. There can be no
assurance that, after providing for all prior claims, there would be
sufficient assets to satisfy the claims of the Holders of Notes.
CERTAIN OTHER BANKRUPTCY CONSIDERATIONS
The right of the Trustee to repossess and dispose of the Collateral upon the
occurrence of an Event of Default (as defined) is likely to be significantly
impaired by applicable bankruptcy law if a bankruptcy proceeding were to be
commenced by or against the Guarantor prior to the Trustee's having disposed
of the Collateral. Under Title 11 of the United States Code (the "Bankruptcy
Code"), a secured creditor such as the
20
<PAGE>
Trustee is prohibited from disposing of a security repossessed from a debtor
in a bankruptcy case without bankruptcy court approval. Moreover, the
Bankruptcy Code prohibits a secured creditor from disposing of collateral even
though the debtor is in default under the applicable debt instruments if the
secured creditor is given "adequate protection." The meaning of the term
"adequate protection" may vary according to circumstances, but it is intended
in general to protect the value of the secured creditor's interest in the
collateral and may include cash payments or the granting of additional
security, if and at such times as the court in its discretion determines, for
any diminution in the value of the collateral as a result of the stay of
disposition during the pendency of the bankruptcy case. In view of the lack of
a precise definition of the term "adequate protection" and the broad
discretionary powers of a bankruptcy court, it is impossible to predict how
long payments under the Notes could be delayed following commencement of a
bankruptcy case, whether or when the Trustee could dispose of the Collateral,
or whether or to what extent Holders of the Notes would be compensated for any
delay in payment or loss of value of the Collateral through the requirement of
"adequate protection."
EQUIPMENT FAILURE; NATURAL DISASTER
Although the Company carries "business interruption" insurance, a major
equipment failure or a natural disaster affecting any one of the Company's
central switching offices or certain of its cell sites could have a
significant adverse effect on the Company's operations.
LACK OF PUBLIC MARKET
The New Notes are being offered to the Holders of the Old Notes. The Old
Notes were issued on August 11, 1997 to a limited number of investors. The New
Notes are new securities for which there currently is no market. The Company
does not intend to apply for listing of the Notes on any securities exchange
or for quotation through the National Association of Securities Dealers
Automated Quotation System. There can be no assurance that an active trading
market for the New Notes will develop. If a trading market develops for the
New Notes, future trading prices of such securities will depend on many
factors, including prevailing interest rates, the Company's results of
operations and financial condition and the market for similar securities.
21
<PAGE>
THE ACQUISITION
Prior to the Merger, Holdings had no assets, liabilities or operations and
the Guarantor had no assets (other than the capital stock of Holdings),
liabilities or operations. Holdings is a wholly owned indirect subsidiary of
PCC, which was incorporated in 1979, and a wholly owned direct subsidiary of
the Guarantor.
On May 23, 1997, PCC, PCW and Palmer entered into an Agreement and Plan of
Merger. 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, the Company assumed
the Palmer Existing Indebtedness of approximately $378.0 million. As a result,
the aggregate purchase price for Palmer (not including transaction fees and
expenses) was $864.4 million. The Company refinanced all of the Palmer
Existing Indebtedness concurrently with the consummation of the Merger. PCW
entered into the Fort Myers Sale Agreement to sell Palmer's Fort Myers,
Florida MSA covering approximately 382,000 Pops for $168.0 million. On October
6, 1997, the Fort Myers Sale was consummated and generated approximately
$166.0 million of proceeds to the Company. The proceeds of the Fort Myers Sale
were used to fund a portion of the acquisition of Palmer. On October 21, 1997,
PCC and PCW entered into the Georgia Sale Agreement to sell Palmer's Georgia-1
RSA for $25 million. The Georgia Sale was consummated on December 30, 1997.
The proceeds from the Georgia Sale will be used to retire a portion of the
debt used to fund the acquisition of Palmer.
In order to fund the Acquisition and pay related fees and expenses, PCW
issued the Senior Subordinated Notes and entered into the New Credit Facility,
which provides for term loan borrowings in the aggregate principal amount of
approximately $325.0 million and revolving loan borrowings of $200.0 million.
On October 6, 1997, PCW borrowed all term loans available thereunder and
approximately $120.0 million of revolving loans. The remaining revolving loans
will, subject to a borrowing base and other significant conditions, including
the absence of any material adverse change, be available to fund the working
capital requirements of the Company. DLJ Capital Funding provided and
syndicated the New Credit Facility. See "Description of New Credit Facility."
The acquisition of Palmer was funded in part through the PCC Equity
Contribution which was in the form of cash and common stock of Palmer. An
additional amount of approximately $47.5 million of the purchase price for the
acquisition of Palmer was raised as a portion of the proceeds from the
Offering.
The following table sets forth the estimated sources and uses of funds for
the Acquisition, the redemption of the PIK Preferred Stock and certain
warrants to purchase PCC Common Stock and related fees and expenses:
<TABLE>
<CAPTION>
TOTAL SOURCES: (IN MILLIONS)
<S> <C>
New Credit Agreement:
Term Loan...................................................... $ 325.0
Revolving Credit Facility...................................... 120.0
11 3/4% Senior Subordinated Notes due 2007....................... 175.0
Units............................................................ 80.0
PCC Equity Contribution.......................................... 77.4
Proceeds from Fort Myers and Georgia Sales....................... 191.0
-------
Total sources................................................ $ 968.4
=======
TOTAL USES:
Cash consideration for Palmer common stock....................... $ 486.4
Palmer Existing Indebtedness (as of September 30, 1997).......... 378.0
Estimated transaction fees and expenses.......................... 37.8
Cash for redemption of PIK Preferred Stock and warrants to
purchase PCC Common Stock........................................ 29.2
Excess cash...................................................... 37.0
-------
Total uses................................................... $ 968.4
=======
</TABLE>
22
<PAGE>
The foregoing table does not reflect any provision for any taxes payable in
connection with the Fort Myers Sale or the Georgia Sale. Although the Company
has a tax planning strategy which it believes may avoid the payment of the
$50.9 million tax which would otherwise be payable in connection with the Fort
Myers Sale and the Georgia Sale, there is substantial uncertainty that the
Company's position will prevail if challenged. Because of such uncertainty,
the Company has recorded a $50.9 million deferred tax liability on its
consolidated balance sheet based on management's best estimate.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. The net proceeds from the sale of the Units, after
deducting expenses of the Offering, are approximately $76.7 million.
Approximately $47.5 million of the net proceeds of the Offering, together with
borrowings by PCW under the New Credit Agreement, the PCC Equity Contribution
and proceeds from the Fort Myers Sale were used to finance the acquisition of
Palmer and related fees and expenses. Approximately $29.2 million of the net
proceeds of the Offering were applied to the redemption of the PIK Preferred
Stock and certain warrants to purchase PCC Common Stock owned by NatWest
Capital Markets Limited.
23
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Guarantor as of September 30, 1997 on (i) an actual basis and (ii) on a
pro forma basis after giving effect to the Acquisition, the sale of the Units,
the redemption of the PIK Preferred Stock and certain warrants to purchase PCC
Common Stock, and the other transactions described herein under "Unaudited Pro
Forma Condensed Financial Statements" as if such transactions occurred as of
such date. This table should be read in conjunction with the consolidated
financial statements of Palmer, including the notes thereto, the "Unaudited
Pro Forma Condensed Consolidated Financial Statements" and notes thereto,
included elsewhere herein, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "The Acquisition."
<TABLE>
<CAPTION>
AS OF SEPTEMBER
30, 1997
-----------------
PRO
ACTUAL FORMA
-------- --------
(IN THOUSANDS)
<S> <C> <C>
New Credit Facility....................................... $ -- $445,000
11 3/4% Senior Subordinated Notes due 2007................ 175,000 175,000
13 1/2% Senior Secured Discount Notes due 2007............ 77,327 77,327(1)
-------- --------
Total long-term debt (including current portion of
long-term debt)...................................... 252,327 697,327
-------- --------
Stockholders' equity:
Common Stock, $0.01 par value per share, 100 shares
authorized, issued and outstanding actual and pro
forma.................................................. -- --
Additional paid-in capital.............................. -- 44,544
-------- --------
Total stockholders' equity............................ -- 44,544
-------- --------
Total capitalization.................................. $252,327 $741,871
======== ========
</TABLE>
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet of
the Guarantor as of September 30, 1997 gives effect to the following
transactions as if they occurred at that date and the related unaudited pro
forma condensed consolidated statements of operations for the year ended
December 31, 1996 and the nine month period ended September 30, 1997 give
effect to the following transactions as if they occurred at the beginning of
the relevant period:
(a) The Acquisition of Palmer. On October 6, 1997, Holdings acquired
Palmer pursuant to a merger agreement between PCW and 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 purchase 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 of approximately $378.0 million. As a result,
the aggregate purchase price (not including transaction fees and expenses)
was $864.4 million. See "The Acquisition". Certain of the acquired assets
related to the Fort Myers and Georgia operations were sold pursuant to the
Fort Myers and Georgia Sales. See "The Acquisition." These assets have been
assigned values based on the net proceeds from such sales.
(b) The Fort Myers Sale (the proceeds of which were used to pay Palmer
Existing Indebtedness). On October 6, the Fort Myers Sale was consummated
and generated proceeds of $166.0 million.
(c) The issuance and sale by PCW of $175.0 million aggregate principal
amount of its 11 3/4% Senior Subordinated Notes due 2007.
(d) The financing of PCW under the New Credit Facility, which provides
for term loan borrowings in the aggregate principal amount of approximately
$325.0 million and revolving loan borrowings of $200.0 million. On October
6, 1997, PCW borrowed all term loans available thereunder and approximately
$120.0 million of revolving loans. See "Description of New Credit
Facility".
(e) The issuance and sale by Holdings of 153,400 Units in the Offering.
The Unit consisted of $153,400,000 in aggregate principal amount at
maturity of the Old Notes, together with warrants to purchase 527,696
shares of PCC Common Stock, and were sold pursuant to a Purchase Agreement
between PCC, the Guarantor, Holdings and NatWest Capital Markets, Limited
and Wasserstein Perella Securities, Inc. In the unaudited pro forma
financial statements, the proceeds from the issuance of the Units have been
allocated to the Old Notes and the Warrants based on the fair value of the
individual securities as of the date of issuance. Because the Warrants are
for PCC stock, the value assigned to the Units has been recorded as an
equity contribution from PCC.
(f) The PCC Equity Contribution, a $77.4 million contribution from PCC in
the form of cash and common stock of Palmer, was contributed by PCC to fund
the acquisition of Palmer.
(g) The Georgia 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 the Georgia-1 Whitfield Rural
Service Area. The $25 million in proceeds will be used to retire a portion
of the debt used to fund the acquisition of Palmer.
The Acquisition will be recorded pursuant to the purchase method of
accounting. The Guarantor has determined that the fair value of Palmer's
assets and liabilities equal their historical costs and has therefore not
modified the historical costs in the unaudited financial information.
The unaudited pro forma condensed consolidated financial statements have
been prepared by the Guarantor's management. The unaudited pro forma data is
not designed to represent and does not represent what the Guarantor's results
of operations or financial position would have been had the above transactions
been completed on or as of the dates assumed, and are not intended to project
the Guarantor's results of operations for any future period or as of any
future date. The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the audited and unaudited
consolidated financial statements and notes of Palmer, included elsewhere in
this Prospectus.
25
<PAGE>
While the Offering was consummated on August 11, 1997, the Merger was not
consummated until October 6, 1997. Accordingly, for the two month period after
the closing of the Offering, and prior to the consummation of the Merger, the
Company incurred interest expense on the Notes, but was not entitled to any of
the cash flows or earnings of Palmer. The unaudited pro forma condensed
consolidated financial statements do not reflect this additional interest
expense or the accrued liability related thereto since the unaudited pro forma
condensed consolidated statements of operations assume that such transactions
were consummated on January 1, 1996 and the unaudited pro forma condensed
consolidated balance sheet assumes that such transactions were consummated on
September 30, 1997. In addition, the pro forma condensed consolidated
financial statements assume the repayment of the $378.0 million of Palmer
Existing Indebtedness and accrued interest on Palmer Existing Indebtedness as
of September 30, 1997. As a result of the Merger, the Company assumed all
Palmer Existing Indebtedness. The Company refinanced all of the Palmer
Existing Indebtedness concurrently with the consummation of the Merger.
Although the Company has a tax planning strategy which it believes may avoid
the payment of a $50.9 million deferred tax liability attributable to the Fort
Myers Sale and Georgia Sale, there is substantial uncertainty that the
Company's position will prevail if challenged. Because of such uncertainty,
the Company has recorded a $50.9 million deferred tax liability on its
consolidated balance sheet based on management's best estimate. See "The
Acquisition."
26
<PAGE>
PRICE COMMUNICATIONS CELLULAR INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
FOR THE ADJUSTMENTS FOR
FT. MYERS FT. MYERS THE ACQUISITION
SALE AND SALE AND PALMER AS AND THE RELATED PRO FORMA
PALMER GEORGIA SALE GEORGIA SALE ADJUSTED GUARANTOR FINANCINGS GUARANTOR
-------- ------------ ------------ --------- --------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equiva-
lents................ $ 3,581 $ 60 $191,028(a) $194,549 $274,637 $(401,947)(d) $ 67,239
Investments...........
Accounts receivable,
net.................. 22,178 3,120 19,058 19,058
Inventory............. 2,466 655 1,811 1,811
Prepaid expenses and
other current assets. 3,411 137 3,274 3,274
-------- ------- -------- -------- -------- --------- ----------
Total current as-
sets............... 31,636 3,972 191,028 218,692 274,637 (401,947) 91,382
Property, plant and
equipment, net......... 161,351 15,910 145,441 145,441
Cellular licenses, net.. 396,282 34,669 361,613 437,925(i) 799,538
Deferred costs, net..... 8,840 8,840 7,125 766(e) 16,731
Other .................. 1,706 83 1,623 1,623
-------- ------- -------- -------- -------- --------- ----------
Total assets........ $599,815 $54,634 $191,028 $736,209 $281,762 $ 36,744 $1,054,715
======== ======= ======== ======== ======== ========= ==========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses .... $ 19,802 $ 850 $ $ 18,952 $ 4,627 $ $ 23,579
Other current liabili-
ties................. 4,823 420 4,403 4,403
-------- ------- -------- -------- -------- --------- ----------
Total current
liabilities........ 24,625 1,270 23,355 4,627 27,982
Long-term debt.......... 378,000 378,000 252,327 67,000(f) 697,327
Deferred tax liability.. 11,389 50,900(b) 62,289 179,549(g) 241,838
Other long-term liabili-
ties................... 7,445 (7,160) 14,605 28,419 43,024
-------- ------- -------- -------- -------- --------- ----------
Total liabilities... 421,459 (5,890) 50,900 478,249 285,373 246,549 1,010,171
Stockholders' equity.... 178,356 60,524 140,128(c) 257,960 (3,611) (209,805)(h) 44,544
-------- ------- -------- -------- -------- --------- ----------
Total liabilities
and stockholders'
equity............. $599,815 $54,634 $191,028 $736,209 $281,762 $ 36,744 $1,054,715
======== ======= ======== ======== ======== ========= ==========
</TABLE>
27
<PAGE>
PRICE COMMUNICATIONS CELLULAR INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
For purposes of determining the pro forma effect of the transactions
described above on the condensed consolidated balance sheets of the Guarantor
as of September 30, 1997, the following adjustments have been made:
<TABLE>
<C> <S> <C>
(A) CASH AND CASH EQUIVALENTS
Cash proceeds from the Ft. Myers Sale and Georgia Sale....... $ 191,028
=========
(B) TAX PAYABLE
Tax payable resulting from gain on Ft. Myers Sale and Georgia
Sale using a 39% effective tax rate (see the discussion on
page 25 of the Company's tax planning strategy to avoid the
payment of such tax)......................................... $ 50,900
=========
(C) STOCKHOLDERS' EQUITY
Represents the proceeds on the Ft. Myers Sale and Georgia
Sale, net of related tax payable on the gain................. $ 140,128
=========
(D) CASH AND CASH EQUIVALENTS
Proceeds from New Credit Facility............................ $ 445,000
Net equity contributed from PCC.............................. 77,368
Cash used to acquire Palmer outstanding stock and options.... (486,448)
Cash used to retire Palmer Existing Indebtedness............. (378,000)
Cash used to pay estimated fees and expenses in connection
with the acquisition of Palmer............................... (21,048)
Cash used to pay fees and expenses in connection with the
debt financings.............................................. (9,606)
Cash used to return capital to PCC........................... (29,213)
---------
$(401,947)
=========
(E) DEFERRED COSTS, NET
Estimated fees and expenses in connection with the debt
financings................................................... $ 9,606
To adjust net equity of Palmer for unamortized deferred
financing costs.............................................. (8,840)
---------
$ 766
=========
(F) LONG-TERM DEBT
New Credit Facility.......................................... $ 445,000
Repayment of Palmer Existing Indebtedness.................... (378,000)
---------
$ 67,000
=========
(G) DEFERRED TAX LIABILITY
To record the deferred tax liability arising from the
acquisition of FCC license using a 41% effective tax rate.... $ 179,549
=========
</TABLE>
28
<PAGE>
PRICE COMMUNICATIONS CELLULAR INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
(H) STOCKHOLDERS' EQUITY
To reflect equity contribution from PCC..................................... $ 77,368
To eliminate the equity of adjusted Palmer in connection with the
acquisition by PCW.......................................................... (257,960)
To return capital to PCC.................................................... (29,213)
---------
$(209,805)
=========
(I) CELLULAR LICENSES, NET
PURCHASE PRICE
Acquisition of Palmer outstanding stock and options......................... $ 486,448
Fees and expenses........................................................... 21,048
Proceeds on sale of Ft. Myers and Georgia................................... (191,028)
Tax Payable from gain on sale of Ft. Myers and Georgia...................... 50,900
---------
Total purchase price........................................................ 367,368
LESS: PALMER EQUITY, AS ADJUSTED
Palmer equity as of 9/30/97................................................. (178,356)
Deferred financing costs eliminated......................................... 8,840
Net equity of Ft. Myers and Georgia......................................... 60,524
---------
Palmer equity, as adjusted.................................................. (108,992)
---------
Increase in licenses, pre tax............................................... 258,376
Deferred tax liability arising from the acquisition of FCC license using a
41% rate.................................................................... 179,549
---------
Increase in cellular licenses due to the acquisition of Palmer.............. $ 437,925
=========
</TABLE>
29
<PAGE>
PRICE COMMUNICATIONS CELLULAR INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
FOR THE ADJUSTMENTS FOR
FT. MYERS SALE FT. MYERS SALE THE ACQUISITION
AND AND PALMER AS AND THE RELATED PRO FORMA
PALMER GEORGIA SALE GEORGIA SALE ADJUSTED GUARANTOR FINANCINGS GUARANTOR
-------- --------------- -------------- --------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $159,743 $25,383 $ $134,360 $ $ $134,360
Cost and expenses:
Cost of cellular
service/operating
expenses.............. 28,717 5,718 22,999 22,999
Cost of equipment...... 17,944 2,765 15,179 15,179
Selling, general and
administrative........ 46,892 6,867 2,640(j) 42,665 42,665
Depreciation and
amortization.......... 25,013 2,114 22,899 12,514(k) 35,413
-------- ------- ------- -------- ------ -------- --------
Operating income (loss). 41,177 7,919 (2,640) 30,618 (12,514) 18,104
Other income (expense):
Interest expense, net.. (31,462) (300) (31,162) (40,893)(l) (72,055)
Other, net............. (429) (63) (366) (366)
-------- ------- ------- -------- ------ -------- --------
Total other income
(expense)........... (31,891) (363) (31,528) (40,893) (72,421)
Minority interest share
of income.............. 1,880 1,880 1,880
-------- ------- ------- -------- ------ -------- --------
Income (loss) before
income tax expense..... 7,406 7,556 (2,640) (2,790) (53,407) (56,197)
Income tax expense
(benefit).............. 2,724 2,724 (4,488)(m) (1,764)
-------- ------- ------- -------- ------ -------- --------
Net income (loss)....... $ 4,682 $ 7,556 $(2,640) $ (5,514) $ $(48,919) $(54,433)
======== ======= ======= ======== ====== ======== ========
Deficiency of earnings
to fixed charges....... $ 56,197
</TABLE>
30
<PAGE>
PRICE COMMUNICATIONS CELLULAR INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
FOR THE ADJUSTMENTS FOR
FT. MYERS SALE FT. MYERS SALE THE ACQUISITION
AND AND PALMER AS AND THE RELATED PRO FORMA
PALMER GEORGIA SALE GEORGIA SALE ADJUSTED GUARANTOR FINANCINGS GUARANTOR
-------- -------------- -------------- --------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $141,736 $23,415 $ $118,321 $ $ $118,321
Cost and expenses:
Cost of cellular
service/operating
expenses.............. 23,301 4,643 18,658 18,658
Cost of equipment...... 16,111 2,861 13,250 13,250
Selling, general and
administrative........ 41,014 6,555 2,030 (j) 36,489 36,489
Depreciation and
amortization.......... 23,313 2,257 21,056 9,386 (k) 30,442
-------- ------- ------- -------- ------- -------- --------
Operating income (loss). 37,997 7,099 (2,030) 28,868 (9,386) 19,482
Other income (expense):
Interest income
(expense), net........ (24,468) 334 (24,802) (3,611) (l) (25,355)(l) (53,768)
Other, net............. 208 208 208
-------- ------- ------- -------- ------- -------- --------
Total other income
(expense)........... (24,260) 334 (24,594) (3,611) (25,355) (53,560)
Minority interest share
of income.............. 1,310 1,310 1,310
-------- ------- ------- -------- ------- -------- --------
Income (loss) before
income tax expense..... 12,427 7,433 (2,030) 2,964 (3,611) (34,741) (35,388)
Income tax expense
(benefit).............. -- (3,366)(m) (3,366)
-------- ------- ------- -------- ------- -------- --------
Net income (loss)....... $ 12,427 $ 7,433 $(2,030) $ 2,964 $(3,611) $(31,375) $(32,022)
======== ======= ======= ======== ======= ======== ========
Deficiency of earnings
to fixed charges....... $ 35,388
</TABLE>
31
<PAGE>
PRICE COMMUNICATIONS CELLULAR INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
For purposes of determining the pro forma effect of the transactions
described above on the condensed consolidated statements of operations of the
Guarantor for the nine months ended September 30, 1997 and the year ended
December 31, 1996, the following adjustments have been made:
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
(J) SELLING, GENERAL AND ADMINISTRATIVE
Represents a portion of the operating expenses
charged to Ft. Myers Sale and Georgia Sale by
Palmer which may not be eliminated upon the Ft.
Myers Sale and Georgia Sale...................... $ 2,030 $ 2,640
======= =======
(K) DEPRECIATION AND AMORTIZATION
Represents amortization of the FCC license over 40
years............................................ $ 8,202 $10,936
Represents amortization of the acquisition of
Palmer and Offering costs
over 5 years..................................... 1,184 1,578
------- -------
$ 9,386 $12,514
======= =======
(L) INTEREST EXPENSE, NET
Interest expense on $445 million of Indebtedness
under the New Credit Facility at an assumed
interest rate of 8.5% per annum*................. $28,369 $37,825
Interest expense on $175 million of the Senior
Subordinated Notes at an interest rate of 11.75%
per annum........................................ 15,422 20,563
Interest expense on $80 million of the Notes at an
interest rate of 13.50%.......................... 8,100 11,165
Interest expense related to the accretion of Notes
due to Warrant value**........................... 349 465
Represents current amortization expense related to
deferred debt financing costs.................... 1,313 1,750
Represents current amortization expense related to
deferred Notes issuance costs.................... 215 287
Elimination of previously recorded interest (24,802) (31,162)
expense.......................................... ------- -------
28,966 40,893
Less: Net interest expense and amortization (3,611) --
incurred by Guarantor***......................... ------- -------
$25,355 $40,893
======= =======
--------
*An 1/8% change in the interest rate will
increase or decrease the interest expense per
annum on the bank debt by $531.
**Represents the accretion over 10 years of the
Notes resulting from the allocation of proceeds
of the Offering between the Notes and the
Warrants.
***Because pro forma adjustments assume issuance
at January 1, 1997 and include interest expense
and amortization from such date, historical
interest expense and amortization are subtracted
to avoid such expenses being counted twice.
(M) INCOME TAX EXPENSE (BENEFIT)
To record deferred tax benefit resulting from the
amortization of the acquired FCC license......... $(3,366) $(4,488)
======= =======
</TABLE>
32
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the periods and dates
indicated set forth below have been derived from the audited consolidated
financial statements and the unaudited condensed consolidated financial
statements of Palmer. The condensed consolidated results of operations of
Palmer for the nine months ended September 30, 1996 and 1997 are unaudited and
not necessarily indicative of Palmer's results of operations for the full
year. The unaudited condensed consolidated financial data reflects all
adjustments (consisting of normal, recurring adjustments) which are, in the
opinion of management, necessary for a fair summary of Palmer's financial
position, results of operations and cash flows for and as of the end of the
periods presented. The audited statements of operations, statements of
stockholders' equity and statements of cash flows of the Guarantor are not
included in the Registration Statement. While immediately prior to the
consummation of the offering of the Old Notes the Guarantor was an empty shell
corporation, which had no assets, other than the stock of Holdings,
liabilities or operations, in prior years the Guarantor did have some
operations. However, the documentation necessary to audit its operations for
such prior periods is not readily available and the historical results of such
operations are not relevant to the Holders of the Notes and would not reflect
the current or future operations of the Guarantor. As a result, the audited
financial statements for such periods are not included herein or available.
The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Palmer's Consolidated Financial Statements and Notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------- ------------------
1992 1993 1994(1) 1995(2) 1996(3) 1996 1997
(IN THOUSANDS, EXCEPT PERCENTAGE AND PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Service................ $ 23,017 $ 35,173 $ 61,021 $ 96,686 $151,119 $111,803 $134,123
Equipment sales and
installation........... 4,284 6,285 7,958 8,220 8,624 6,349 7,613
--------- -------- -------- -------- -------- -------- --------
Total revenue...... 27,301 41,458 68,979 104,906 159,743 118,152 141,736
--------- -------- -------- -------- -------- -------- --------
Engineering, technical
and other direct
expenses............... 5,395 7,343 12,776 18,184 28,717 22,100 23,301
Cost of equipment....... 5,071 7,379 11,546 14,146 17,944 12,271 16,111
Selling, general and
administrative expenses. 9,458 13,886 19,757 30,990 46,892 33,842 41,014
Depreciation and
amortization............ 11,687 10,689 9,817 15,004 25,013 18,167 23,313
--------- -------- -------- -------- -------- -------- --------
Operating income (loss). (4,310) 2,161 15,083 26,582 41,177 31,772 37,997
--------- -------- -------- -------- -------- -------- --------
Other income (expense):
Interest, net.......... (8,290) (9,006) (12,715) (21,213) (31,462) (23,654) (24,468)
Other, net............. (5) (590) (70) (687) (429) (242) 208
--------- -------- -------- -------- -------- -------- --------
Total other
expense............ (8,295) (9,596) (12,785) (21,900) (31,891) (23,896) (24,260)
--------- -------- -------- -------- -------- -------- --------
Minority interest share
of (income) losses...... 377 83 (636) (1,078) (1,880) (1,562) (1,310)
Income taxes............ 0 0 0 (2,650) (2,724) (1,578) 0
--------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ (12,228) $ (7,352) $ 1,662 $ 954 $ 4,682 $ 4,736 $ 12,427
========= ======== ======== ======== ======== ======== ========
OTHER DATA:
Capital expenditures.... $ 3,835 $ 13,304 $ 22,541 $ 36,564 $ 41,445 $ 30,174 $ 40,757
Operating income before
depreciation and
amortization
("EBITDA")(4).......... $ 7,377 $ 12,850 $ 24,900 $ 41,586 $ 66,190 $ 49,939 $ 61,310
EBITDA margin on service
revenue................ 32.1% 36.5% 40.8% 43.0% 43.8% 44.7% 45.7%
Net cash provided by
(used in):
Operating activities... $ 504 $ 9,108 $ 7,238 $ 27,660 $ 30,130 21,920 38,791
Investing activities... (9,133) (27,312) (116,580) (196,776) (110,610) (102,806) (73,759)
Financing activities... 9,658 19,481 110,940 169,554 78,742 80,230 36,851
Penetration(5).......... 2.20% 3.48% 4.58% 6.41% 7.45% 6.92% 8.60%
Subscribers at end of
period(6).............. 37,209 65,761 117,224 211,985 279,816 261,625 337,345
Cost to add a net
subscriber(7)........... $ 283 $ 203 $ 247 $ 276 $ 407 $ 387 $ 510
Average monthly service
revenue per
subscriber(8).......... $ 68.30 $ 62.69 $ 60.02 $ 56.68 $ 52.20 $ 51.28 $ 47.52
Average monthly
churn(9)................ 1.69% 1.37% 1.55% 1.55% 1.84% 1.73% 1.89%
Ratio of earnings to
fixed charges(10)....... 1.17x 1.21x 1.28x 1.32x 1.54x
CONSOLIDATED BALANCE
SHEET DATA:
Cash.................... $ 443 $ 1,670 $ 2,998 $ 3,436 $ 1,698 $ 2,780 $ 3,581
Working capital
(deficit)............... (740) 799 2,490 (1,435) 296 6,173 7,011
Property, plant and
equipment, net......... 17,371 23,918 51,884 100,936 132,438 124,375 161,351
Licenses and other
intangibles, net....... 103,901 114,955 199,265 332,850 387,067 387,982 406,828
Total assets............ 127,867 150,054 273,020 462,871 549,942 545,346 599,815
Total debt.............. 106,811 131,361 245,609 350,441 343,662 335,361 378,000
Stockholders' equity.... 10,659 3,244 4,915 74,553 164,930 173,874 178,356
</TABLE>
33
<PAGE>
(Footnotes from previous page)
- --------
(1) Includes the Georgia Acquisition (as defined herein), which occurred on
October 31, 1994. For the two months ended December 31, 1994, the Georgia
Acquisition resulted in revenues to Palmer of $1,803 and operating loss
of $645.
(2) Includes the GTE Acquisition (as defined herein), which occurred on
December 1, 1995. For the one month ended December 31, 1995, the GTE
Acquisition resulted in revenues to Palmer of $2,126 and operating income
of $208.
(3) Includes the acquisition of the cellular telephone systems of USCOC (as
defined herein) (Georgia-1 RSA), which occurred on June 20, 1996, and
Horizon (as defined herein) (Georgia-6 RSA), which occurred on July 5,
1996. The acquisitions of USCOC and Horizon resulted in revenues to
Palmer of $1,239 and $2,682, respectively, and operating (loss) income of
$(278) and $743, respectively, during such year.
(4) EBITDA should not be considered in isolation or as an alternative to net
income (loss), operating income (loss) or any other measure of
performance under GAAP. The Company believes that EBITDA is viewed as a
relevant supplemental measure of performance in the cellular telephone
industry.
(5) Determined by dividing the aggregate number of subscribers by the
estimated population.
(6) Each billable telephone number in service represents one subscriber.
(7) Determined for a period by dividing (i) costs of sales and marketing,
including salaries, commissions and employee benefits and all expenses
incurred by sales and marketing personnel, agent commissions, credit
reference expenses, losses on cellular telephone sales, rental expenses
allocated to retail operations, net installation expenses and other
miscellaneous sales and marketing charges for such period, by (ii) the
net subscribers added during such period.
(8) Determined for a period by dividing (i) the sum of the access, airtime,
roaming, long distance, features, connection, disconnection and other
revenues for such period by (ii) the average number of subscribers for
such period divided by the number of months in such period.
(9) Determined for a period by dividing total subscribers discontinuing
service by the average number of subscribers for such period, and
dividing that result by the number of months in such period.
(10) The ratio of earnings to fixed charges is determined by dividing the sum
of earnings before interest expense, taxes and a portion of rent expense
representative of interest by the sum of interest expense and a portion
of rent expense representative of interest. The ratio of earnings to
fixed charges is not meaningful for periods that result in a deficit. For
the years ended December 31, 1992 and 1993 the deficit of earnings to
fixed charges was $12,605 and $7,435, respectively.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Prior to the Merger, Holdings had no assets, liabilities or operations and
no recent historical results of operations and the Guarantor had no assets
(other than capital stock of Holdings), liabilities or operations and no
recent historical results of operations in each case, other than the proceeds
of the Units and liabilities with respect thereto. The following is a
discussion of Palmer's historical results of operations. Palmer's historical
results of operations are not directly indicative of future results of
operations because (i) they include results attributable to Palmer's Fort
Myers, Florida business unit, which was sold in connection with the
acquisition of Palmer, and Palmer's Georgia-1 RSA, which is under contract to
be sold by December 31, 1997 and (ii) they reflect a significantly less
leveraged capital structure than each of the Guarantor and the Company
possesses after the Acquisition. Principally as a result of interest expense
related to the financing for the Acquisition, the Company expects to incur net
losses for several years. See "The Acquisition." This discussion should be
read in conjunction with "Selected Consolidated Financial Data," "Summary
Historical and Unaudited Pro Forma Financial and Operating Data," "Unaudited
Pro Forma Condensed Consolidated Financial Statements" and Palmer's
Consolidated Financial Statements and related notes thereto.
While the Offering was consummated on August 11, 1997, the Merger was not
consummated until October 6, 1997. Accordingly, for the two month period after
the closing of the Offering and prior to the consummation of the Merger, the
Company incurred interest expense on the Old Notes but was not entitled to any
of the cash flows or earnings of Palmer.
OVERVIEW OF PALMER
Palmer's revenues consist of service revenue and equipment sales and
installation. Service revenue includes access charges (generally a monthly
charge), usage charges (based upon per minute usage rates), roaming charges
(fees charged for providing services to subscribers of other cellular
telephone systems when such subscribers or "roamers" place or receive a phone
call within one of Palmer's service areas), long distance charges derived from
long distance calls placed by Palmer's subscribers and other charges,
including, among other things, connection charges for initial activation on
the cellular telephone system, and feature services such as voice mail, call
forwarding and call waiting.
GROWTH IN TOTAL REVENUES
(IN THOUSANDS)
<TABLE>
<S> <C>
1996............................ $159,743
1995............................ $104,906
1994............................ $ 68,979
1993............................ $ 41,458
1992............................ $ 27,301
</TABLE>
Palmer's revenues have grown primarily by increasing the number of its
subscribers, both by improving its penetration rate (determined by dividing
the aggregate number of subscribers by estimated population) in cellular
telephone systems owned by Palmer and by acquiring or constructing new
cellular telephone systems. Palmer's subscribers increased from 22,536 at the
beginning of 1992 to 337,345 as of September 30, 1997. During the same period,
Palmer's penetration rate in its cellular telephone systems increased from
1.45% at the beginning of 1992 to 8.6% as of September 30, 1997. Palmer also
made several acquisitions between 1992 and 1996, as later described.
On average, new subscribers use less airtime and generate less revenue per
subscriber than existing subscribers. Therefore, airtime usage and service
revenue generally do not increase proportionately with increases in numbers of
subscribers over the same period. As a result, although Palmer's total revenue
has increased each year, its average minutes of usage per subscriber and its
average monthly revenue per subscriber
35
<PAGE>
have decreased over time as new subscribers have been added. The Company
expects these trends to continue in its existing cellular telephone systems as
its penetration rate increases.
GROWTH IN POPULATION SERVED
(IN THOUSANDS)
<TABLE>
<S> <C>
1996............................... 3,755
1995............................... 3,307
1994............................... 2,561
1993............................... 1,890
1992............................... 1,692
</TABLE>
The Company believes that its cost to add a net subscriber will continue to
be among the lowest in the cellular telephone industry, primarily because of
its in-house direct sales and marketing staff. Although much of the cellular
telephone industry markets through third-party agents, since 1992, Palmer has
sold its products and services almost exclusively through an internal sales
force that works principally out of retail stores in which Palmer offers a
full line of cellular telephone products and services. Palmer's shift to
nearly exclusive use of an internal sales force resulted in significant
decreases in its cost to add a net subscriber during 1992-1993. Starting in
1994, increased losses from Palmer's sales of cellular telephones caused this
downward trend in cost to add a net subscriber slowly to reverse itself. The
Company anticipates that its cost to add a net subscriber will continue to
increase but at a modest rate as savings associated with its nearly exclusive
use of an internal sales force are fully realized, while other components of
its calculation of cost to add a net subscriber continue to increase. In
addition to sales and marketing expenses, Palmer's computation of its cost to
add a net subscriber includes losses on cellular telephone sales, installation
services, credit reference services and an allocation of rental expenses
related to Palmer's retail stores.
Palmer currently has a microwave network in Alabama which connects the
Montgomery, Alabama MSA and the Alabama-8 RSA with the mobile telephone
switching office ("MTSO") in Dothan, Alabama. This microwave network connects
cellular switching equipment to cell sites without utilizing local landline
telephone carriers, thereby reducing or eliminating fees paid to landline
carriers. During 1995, Palmer spent $1.5 million to build additional microwave
connections between Dothan and Montgomery, Alabama, and between Brunswick and
Savannah, Georgia, as well as to complete a network in Fort Myers, Florida.
During 1996, Palmer spent $2.6 million to build a fiber optic network between
Dothan, Alabama and Panama City, Florida. The installation of this fiber optic
network resulted in significant savings to Palmer by the substantial reduction
or elimination of fees paid to landline carriers. In addition, this network
provides Palmer with excess capacity to lease to third parties or trade for
alternate fiber optic routes.
Prior to 1994, Palmer's customer billing was performed by a third-party
vendor. In January 1994, Palmer began performing billing functions in-house,
which significantly reduced customer service costs. The conversion to the in-
house customer billing system reduced annual billing costs per subscriber from
approximately $39 in 1993 to approximately $22 in 1994, $19 in 1995, and $19
in 1996. Since 1993, Palmer spent approximately $2.0 million in capital
expenditures for its in-house billing system. The software utilized for in-
house billing is leased from its previous third-party vendor. Therefore, no
change has occurred in billing function or operation.
In order to compete effectively in the wireless market, the Company plans to
pursue a strategy of increasing its bundled minute offerings. Because of the
relatively fixed cost of providing additional minutes of airtime on the
Company's cellular system, this bundling strategy, while decreasing the
revenue per minute of use, allows the Company to increase its customer base
and corresponding service revenue without negatively affecting its operating
margins.
36
<PAGE>
MARKET OWNERSHIP
The following is a summary of the Palmer ownership interest in the cellular
telephone system in each licensed service area to which Palmer provided
service at December 31, 1996 and September 30, 1997.
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
CELLULAR SERVICE AREA 1996 1997
--------------------- ------------ -------------
<S> <C> <C>
Albany, Georgia................................. 82.7% 86.5%
Augusta, Georgia................................ 100.0 100.0
Columbus, Georgia............................... 84.9 85.2
Macon, Georgia.................................. 99.1 99.2
Savannah, Georgia............................... 98.5 98.5
Dothan, Alabama................................. 92.3 94.6
Montgomery, Alabama............................. 91.9 92.8
Georgia 1 - RSA................................. 100.0 100.0
Georgia 6 - RSA................................. 94.8 95.0
Georgia 7 - RSA................................. 100.0 100.0
Georgia 8 - RSA................................. 100.0 100.0
Georgia 9 - RSA................................. 100.0 100.0
Georgia 10 - RSA................................ 100.0 100.0
Georgia 12 - RSA................................ 100.0 100.0
Georgia 13 - RSA................................ N/A 86.5
Alabama 8 - RSA................................. 100.0 100.0
Fort Myers, Florida............................. 99.0 99.0
Panama City, Florida............................ 77.9 78.4
</TABLE>
On February 1, 1997, one of Palmer's majority-owned subsidiaries acquired
the assets of and the license to operate the non-wireline cellular telephone
system serving Georgia Rural Service Area Market No. 383, otherwise known as
Georgia-13 RSA, for a total purchase price of $31.3 million.
PALMER HISTORICAL RESULTS OF OPERATIONS
The following table sets forth the percentage which certain amounts bear to
Palmer's total revenue.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- --------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service................... 84.3% 84.8% 88.5% 92.2% 94.6% 94.6% 94.6%
Equipment sales and
installation............. 15.7 15.2 11.5 7.8 5.4 5.4 5.4
----- ----- ----- ----- ----- ------ ------
Total revenue......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ------ ------
Operating Expenses:
Engineering, technical
and other direct:
Engineering and
technical (1).......... 10.3 8.8 8.1 7.6 7.9 8.0 8.0
Other direct costs of
services (2)........... 9.4 8.9 10.5 9.7 10.1 10.7 8.4
Cost of equipment (3)..... 18.6 17.8 16.7 13.5 11.2 10.3 11.4
Selling, general and
administrative:
Sales and marketing (4). 10.3 9.4 8.8 8.7 8.6 8.0 8.4
Customer service (5).... 7.0 7.2 5.6 6.0 5.9 5.7 6.3
General and
administrative (6)..... 17.4 16.9 14.2 14.9 14.9 15.0 14.2
Depreciation and
amortization............. 42.8 25.8 14.2 14.3 15.7 15.4 16.5
----- ----- ----- ----- ----- ------ ------
Total operating
expenses............. 115.8 94.8 78.1 74.7 74.3 73.1 73.2
----- ----- ----- ----- ----- ------ ------
Operating income (loss).... (15.8)% 5.2% 21.9% 25.3% 25.7% 26.9% 26.8%
===== ===== ===== ===== ===== ====== ======
Operating income before
depreciation and
amortization (7).......... 27.0% 31.0% 36.1% 39.6% 41.4% 42.3% 43.3%
===== ===== ===== ===== ===== ====== ======
</TABLE>
- ---------------------
(1) Consists of costs of operating cellular telephone network, including
inter-trunk costs, span-line costs, cell site repairs and maintenance,
cell site utilities, cell site rent, engineers' salaries and benefits and
other operational costs.
37
<PAGE>
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the costs of the cellular telephones and accessories
sold.
(4) Consists primarily of salaries and benefits of sales and marketing
personnel, employee and agent commissions and advertising and promotional
expenses.
(5) Consists primarily of salaries and benefits for customer service
personnel, costs of printing and mailing billings generated in-house in
1994, 1995, and 1996, and for the nine months ended September 30, 1996 and
1997, and fees paid to a third-party vendor of customer service billing
prior to 1994.
(6) Includes salaries and benefits of general and administrative personnel and
other overhead expenses.
(7) Operating income before depreciation and amortization should not be
considered in isolation, or as an alternative to net income (loss),
operating income (loss) or any other measure of performance under
generally accepted accounting principles. Palmer believes that operating
income before depreciation and amortization is viewed as a relevant
supplemental measure of performance in the cellular telephone industry.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Revenue. Service revenues totaled $134.1 million for the nine months ended
September 30, 1997, an increase of 20.0% over $111.8 million for the nine
months ended September 30, 1996. This increase was primarily due to a 34.4%
increase in the average number of subscribers to 313,611 as of September 30,
1997 versus 233,261 as of September 30, 1996. The increase in subscribers is
the result of internal growth, which the Company attributes primarily to its
strong sales and marketing efforts, and recent acquisitions.
Average monthly revenue per subscriber decreased 7.3% to $47.52 for the nine
months ended September 30, 1997 from $51.28 for the same period in 1996. This
is in part due to the trend, common in the cellular telephone industry, where,
on average, new subscribers are using less airtime than existing subscribers
are. 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 19.9% to $7.6 million for
the nine months ended September 30, 1997 compared to $6.3 million for the same
period in 1996. The increase is due to the 18.6% increase in gross subscriber
activations in the nine months ended September 30, 1997 compared to the same
period in 1996. As a percentage of revenue equipment sales and installation
revenue remained at 5.4% for the nine months ended September 30, 1997 and for
the same period in 1996.
Operating Expenses. Engineering and technical expenses increased by 21.2% to
$11.5 million for the nine months ended September 30, 1997 from $9.5 million
in the same period in 1996, due primarily to the increase in subscribers and
recent acquisitions. As a percentage of revenue, engineering and technical
expenses remained constant at 8.0% for the nine months ended September 30,
1997 and 1996, respectively. 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 decreased 6.3% to $11.8 million for nine
months ended September 30, 1997 from $12.6 million for the same period in 1996
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 decreased to 8.4% from 10.7%, reflecting improved
interconnection agreements with LECs, as well as efficiencies gained from the
growing subscriber base.
The cost of equipment increased 31.3% to $16.1 million for the nine months
ended September 30, 1997 from $12.3 million for the same period in 1996, due
primarily to the increase in gross subscriber activations for the same period.
The equipment sales margin decreased to (111.6%) for the nine months ended
September 30, 1997 from (93.3%) for the same period in 1996. In an effort to
address market competition and improve market share, the Company sold more
telephones below cost in the first half of 1997, on average, than in the same
period of 1996.
38
<PAGE>
Sales and marketing costs increased 26.9% to $11.9 million for the nine
months ended September 30, 1997 from $9.4 million for the same period in 1996.
This increase is primarily due to the 18.6% increase in gross subscriber
activations and the resulting increase in commissions. As a percentage of
total revenue, sales and marketing costs increased to 8.4% from 8.0% for the
nine months ended September 30, 1997 and 1996, respectively. The Company's
cost to add a net subscriber, including loss on telephone sales, increased to
$510 for the nine months ended September 30, 1997 from $387 for the same
period in 1996. This increase in cost to add a net subscriber was caused
primarily by increased losses from the Company's sales of cellular telephones
and an increase in commissions and advertising costs.
Customer service costs increased 31.9% to $8.9 million for the nine months
ended September 30, 1997 from $6.8 million for the same period in 1996. As a
percentage of revenue, customer service costs increased to 6.3% from 5.7% for
the nine months ended September 30, 1997 and 1996, respectively. The increase
was due primarily to higher costs for billing support services.
General and administrative expenditures increased 14.1% to $20.2 million for
the nine months ended September 30, 1997 from $17.7 million for the same
period in 1996, due primarily to the increase in the costs associated with
supporting recent acquisitions. General and administrative expenses decreased
as a percentage of revenue to 14.2% in the nine months ended September 30,
1997 from 15.0% for the same period in 1996. 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.
Depreciation and amortization increased 28.3% to $23.3 million for the nine
months ended September 30, 1997 from $18.2 million for the same period in
1996. This increase was primarily due to the depreciation and amortization
associated with recent acquisitions and additional capital expenditures. As a
percentage of revenue, depreciation and amortization increased to 16.5% from
15.4% for the nine months ended September 30, 1997 and 1996, respectively.
Operating income increased 19.6% to $38.0 million in the nine months ended
September 30, 1997, from $31.8 million for the same period in 1996. This
improvement in operating results is attributable primarily to increases in
revenue which exceeded increases in operating expenses.
Net Interest Expense, Income Taxes and Net Income. Net interest expense
increased 3.4% to $24.5 million from $23.7 million for the nine months ended
September 30, 1997 and 1996.
Income tax expense was not provided for the nine months ended September 30,
1997 as the Company expects to recognize sufficient interest expense as a
result of the acquisition to eliminate all income taxes. The Company
recognized $1.6 million for the same periods in 1996.
Net income for the nine months ended September 30, 1997 was $12.4 million,
or $0.45 per share, compared to net income of $4.7 million, or $0.19 per
share, for the same period in 1996. The increase in net income is primarily
attributable to increases in revenue which exceeded increases in operating
expenses and to the elimination of income tax expense.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue. Service revenue totaled $151.1 million for 1996, an increase of
$54.4 million or 56.3% over $96.7 million for 1995. This increase was due
primarily to a 69.7% increase in the average number of subscribers to 241,255
in 1996 from 142,147 in 1995. The increase in subscribers is the result of
internal growth, which Palmer attributes primarily to its sales and marketing
efforts, and recent acquisitions. The GTE Acquisition (as defined herein)
accounted for 41,163 subscribers at December 31, 1996. Service revenue
attributable to the
39
<PAGE>
cellular telephone systems acquired in the GTE Acquisition totaled $24.6
million for 1996 as compared to $2.0 million for the one month ended December
31, 1995.
Average monthly service revenue per subscriber decreased to $52.20 for 1996
from $56.68 for 1995. This decrease occurred because, on average, new
subscribers use less airtime and generate less revenue per subscriber than
existing subscribers as is customary in the cellular telephone industry.
Therefore, airtime usage and service revenue did not increase in proportion to
the increase in subscribers. In addition, Palmer entered into revised roaming
agreements with certain of its neighboring carriers. These agreements provide
for reciprocal lower roaming rates per minute of use. This resulted in lower
roaming revenue for Palmer, but also resulted in offsetting lower direct costs
of services when Palmer's subscribers were roaming on these neighboring
systems.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $8.6 million for 1996 from
$8.2 million for 1995, a 4.9% increase, due primarily to the increase in gross
subscriber activations offset by lower cellular phone prices. While equipment
sales and installation revenue increased slightly for 1996 from 1995, it
decreased as a percentage of total cellular revenue to 5.4% for 1996 from 7.8%
for 1995, reflecting the increased annual revenue base as well as lower
cellular equipment prices charged to customers. Equipment sales and
installation revenue attributable to the cellular telephone systems acquired
in the GTE Acquisition totaled $ 1.0 million for 1996 as compared to $0.1
million for the one month ended December 31, 1995.
Operating Expenses. Engineering and technical expenses increased by 57.5% to
$12.6 million for 1996 from $8.0 million for 1995, due primarily to the
increase in the number of subscribers. As a percentage of revenue, engineering
and technical expenses increased to 7.9% for 1996 from 7.6% for 1995 due to
additional costs incurred for the recent acquisitions and recurring costs
associated with Palmer's system development and expansion. Such development is
done for the purpose of increasing capacity and improving coverage.
Engineering and technical expenses attributable to the cellular telephone
systems acquired in the GTE Acquisition totaled $2.8 million for 1996 as
compared to $0.2 million for the one month ended December 31, 1995.
Other direct costs of services increased 58.3% to $16.1 million for 1996
from $10.2 million for 1995. As a percentage of revenue, other direct costs of
services increased to 10.1% for 1996 from 9.7% for 1995. This increase in
other direct costs of services as a percentage of revenue was due primarily to
Palmer subsidizing more roaming costs for competitive reasons. Other direct
costs of service attributable to the cellular telephone systems acquired in
the GTE Acquisition totaled $1.6 million for 1996 as compared to $0.2 million
for the one month ended December 31, 1995.
Cost of equipment increased 26.8% to $17.9 million for 1996 from $14.1
million for 1995, due primarily to the increase in gross subscriber
activations for the same period. The equipment sales margin decreased to
(108.1%) for 1996 from (72.1%) for 1995. In an effort to address market
competition and improve market share, Palmer sold more telephones below cost
in 1996 than in 1995. The cost of equipment attributable to the cellular
telephone systems acquired in the GTE Acquisition totaled $3.1 million for
1996 as compared to $0.2 million for the one month ended December 31, 1995.
Sales and marketing costs increased 50.2% to $13.7 million for 1996 from
$9.1 million for 1995. This increase is primarily due to the 28.1% increase in
gross subscriber activations and the resulting increase in salaries and
commissions. Sales and marketing costs as a percentage of total revenue
remained relatively flat at 8.6% for 1996 and 8.7% for 1995. Palmer's cost to
add a net subscriber, including losses on cellular telephone sales, increased
to $407 for 1996 from $276 for 1995. This increase in cost to add a net
subscriber was caused primarily by additional advertising and fixed marketing
overhead associated with the systems acquired in the GTE Acquisition, which
are not yet generating the offsetting gains in net subscribers. In addition,
there were increased losses from Palmer's sales of cellular telephones. Sales
and marketing costs attributable to the cellular telephone systems acquired in
the GTE Acquisition totaled $2.8 million in 1996 as compared to $0.2 million
for the one month ended December 31, 1995.
40
<PAGE>
MONTHLY CASH OPERATING COSTS PER SUBSCRIBER
<TABLE>
<S> <C>
1996................................. $29
1995................................. $32
1994................................. $36
1993................................. $40
1992................................. $48
</TABLE>
Customer service costs increased 49.9% to $9.4 million for 1996 from $6.3
million for 1995. As a percentage of revenue, customer service costs remained
relatively flat at 5.9% and 6.0% for 1996 and 1995, respectively. Customer
service costs attributable to the cellular telephone systems acquired in the
GTE Acquisition totaled $1.9 million in 1996 as compared to $0.2 million for
the one month ended December 31, 1995.
General and administrative expenses increased 52.5% to $23.8 million for
1996 from $15.6 million for 1995 and remained flat as a percentage of revenue
at 14.9% for 1996 and 1995. As the Company continues to add more subscribers
and generate associated revenue, general and administrative expenses should
decrease as a percentage of total revenues. The general and administrative
costs attributable to the cellular telephone systems acquired in the GTE
Acquisition totaled $3.4 million for 1996 as compared to $0.4 million for the
one month ended December 31, 1995.
Depreciation and amortization increased 66.7% to $25.0 million for 1996 from
$15.0 million for 1995. This increase is primarily due to the depreciation and
amortization associated with the recent acquisitions and additional capital
expenditures. Depreciation and amortization attributable to the cellular
telephone systems acquired in the GTE Acquisition totaled $6.2 million for
1996 as compared to $0.5 million for the one month ended December 31, 1995.
Operating income for 1996 increased 54.9% to $41.2 million, an increase of
$14.6 million over operating income for 1995. This improvement in operating
results is attributed primarily to increases in revenue which exceeded
increases in operating expenses. Operating income attributable to the cellular
telephone systems acquired in the GTE Acquisition totaled $3.8 million for
1996 as compared to $0.2 million for the one month ended December 31, 1995.
EBITDA
(IN THOUSANDS)
<TABLE>
<S> <C>
1996............................. $66,190
1995............................. $41,586
1994............................. $24,900
1993............................. $12,850
1992............................. $ 7,377
</TABLE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenue. Service revenue totaled $96.7 million for 1995, an increase of
$35.7 million or 58.4% over $61.0 million for 1994. This increase was due
primarily to a 67.8% increase in the average number of subscribers to 142,147
in 1995 from 84,718 in 1994. The increase in subscribers was the result of
internal growth, which Palmer attributes primarily to its sales and marketing
efforts, the Georgia Acquisition (as defined herein) and the GTE Acquisition
(as defined herein). During 1995, Palmer added 13,098 net subscribers in the
Georgia Acquisition, bringing the total subscribers served by those systems to
25,238 at December 31, 1995. Service revenue attributable to the cellular
telephone systems acquired in the Georgia Acquisition totaled $12.3 million
for 1995 as compared to $1.6 million for the two months ended December 31,
1994. The GTE Acquisition increased Palmer's subscribers by 34,904 at December
31, 1995. Service revenue attributable to the cellular telephone systems
acquired in the GTE Acquisition totaled $2.0 million for the one month ended
December 31, 1995, and is included in Palmer's 1995 results of operations.
41
<PAGE>
Average monthly service revenue per subscriber decreased to $56.68 for 1995
from $60.02 for 1994. This decrease occurred because, on average, new
subscribers use less airtime and generate less revenue per subscriber than
existing subscribers as is customary in the cellular telephone industry.
Therefore, airtime usage and service revenue did not increase in proportion to
the increase in subscribers.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $8.2 million for 1995 from
$8.0 million for 1994, a 3.3% increase, due primarily to the increase in
subscriber activations offset by lower cellular phone prices. While equipment
sales and installation revenue increased slightly for 1995 from 1994, it
decreased as a percentage of total cellular revenue to 7.8% for 1995 from
11.5% for 1994, reflecting the increased recurring annual revenue base as well
as lower cellular equipment prices charged to customers. Equipment sales and
installation revenue attributable to the cellular telephone systems acquired
in the Georgia Acquisition totaled $1.1 million for 1995 as compared to $0.2
million for the two months ended December 31, 1994. Equipment sales and
installation revenue attributable to the cellular telephone systems acquired
in the GTE Acquisition totaled $0.1 million for the one month ended December
31, 1995 and is included in Palmer's results of operations for 1995.
Operating Expenses. Engineering and technical expenses increased by 43.2% to
$8.0 million for 1995 from $5.6 million for 1994, due primarily to the
increase in subscribers. As a percentage of revenue, engineering and technical
expenses decreased to 7.6% for 1995 from 8.1% for 1994. Engineering and
technical expenses attributable to the cellular telephone systems acquired in
the Georgia Acquisition totaled $2.4 million for 1995 as compared to $0.3
million for the two months ended December 31, 1994. Engineering and technical
expenses attributable to the cellular telephone systems acquired in the GTE
Acquisition totaled $0.2 million for the one month ended December 31, 1995 and
are included in Palmer's results of operations for 1995.
Other direct costs of services increased 41.7% to $10.2 million for 1995
from $7.2 million for 1994. As a percentage of revenue, other direct costs of
services decreased to 9.7% for 1995 from 10.5% for 1994. This decrease in
other direct costs of services as a percentage of revenue was due primarily to
Palmer improving its roaming agreements with neighboring cellular service
providers, spreading its fixed charges over a larger revenue base, and
bringing its intramarket roaming settlements in-house. Other direct costs of
service attributable to the cellular telephone systems acquired in the Georgia
Acquisition totaled $1.1 million for 1995 as compared to $0.2 million for the
two months ended December 31, 1994. Other direct costs of service attributable
to the cellular telephone systems acquired in the GTE Acquisition totaled $0.2
million for the one month ended December 31, 1995 and are included in Palmer's
results of operations for 1995.
Cost of equipment increased 22.5% to $14.1 million for 1995 from $11.5
million for 1994, due primarily to the increase in gross subscriber
activations for the same period. The equipment sales margin decreased to
(72.1%) for 1995 from (45.1%) for 1994. In an effort to address market
competition and improve market share, Palmer sold more telephones below cost
in 1995 than in 1994. The cost of equipment attributable to the cellular
telephone systems acquired in the Georgia Acquisition totaled $2.4 million for
1995 as compared to $0.3 million for the two months ended December 31, 1994.
The cost of equipment attributable to the cellular telephone systems acquired
in the GTE Acquisition totaled $0.2 million for the one month ended December
31, 1995 and is included in Palmer's results of operations for 1995.
Sales and marketing costs increased 51.5% to $9.1 million for 1995 from $6.0
million for 1994. This increase is primarily due to the 49.1% increase in
gross subscriber activations and the resulting increase in salaries and
commissions. Sales and marketing costs as a percentage of total revenue
remained relatively flat at 8.7% for 1995 and 8.8% for 1994. Palmer's cost to
add a net subscriber, including losses on cellular telephone sales, increased
to $276 for 1995 from $247 for 1994. This increase in cost to add a net
subscriber was caused primarily by increased losses from Palmer's sales of
cellular telephones. Sales and marketing costs attributable to the cellular
telephone systems acquired in the Georgia Acquisition totaled $1.7 million for
1995 as compared to $0.3 million for the two months ended December 31, 1994.
Sales and marketing costs attributable to the cellular telephone systems
acquired in the GTE Acquisition totaled $0.2 million for the one month ended
December 31, 1995 and are included in Palmer's results of operations for 1995.
42
<PAGE>
Customer service costs increased 62.0% to $6.3 million for 1995 from $3.9
million for 1994 and increased as a percentage of total revenue to 6.0% for
1995 from 5.6% for 1994. This increase is primarily due to an increase in
subscribers, to operating costs associated with the newly established regional
customer service call centers in Montgomery, Alabama and Savannah, Georgia and
to non-recurring expenditures incurred in connection with the implementation
of new area codes in Palmer's Alabama and Fort Myers, Florida service areas.
Customer service costs attributable to the cellular telephone systems acquired
in the Georgia Acquisition totaled $0.9 million for 1995 as compared to $0.2
million for the two months ended December 31, 1994. Customer service costs
attributable to the cellular telephone systems acquired in the GTE Acquisition
totaled $0.2 million for the one month ended December 31, 1995 and are
included in Palmer's results of operations for 1995.
General and administrative expenses increased 58.2% to $15.6 million for
1995 from $9.8 million for 1994 and increased as a percentage of total revenue
to 14.9% for 1995 from 14.2% for 1994 due primarily to the increase in the
number of subscribers, as well as the Georgia and GTE Acquisitions. Fixed
general and administrative costs attributable to the acquisitions are incurred
prior to the development of the subscriber base and the generation of
associated revenue. As the Company continues to add more subscribers and
generate associated revenue, general and administrative expenses should
decrease as a percentage of total revenues. The general and administrative
costs attributable to the cellular telephone systems acquired in the Georgia
Acquisition totaled $3.2 million for 1995 as compared to $0.4 million for the
two months ended December 31, 1994. The general and administrative costs
attributable to the cellular telephone systems acquired in the GTE Acquisition
totaled $0.4 million for the one month ended December 31, 1995 and are
included in Palmer's results of operations for 1995.
Depreciation and amortization increased 52.8% to $15.0 million for 1995 from
$9.8 million for 1994. This increase is primarily due to the depreciation and
amortization associated with the acquisitions and additional capital
expenditures. Depreciation and amortization attributable to the cellular
telephone systems acquired in the Georgia Acquisition totaled $3.6 million for
1995 as compared to the $0.7 million for the two months ended December 31,
1994. Depreciation and amortization attributable to the cellular telephone
systems acquired in the GTE Acquisition totaled $0.5 million for the one month
ended December 31, 1995 and are included in Palmer's results of operations for
1995.
Operating income for 1995 increased 76.2% to $26.6 million, an increase of
$11.5 million over operating income for 1994. This improvement in operating
results is attributed primarily to increases in revenue which exceeded
increases in operating expenses. Operating income (loss) attributable to the
cellular telephone systems acquired in the Georgia Acquisition totaled $(2.0)
million for 1995 as compared to $(0.6) million for the two months ended
December 31, 1994. Operating income attributable to the cellular telephone
systems acquired in the GTE Acquisition totaled $0.2 million for the one month
ended December 31, 1995 and is included in Palmer's results of operations for
1995.
NET INTEREST EXPENSE, OTHER EXPENSE, INCOME TAX EXPENSE, AND NET INCOME
Net interest expense increased 48.3% to $31.5 million for 1996 from $21.2
million for 1995 due primarily to debt incurred for the recent acquisitions
and the amortization of deferred financing fees related to Palmer's credit
facility. For 1995, net interest expense increased 66.8% to $21.2 million from
$12.7 million for 1994 due primarily to debt incurred for the Georgia
Acquisition and the GTE Acquisition, the amortization of deferred financing
fees related to Palmer's credit facility and increased interest rates.
Other expense was $0.4 million in 1996, $0.7 million in 1995 and $0.1
million in 1994. Other expense consists primarily of the disposal of certain
assets by Palmer and other non-operating expenses.
Income tax expense was $2.7 million for both 1996 and 1995 compared to none
in 1994. The $2.7 million income tax expense in 1995 was a non-recurring
deferred income tax charge related to the difference between the financial
statement and income tax return bases of certain assets and liabilities of
Palmer Cellular Partnership
43
<PAGE>
(the "Partnership"), predecessor of Palmer. In connection with Palmer's
initial public offering of securities in March, 1995, all of the assets and
liabilities of the Partnership were exchanged for stock in Palmer. Due to the
exchange, a deferred tax liability was recorded to reflect the difference
between the financial statement and income tax return bases in these assets
and liabilities. See notes 2 and 5 to Palmer's consolidated financial
statements.
Net income for 1996 was $4.7 million, or $0.18 per share of common stock,
compared to net income of $1.0 million, or $0.04 per share of common stock for
1995. The increase in net income is primarily attributable to increases in
revenue which exceeded increases in expenses. Net income for 1994 was $1.7
million, or $0.09 per share of common stock. The decrease in net income
between 1995 and 1994 is primarily attributable to interest expense on debt
incurred for the Georgia Acquisition and the GTE Acquisition, and income tax
expense.
LIQUIDITY AND CAPITAL RESOURCES
Following the Acquisition, the Company's principal sources of liquidity are
cash flow from operations and borrowings under the New Credit Facility. The
borrower under the New Credit Facility is PCW. The Company's principal uses of
cash will be debt service requirements, capital expenditures and working
capital.
The Company incurred substantial indebtedness in connection with the
Acquisition. On a pro forma basis, after giving effect to the Acquisition as
if all the transactions related to the transaction occurred on September 30,
1997, the Company, on a consolidated basis, would have had approximately
$695.3 million of Indebtedness outstanding as of September 30, 1997 and its
ratio of EBITDA to interest expense would have been 0.74 to 1.00 and 0.93 to
1.00 for the year ended December 31, 1996 and the nine months ended September
30, 1997.
Palmer's long-term capital requirements consist of funds for capital
expenditures, acquisition and debt service. Historically, Palmer met its
capital requirements primarily through equity contributions, bank and
intercompany debt and, to a lesser extent, through operating cash flow. The
Company expects to meet its capital requirements following the Acquisition
from cash from operations and borrowings under the New Credit Facility.
Following the Acquisition, the Company's only committed source of liquidity is
the New Credit Facility, under which $80 million of revolving loans remains
available. The Company believes that these sources will provide the Company
with adequate capital to satisfy its projected funding requirements for the
next 18 months. The Company intends to use the availability under the New
Credit Facility for general corporate purposes and, if the Company's tax
planning strategy is unsuccessful, to finance the $50.9 million tax payment
due with respect to the Fort Myers Sale and Georgia Sale. However, borrowings
under the New Credit Facility are subject to significant conditions, including
compliance with certain financial ratios and the absence of any material
adverse change. For a description of the New Credit Facility, including a
description of the interest rates applicable to borrowings thereunder and
repayment schedule, see "Description of New Credit Facility."
In 1996, Palmer spent approximately $41.4 million for capital expenditures.
The Company expects to spend approximately $35 million and $20 million for
capital expenditures, including the construction of new stores and additional
cell sites, for the years ended December 31, 1997 and 1998, respectively. The
Company expects to use net cash provided by operating activities and
borrowings available under the New Credit Facility to fund such capital
expenditures.
Upon the occurrence of a Change of Control (as defined), each Holder of
Notes will have the right to require the Company to repurchase such Holder's
Notes at 101% of the Accreted Value thereof, plus accrued and unpaid interest
thereon, if any, to the repurchase date. A redemption upon a Change of Control
would be an Event of Default under the terms of the New Credit Facility. The
Company may not have sufficient funds or financing available to satisfy its
obligations to repurchase the Notes or meet other debt obligations that may
come due upon a Change of Control.
OTHER
Pursuant to the Merger Agreement, PCC acquired all issued and outstanding
shares of common stock of Palmer and outstanding options and rights under
employee and director stock purchase plans for a purchase price of $17.50 per
share in cash.
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<PAGE>
Following the Merger, the common stock of Palmer ceased to be authorized to
be quoted on the NASDAQ Stock Market and became eligible for termination of
registration pursuant to Section 12(g)(4) of the Securities Exchange Act of
1934 (the "Exchange Act").
ACCOUNTING POLICIES
For financial reporting purposes, Palmer reports 100% of revenues and
expenses for the markets for which it provides cellular telephone service.
However, in several of its markets, Palmer holds less than 100% of the equity
ownership. The minority stockholders' and partners' shares of income or losses
in those markets are reflected in the consolidated financial statements as
"minority interest share of (income) losses," except for losses in excess of
their capital accounts and cash call provisions which are not eliminated in
consolidation. For financial reporting purposes, Palmer consolidates each
subsidiary and partnership in which it has a controlling interest (greater
than 50.0%). From 1992 through 1996, Palmer had controlling interests in each
of its subsidiaries and partnerships.
INFLATION
The Company believes that inflation affects its business no more than it
generally affects other similar businesses.
YEAR 2000
The Company is currently preparing a plan to address Year 2000 issues and
does not expect the costs of remedying any Year 2000 related problems to be
material to its financial condition or operations.
45
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on , 1998; provided, however, that if the Company, in
its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended.
As of the date of this Prospectus, $153,400,000 aggregate principal amount
at maturity of the Old Notes was outstanding. This Prospectus, together with
the Letter of Transmittal, is first being sent on or about the date set forth
on the cover page to all Holders of Old Notes at the addresses set forth in
the security register with respect to Old Notes maintained by the Trustee. The
Company's obligations to accept Old Notes for exchange pursuant to the
Exchange Offer is subject to certain conditions as set forth under "Certain
Conditions to the Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance of any Old Notes, by giving oral or written notice of
such extension to the Exchange Agent and notice of such extension to the
Holders as described below. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified below under "Certain Conditions to the Exchange Offer." The
Company will give oral or written notice of any extension, amendment, non-
acceptance or termination to the Holders of the Old Notes as promptly as
practicable, such notice in the case of any extension to be issued by means of
a press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of the State of Delaware or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the SEC thereunder.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to
tender Old Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal, to Bank of Montreal
Trust Company (the "Exchange Agent") at one of the addresses set forth below
under "Exchange Agent" on or prior to the Expiration Date. In addition, (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(The "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the Holder must comply with the guaranteed delivery
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<PAGE>
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust
company having an office or correspondent in the United States (collectively,
"Eligible Institutions"). If Old Notes are registered in the name of a person
other than the person signing the Letter of Transmittal, the Old Notes
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered Holder with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its reasonable discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and
all tenders of any particular Old Notes not properly tendered or to not accept
any particular Old Notes which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right in its sole discretion to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Old Notes either before
or after the Expiration Date (including the right to waive the ineligibility
of any Holder who seeks to tender Old Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with the tenders of Old Notes for exchange must be cured within
such reasonable period of time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
Old Notes for exchange, nor shall any of them incur any liability for failure
to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered Holder or Holders that appear on the
Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by
the Company, proper evidence satisfactory to the Company of its authority to
so act must be submitted.
By tendering, each Holder will represent to the Company that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, (ii) neither the Holder nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, (iii) if the Holder is not
a broker-dealer, or is a broker-dealer but will not receive New Notes for its
own account in exchange for Old Notes, neither the Holder nor any such other
person is engaged in or intends to participate in the distribution of such New
Notes and (iv) neither the Holder nor any such other person is an "affiliate,"
as defined under Rule 405 of the Securities Act, of the Company. If the
tendering Holder is a broker-dealer that
47
<PAGE>
will receive New Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities,
it will be required to acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, a properly completed and duly executed Letter of Transmittal
and all other required documents. If any tendered Old Notes are not accepted
for any reason set forth in the terms and conditions of the Exchange Offer or
if certificates representing Old Notes are submitted for a greater principal
amount than the Holder desires to exchange, such unaccepted or non-exchanged
Old Notes will be returned without expense to the tendering Holder thereof
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below, such non-exchanged Old Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the expiration or termination of
the Exchange Offer.
INTEREST ON THE NEW NOTES
The New Notes will accrete at a rate of 13 1/2%, compounded semi-annually,
to an aggregate principal amount of $153.4 million by August 1, 2002. Cash
interest will not commence to accrue on the New Notes prior to August 2, 2002.
Commencing February 1, 2003, cash interest on the New Notes will be payable,
at a rate of 13 1/2% per annum, semi-annually in arrears on each February 1
and August 1.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer promptly after the date of this Prospectus. Any financial
institution that is a participant in the Book-Entry Transfer Facility's
systems may make book-entry delivery of Old Notes by causing the Book-Entry
Transfer Facility to transfer such Old Notes into the Exchange Agent's account
in accordance with the Book-Entry Transfer Facility's Automated Tender Offer
Program ("ATOP") procedures for transfer. However, the exchange for the Old
Notes so tendered will only be made after timely confirmation of such book-
entry transfer of Old Notes into the Exchange Agent's account, and timely
receipt by the Exchange Agent of an Agent's Message (as such term is defined
in the next sentence) and any other documents required by the Letter of
Transmittal. The term "Agent's Message" means a message, transmitted by the
Book-Entry Transfer Facility and received by the Exchange Agent and forming a
part of a Book-Entry Confirmation, which states that the Book-Entry Transfer
Facility has received an express acknowledgement from a participant tendering
Old Notes that are the subject of such Book-Entry Confirmation that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal, and that the Company may enforce such agreement against such
participant.
48
<PAGE>
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the Holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates of all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within five NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "Exchange
Agent." Any such notice of withdrawal must specify the name of the person
having tendered the Old Notes to be withdrawn, identify the Old Notes to be
withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes are registered, if different from that of the withdrawing
Holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing Holder must also submit the serial numbers of
the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any note of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Old Notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "Procedures for Tendering Old Notes"
above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer, if
at any time before the Expiration Date, such acceptance or issuance would
violate applicable law or any interpretation of the staff of the SEC.
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<PAGE>
The foregoing condition is for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any
time to exercise the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with respect
to the Registration Statement of which this Prospectus constitutes a part or
the qualification of the Indenture under the Trust Indenture Act of 1939, as
amended (the "TIA").
EXCHANGE AGENT
Bank of Montreal Trust Company has been appointed as the Exchange Agent for
the Exchange Offer. All executed Letters of Transmittal should be directed to
the Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent, addressed as follows:
Deliver To:
Bank of Montreal Trust Company, Exchange Agent
By Mail, by Overnight Courier or By Hand:
Wall Street Plaza
88 Pine Street, 19th floor
New York, New York 10005
Attention: Amy Roberts
Corporate Trust Department
By Facsimile:
(212) 701-7698
Confirm by Telephone:
(212) 701-7653
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by officers and
regular employees of the Company and its affiliates. No additional
compensation will be paid to any such officers and employees who engage in
soliciting tenders. The Company will not make any payment to brokers, dealers,
or others soliciting acceptances of the Exchange Offer. The Company, however,
will pay the Exchange Agent reasonable and customary fees for its services and
will reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
$200,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that Holders who instruct
the Company to register New Notes in the name of, or
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<PAGE>
request that Old Notes not tendered or not accepted in the Exchange Offer to
be returned to, a person other than the registered tendering Holder will be
responsible for the payment of any applicable transfer tax thereon and if a
transfer tax is imposed for any reason other than the transfer of Old Notes to
the Company or its order pursuant to the Exchange Offer, the amount of any
such transfer tax (whether imposed on the registered Holder or any other
person) will be payable by the tendering Holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The
Company does not intend to register the Old Notes under the Securities Act.
The Company believes that, based upon interpretations contained in letters
issued to third parties by the staff of the SEC as set forth in the Exchange
Offer No-Action Letters, New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by each Holder thereof (other than a broker-dealer, as set forth
below, and any such Holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such Holder's
business and such Holder has no arrangement or understanding with any person
to participate in the distribution of such New Notes. If any Holder has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such Holder (i) could not rely
on the applicable interpretations of the staff of the SEC and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or qualification is
available and is complied with. The Company does not currently intend to take
any action to register or qualify the New Notes for resale in any such
jurisdiction.
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BUSINESS OF THE COMPANY
GENERAL
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. At
September 30, 1997, after giving effect to the Acquisition, the Company
provided cellular telephone service to 295,162 subscribers in Georgia,
Alabama, Florida and South Carolina in a total of 16 licensed service areas
composed of eight Metropolitan Service Areas ("MSA") and eight Rural Service
Areas ("RSA"), 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 CELLULAR ONE. All information in this
section gives effect to the Acquisition. See "Certain Terms" for a definition
of certain terms used herein.
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 on a pro
forma basis after giving effect to the Acquisition as of July 18, 1997, 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 DATE SYSTEM
SERVICE AREA(1) POPULATION(2) PERCENTAGE NET POPS OPERATIONAL
<S> <C> <C> <C> <C>
Albany, GA.................... 118,527 86.5% 102,526 4/88
Augusta, GA................... 439,116 100.0 439,116 4/87
Columbus, GA.................. 254,150 85.2 216,518 11/88
Macon, GA..................... 313,686 99.2 311,234 12/88
Savannah, GA.................. 283,878 98.5 279,578 3/88
Georgia-6 RSA................. 199,516 95.0 189,560 4/93
Georgia-7 RSA................. 134,376 100.0 134,376 10/91
Georgia-8 RSA................. 157,451 100.0 157,451 10/91
Georgia-9 RSA................. 119,410 100.0 119,410 9/92
Georgia-10 RSA................ 149,699 100.0 149,699 10/91
Georgia-12 RSA................ 211,799 100.0 211,799 10/91
Georgia-13 RSA................ 147,392 86.5 127,494 10/90
Dothan, AL.................... 136,160 94.6 128,807 2/89
Montgomery, AL................ 318,371 92.8 295,430 8/88
Alabama-8 RSA................. 173,993 100.0 173,993 7/93
--------- ---------
Subtotal.................... 3,155,524 3,034,991
--------- ---------
Panama City, FL............... 146,018 78.4 114,493 9/88
--------- ---------
Total....................... 3,301,542 3,149,484
========= =========
</TABLE>
- --------
(1) Does not include the Alabama-5 RSA, South Carolina-7 RSA and South
Carolina-8 RSA where the Company has Interim Operating Authority ("IOA").
The Company has no subscribers in the South Carolina-7 RSA and South
Carolina-8 RSA market, but instead provides roaming access to its own
subscribers and others when they travel in these two service areas,
utilizing its existing cell sites. Construction permits were granted to
Permittees for the Alabama-5 RSA and South Carolina-8 RSA on May 20, 1997.
The Permittees are required to complete construction of their respective RSA
within 18 months. After completing construction, a Permittee may give the
Company ten days prior written notice, at which point the Company would be
required to sell all of its subscribers of its other systems who reside
within the boundaries of the South Carolina RSA market to the Permittee at
cost. The application for a construction permit for the South Carolina-7 RSA
has been remanded by the FCC to the Wireless Bureau for further review.
(2) Based on population estimates for 1996 from the 1996 Donnelley Market
Information Service.
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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. The Company continued to increase its presence in
this market by acquiring additional cellular service areas in 1989 (Macon,
Georgia MSA), 1992 (Georgia-9 RSA), 1993 (Alabama-8 RSA), 1994 (Georgia-7 RSA,
Georgia-8 RSA, Georgia-10 RSA and Georgia-12 RSA), 1995 (Savannah, Georgia MSA
and Augusta, Georgia MSA) and 1996 (Georgia-1 RSA and Georgia-6 RSA). The
Augusta, Georgia MSA includes Aiken County in South Carolina. In 1994, the
Company also received IOA from the FCC to provide service in two counties
within the southern portion of the Alabama-5 RSA. In 1995, as a result of the
GTE Acquisition, the Company received IOA from the FCC to provide service to
South Carolina-7 RSA and South Carolina-8 RSA. In the aggregate, this market
(excluding the Alabama-5 RSA, South Carolina-7 RSA and South Carolina-8 RSA
where the Company has only IOA) now covers a contiguous service area of
approximately 38,000 square miles that includes Montgomery, the state capital
of Alabama, prominent resort destinations in Jekyll Island, St. Simons Island
and Sea Island, Georgia, and over 710 miles of interstate highway, including
most of I-95 from Savannah, Georgia to Jacksonville, Florida. The Company
collects substantial roaming revenue from cellular telephone subscribers from
other systems traveling in this market from nearby population centers such as
Atlanta and Birmingham, as well as from vacation and business traffic in the
southeastern United States. Due in part to the favorable labor environment,
moderate weather and relatively low cost of land, during the last several
years there has been an influx of new manufacturing plants in this market. As
of December 31, 1996, the Company utilized 172 cell sites in this cluster
(including three cell sites in Alabama-5 RSA), 23 of which were constructed by
the Company in 1995 and 42 of which were placed in service in 1996.
PANAMA CITY
The Company acquired control of the non-wireline cellular license for the
Panama City, Florida market in 1991. 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 December 31,
1996, the Company utilized 11 cell sites in this market. In 1997, the Company
plans to add two additional cell sites in this market.
OPERATIONS
General
The Company has concentrated its efforts on creating an integrated network
of cellular telephone systems in the southeastern United States, principally
to date in Georgia, Alabama, Florida and South Carolina. At September 30,
1997, after giving effect to the Acquisition, the Company provided cellular
telephone service to 295,162 subscribers in a total of 16 licensed service
areas composed of eight MSAs and eight RSAs. The Company also participates in
the North American Cellular Network ("NACN"), a nationwide consortium of non-
wireline cellular telephone companies, with the goal of providing seamless
regional and national cellular telephone service to its subscribers.
Participation in the NACN allows seven-digit dialing access to 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.
53
<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, average monthly churn rate and
average monthly service revenue per subscriber.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- -------------
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Subscribers at end of period (1)... 29,869 54,382 99,626 187,870 243,204 295,162
Penetration at end of period (2)... 2.23% 3.57% 4.54% 6.41% 7.73% 8.88%
Cost to add a net subscriber (3)... $ 272 $ 198 $ 247 $ 275 $ 436 $ 503
Average monthly churn (4).......... 1.58% 1.32% 1.54% 1.51% 1.89% 1.88%
Average monthly service revenue per
subscriber (5).................... $ 59.65 $ 56.70 $ 56.54 $ 53.80 $ 50.23 $ 45.44
</TABLE>
- ---------------------
(1) Each billable telephone number in service represents one subscriber.
Amounts at December 31, 1992 and 1993 include 955 and 2,576 subscribers,
respectively, in the Alabama-7 RSA where the Company had interim operating
authority from June 1991 through July 1994.
(2) Determined by dividing the aggregate number of subscribers by the
estimated population.
(3) Determined for the periods, by dividing (i) all costs of sales and
marketing, including salaries, commissions and employee benefits and all
expenses incurred by sales and marketing personnel, agent commissions,
credit reference expenses, losses on cellular telephone sales, rental
expenses allocated to retail operations, net installation expenses and
other miscellaneous sales and marketing charges for such period including
fees paid for use of the CELLULAR ONE service mark, by (ii) the net
subscribers added during such period.
(4) Determined for the periods, by dividing total subscribers discontinuing
service by the average number of subscribers for such period , and divided
by the number of months in the relevant period.
(5) Determined for the periods by dividing the (i) sum of the access, airtime,
roaming, long distance, features, connection, disconnection and other
revenues for such period by (ii) the average number of subscribers for
such period, divided by the number of months in the relevant period.
SUBSCRIBERS AND SYSTEM USAGE
On a pro forma basis, after giving effect to the Acquisition, the Company's
subscribers have increased from 17,148 at January 1, 1992 to 295,162 at
September 30, 1997. Reductions in the cost of cellular telephone services and
equipment at the retail level have led to an increase in cellular telephone
usage by general consumers for non-business purposes. As a result, the Company
believes that there is an opportunity for significant growth in each of its
existing service areas. The Company will continue to broaden its subscriber
base for basic cellular telephone services as well as to increase its offering
of customized services. The sale of custom calling features typically results
in increased usage of cellular telephones by subscribers, thereby further
enhancing revenues. In 1996, cellular telephone service revenues represented
94.8% of the Company's total revenues, with equipment sales and installation
representing the balance.
MARKETING
The Company's marketing strategy is designed to generate continued net
subscriber growth by focusing on subscribers who are likely to generate lower
than average deactivations and delinquent accounts, while simultaneously
maintaining a low cost of adding net subscribers. Management has implemented
its marketing strategy by training and compensating its sales force in a
manner designed to stress the importance of high penetration levels and
minimum costs per net subscriber addition. The Company's sales staff has a
two-tier structure. A retail sales force handles walk-in traffic, and a
targeted sales staff solicits certain industries and government subscribers.
The Company's management believes that its internal sales force is more likely
than independent agents successfully to select and screen new subscribers and
select pricing plans that realistically match subscriber means and needs. In
addition, the Company motivates its direct sales force to sell appropriate
54
<PAGE>
rate plans to subscribers, thereby reducing churn, by linking payment of
commissions to subscriber retention. 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. For the nine months ended September 30, 1997, the Company's cost to
add a net subscriber was $503. The Company believes its cost to add a net
subscriber will continue to be among the lowest in the cellular telephone
industry, principally because of its in-house direct sales and marketing
staff.
The Company also maintains its low churn rate through an after-sale
telemarketing program implemented through its sales force and a telemarketing
service specializing in cellular customer services. This program not only
enhances customer loyalty, which reduces churn, but also increases add-on
sales and customer referrals. The telemarketing program allows the sales staff
to check customer satisfaction as well as to offer additional calling
features, such as voicemail, call waiting and call forwarding.
The Company's sales force works principally out of retail stores in which
the Company offers its cellular products and services. As of September 30,
1997, the Company maintained 32 retail stores and 4 offices. Retail stores,
which range in size up to 11,000 square feet are fully equipped to handle
customer service and the sale of cellular services, telephones and
accessories. Eight of the newer and larger stores are promoted by 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. In 1997, the Company plans to open three
more stores in its Georgia/Alabama service areas. The Company's stores provide
subscriber-friendly retail environments--extended hours, a large selection of
phones and accessories, an expert sales staff, and convenient locations--which
make the sales process quick and easy for the subscriber.
The Company markets all of its products and services under the name CELLULAR
ONE. The national advertising campaign conducted by Cellular One Group
enhances 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 CELLULAR ONE 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" (wireline/non-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
55
<PAGE>
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 Company's competitiveness. As
appropriate, revisions to pricing of service plans and equipment are made to
meet the demands of the local marketplace.
The following table sets forth a breakdown of the Company's revenues after
giving effect to the Fort Myers and Georgia Sales from the sale of its
services and equipment for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenue:
Access and usage (1)... $11,821 $20,324 $37,063 $61,607 $105,006 $77,414 $ 89,517
Roaming (2)............ 2,231 3,075 5,844 11,157 13,099 10,000 14,523
Long distance (3)...... 992 1,309 2,218 3,634 6,632 4,969 5,972
Other (4).............. 680 1,230 2,745 2,585 2,596 2,125 2,049
------- ------- ------- ------- -------- ------- --------
Total service
revenue............. $15,724 $25,938 $47,870 $78,983 $127,333 $94,508 $112,061
Equipment sales and
installation (5)....... 3,558 5,238 6,381 6,830 7,027 5,182 6,260
------- ------- ------- ------- -------- ------- --------
Total................ $19,282 $31,176 $54,251 $85,813 $134,360 $99,690 $118,321
======= ======= ======= ======= ======== ======= ========
</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 1996, roaming
revenues accounted for 10.7% of the Company's service revenues and 10.1% of
the Company's total revenue. This level of roaming revenue is due in part to
the fact that the Company's market in Panama City, Florida is a regional
shopping and vacation destination and a number of the Company's cellular
telephone systems in the Georgia and Alabama market are located along major
interstate travel corridors.
In order to develop the market for cellular telephone service, 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 respond to
competition and to enhance subscriber growth, Palmer has historically sold
cellular telephones below cost.
The Company is currently developing several new services which it believes
will provide additional revenue sources. Packet-switching technology will
allow data to be transmitted much more quickly and efficiently than the
current circuit-switching technology. Packet-switching uses the intervals
between voice traffic on cellular channels to send packets of data instead of
tying up dedicated cellular channels. The packets of information, which may be
transmitted using several different channels, are subsequently reassembled and
directed to the correct party at the receiving end. It is expected that the
development of this technology will make it possible for
56
<PAGE>
cellular carriers to offer a broad range of cost-effective wireless data
services, including facsimile and electronic mail transmissions, point-of-sale
credit authorizations, package tracking, remote meter reading, alarm
monitoring and communications between laptop computer units and local area
computer networks or other computer databases. During 1996 Palmer began to
implement the use of microcells. Microcells are low powered transmitters,
typically constructed on a pole or the roof of a building, which provide
reduced radius service within a specific area, such as large office buildings,
underground facilities or areas shielded by topographical obstructions.
Microcell service could be used, for instance, to provide wireless service
within an office environment that was also integrated with wireless service to
the home.
CUSTOMER SERVICE
The Company is committed to attracting new subscribers and retaining
existing subscribers by providing consistently high-quality customer service.
In each of its cellular service areas, the Company maintains a local staff,
including a store manager, customer service representatives, technical and
engineering staff, sales representatives and installation and repair
facilities. Each cellular service area handles its own customer-related
functions such as customer activations, account adjustments and rate plan
changes. Local offices and installation and repair facilities enable 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 CELLULAR ONE
service mark. In 1996, the Company was awarded the #1 MSA and #2 RSA rankings
in CELLULAR ONE's National Customer Satisfaction Survey. The Company has held
number one rankings in four out of the last five 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 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
57
<PAGE>
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.
<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------------------------ ----------------
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Georgia/Alabama....... 28(1) 39(1) 70(2) 121(3) 181(4) 192(5)
Panama City, FL....... 4 7 7 9 11 11
--- --- --- --- --- ---
Total............... 32(1) 46(1) 77(2) 130(3) 192(4) 203(5)
=== === === === === ===
</TABLE>
- ---------------------
(1) Includes two cell sites in the Alabama-7 RSA where Palmer had interim
operating authority from June 1991 through June 1994.
(2) Includes one cell site in the Alabama-5 RSA where Palmer has interim
operating authority for two counties of such RSA and 17 existing cell sites
that were purchased in the Georgia Acquisition.
(3) Includes two existing cell sites in the Alabama-5 RSA where Palmer has
interim operating authority for two counties of such RSA and 28 existing
cell sites that were purchased in the GTE Acquisition.
(4) Includes three existing cell sites in the Alabama-5 RSA where Palmer has
interim operating authority for two counties of such RSA and 17 existing
cell sites that were purchased in the Horizon and USCOC acquisitions. See
"--Acquisitions."
(5) Includes two existing cell sites in the Alabama-5 RSA where Palmer has
interim operating authority.
The Company estimates that in 1996 the capacity of its existing cellular
telephone systems increased 42.0%. During 1996, the Company spent $38.5
million and, based on projected growth in subscriber demand, expects to spend
approximately $35 million in 1997 in order to build out its cellular service
areas, install an additional microwave network and implement certain digital
radio technology. The Company has constructed 34 cell sites to date in 1997
and plans to construct 7 additional cell sites with respect to its existing
cellular systems during 1997 to meet projected subscriber demand and improve
the quality of service. Cell site expansion is expected to enable the Company
to continue to add subscribers, enhance use of its cellular telephone systems
by existing subscribers, increase services used by subscribers of other
cellular telephone systems due to the larger geographic area covered by the
cellular telephone network and further enhance the overall efficiency of the
network. The Company believes that the increased cellular telephone coverage
will have a positive effect on market penetration and subscriber usage.
Microwave networks enable 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 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.
58
<PAGE>
DIGITAL CELLULAR TECHNOLOGY
Over the next decade, it is expected that cellular telephones will gradually
convert from analog to digital technology. This conversion is due in part to
capacity constraints in many of the largest cellular markets, such as Los
Angeles, New York and Chicago. As carriers reach limited capacity levels,
certain calls may be unable to be completed, especially during peak hours.
Digital technology increases system capacity and offers other advantages over
analog technology, including improved overall average signal quality, improved
call security, potentially lower incremental costs for additional subscribers
and the ability to provide data transmission services. The conversion from
analog to digital technology is expected to be an industry-wide process that
will take a number of years. The exact timing and overall costs of such
conversion are not yet known.
The Company began offering Time Division Multiple Access ("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.
Where cell sites are not yet at their maximum capacity of radio channels, 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, as
indicated above, the extent of any implementation of digital radio channels
and the amount of any cost savings ultimately to be derived therefrom will
depend primarily on subscriber demand. In the ordinary course of business,
equipment upgrades at the cell sites have involved purchasing dual mode radios
capable of using both analog and digital technology.
The benefits of digital radio channels can only be achieved if subscribers
purchase cellular telephones that are capable of transmitting and receiving
digital signals. Currently, such telephones are more costly than analog
telephones. The widespread use of digital cellular telephones is likely to
occur only over a substantial period of time and there can be no assurance
that this technology will replace analog cellular telephones. In addition,
since most of 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.
PCI entered the cellular telephone business in 1987, when it constructed a
cellular telephone system for the Fort Myers, Florida MSA. PCI acquired
control of this system in March 1988 and rapidly expanded its cellular
telephone holdings, acquiring control of the non-wireline cellular licenses
for the Columbus and Albany, Georgia and Dothan and Montgomery, Alabama MSAs
in 1988.
In 1991, Palmer acquired control of the non-wireline cellular license for
the Panama City, Florida MSA. In 1992 and 1993, Palmer acquired two non-
wireline cellular licenses for RSAs contiguous to Palmer's MSAs in Georgia and
Alabama: the Georgia-9 RSA in June 1992 and the Alabama-8 RSA in April 1993.
The Georgia-9 RSA acquisition added the geographic territory between the
Columbus, Macon and Albany, Georgia MSAs to Palmer's service area coverage.
The Alabama-8 RSA expanded Palmer's service areas around three MSAs served by
Palmer, covering a substantial portion of the geographic territory between the
Montgomery, Alabama, 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.
59
<PAGE>
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 and South Carolina-8 RSA, respectively,
which serve a geographic territory that is adjacent to Palmer's existing
markets in the Georgia-8 RSA as well as the Savannah, and Augusta, Georgia
MSAs. In addition, during 1995, Palmer acquired additional minority interests
in six of its MSAs for an aggregate purchase price of $2.0 million.
On June 20, 1996, Palmer acquired the cellular telephone system of USCOC of
Georgia RSA #1, Inc. ("USCOC") for an aggregate purchase price of $31.6
million. The assets acquired by Palmer from USCOC included the cellular
telephone system in the Georgia-1 RSA. The cellular telephone system in the
acquired RSA serves a geographic territory of northwest Georgia between
Chattanooga and Atlanta.
On July 5, 1996, two of Palmer's majority-owned subsidiaries acquired the
cellular telephone system of Horizon Cellular Telephone Company of Spalding,
L.P. ("Horizon") for an aggregate purchase price of $36.0 million. The assets
acquired by Palmer from Horizon include the cellular telephone system in the
Georgia-6 RSA. The cellular telephone system in the acquired RSA serves a
geographic territory of west central Georgia adjacent to Palmer's Macon and
Columbus, Georgia MSAs.
On February 1, 1997, a majority-owned subsidiary of Palmer acquired the
cellular telephone system serving the Georgia-13 RSA from Mobile
Communications Systems L.P. for a total purchase price of $31.1 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.
60
<PAGE>
COMPETITION
The cellular telephone service industry in the United States is highly
competitive. Cellular telephone systems compete principally on the basis of
services and enhancements offered, the technical quality of the cellular
system, customer service, coverage capacity and price of service and
equipment. Currently, the Company's primary competition in each of its service
areas is the other cellular licensee--the wireline carrier. The table below
lists the wireline competitor in each of the Company's existing service areas:
<TABLE>
<CAPTION>
MARKET WIRELINE COMPETITOR
<S> <C>
Albany, GA.................. ALLTEL
Augusta, GA................. ALLTEL
Columbus, GA................ Public Service Cellular
Macon, GA................... BellSouth
Savannah, GA................ ALLTEL
Georgia-6 RSA............... BellSouth and Intercel(1)
Georgia-7 RSA............... Cellular Plus and BellSouth(1)
Georgia-8 RSA............... ALLTEL
Georgia-9 RSA............... ALLTEL and Public Service Cellular(1)
Georgia-10 RSA.............. Cellular Plus and ALLTEL(1)
Georgia-12 RSA.............. ALLTEL
Georgia-13 RSA.............. ALLTEL
Dothan, AL.................. BellSouth
Montgomery, AL.............. ALLTEL
Alabama-8 RSA............... ALLTEL
Panama City, FL............. 360(degrees) Communications Company (formerly
Sprint Cellular)
</TABLE>
- ---------------------
(1) The wireline service area has been subdivided into two service areas by
the purchasers of the authorization for the RSA.
The Company also faces limited competition from and may in the future face
increased competition from broadband PCS. Broadband PCS involves a network of
small, low-powered transceivers placed throughout a neighborhood, business
complex, community or metropolitan area to provide customers with mobile and
portable voice and data communications. PCS subscribers communicate using
digital radio handsets.
The FCC allocated 120 MHZ of spectrum for licensed broadband PCS. The
allocations for licensed PCS services are split into six blocks of
frequencies--blocks "A" and "B" being two 30 MHZ allocations for each of the
51 Major Trading Areas ("MTAs") throughout the United States; block "C" being
one 30 MHZ allocation in each of 493 Basic Trading Areas ("BTAs") in the
United States; and blocks "D," "E" and "F" being three 10 MHZ allocations in
each of the BTAs. The FCC has concluded the auction of all broadband PCS
frequency blocks.
The Company also faces competition from other existing communications
technologies such as conventional mobile telephone service, SMR and ESMR
systems and paging services.
In addition, the FCC has licensed operators to provide mobile satellite
service in which transmissions from mobile units to satellites would augment
or replace transmissions to land-based stations. Although such a system is
designed primarily to serve remote areas and is subject to transmission delays
inherent in satellite communications, a mobile satellite system could augment
or replace communications with segments of land-based cellular systems. Based
on current technologies, however, satellite transmission services are not
expected to be competitively priced with cellular telephone services.
In order to grow and compete effectively in the wireless market, 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
61
<PAGE>
factors translate into more satisfied customers, greater customer usage and
lower churn among existing subscribers. The perceived greater value also
increases the number of potential customers in the marketplace. The Company
believes that this strategy will enable it to increase its share of the
wireless market.
SERVICE MARKS
CELLULAR ONE is a registered service mark with the U.S. Patent and Trademark
Office. The service mark is owned by Cellular One Group, a Delaware general
partnership of Cellular One Marketing, Inc., a subsidiary of Southwestern Bell
Mobile Systems, Inc., together with Cellular One Development, Inc., a
subsidiary of AT&T and Vanguard Cellular Systems, Inc. The Company uses the
CELLULAR ONE service mark to identify and promote its cellular telephone
service pursuant to licensing agreements with Cellular One Group (the
"Licensor"). In 1996, the Company paid $219,000 in licensing and advertising
fees under these agreements. Licensing and advertising fees are determined
based upon the population of the licensed areas. The licensing agreements
require the Company to provide cellular telephone service to its customers,
and to maintain a certain minimum overall customer satisfaction rating in
surveys commissioned by the Licensor. The Company's customer satisfaction
ratings have consistently far exceeded this required minimum. The licensing
agreements which the Company has entered into are for five-year terms. See
"Risk Factors--Reliance on Use of Third-Party Service Mark."
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 Palmer, while Block B licenses were
initially reserved for entities affiliated with a local wireline telephone
company. Under current FCC Rules, a Block A or Block B license may be
transferred with FCC approval without restriction as to wireline affiliation,
but generally, no entity may own any substantial interest in both systems in
any one MSA or RSA. The FCC may prohibit or impose conditions on sales or
transfers of licenses.
Initial operating licenses are generally granted for terms of up to 10
years, renewable upon application to the FCC. Licenses may be revoked and
license renewal applications denied for cause after appropriate notice and
hearing. Palmer's cellular licenses expire in the following years with respect
to the following number of service areas: 1997 (four); 1998 (three); 2000
(two); 2001 (four); 2002 (two) and 2006 (one). On September 22, 1997, the
Company filed License Renewal Applications with the FCC for the Savannah,
Georgia MSA; the Albany, Georgia MSA; the Montgomery, Alabama MSA; and the
Panama City, Florida MSA. Although these four licenses have since expired, the
Company is permitted to continue to operate in these areas during the pendency
of its renewal applications. The FCC has issued a decision confirming that
current licensees will be granted a renewal expectancy if they have complied
with their obligations under the Communications Act during their license terms
and provided substantial public service. A potential challenger will bear a
heavy burden to demonstrate that a license should not be renewed if the
licensee's performance merits a renewal expectancy. The Company believes that
the licenses controlled by the Company will be renewed in a timely manner.
However, in the event that a license is not renewed, the Company would no
longer have the right to operate in the relevant service area. A non-renewal
of all licenses that are currently pending would have a material adverse
effect on the Company's result of operations.
62
<PAGE>
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 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. Palmer and the Company
have no material unserved areas in any of their cellular telephone systems
that have been licensed for more than five years.
The Company also regularly applies for FCC authority to use additional
frequencies, to modify the technical parameters of existing licenses, to
expand its service territory and to provide new services. The Communications
Act requires prior FCC approval for acquisitions by the Company of other
cellular telephone systems licensed by the FCC and transfers by Palmer of a
controlling interest in any of its licenses or construction permits, or any
rights thereunder. Although there can be no assurance that any future requests
for approval or applications filed by the Company will be approved or acted
upon in a timely manner by the FCC, based upon its experience to date, the
Company has no reason to believe such requests or applications would not be
approved or granted in due course.
The Communications Act prohibits the holding of a common carrier license
(such as 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 Palmer
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 Palmer are as
follows:
Interconnection. The Telecom Act requires state public utilities commissions
and/or the FCC to implement policies that mandate cost-based reciprocal
compensation between cellular carriers and local exchange carriers ("LEC") for
interconnection services.
On August 8, 1996, the FCC released its First Report and Order in the matter
of Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996 ("FCC Order") establishing the rules for the
costing and provisioning of interconnection services and the offering of
unbundled network elements by incumbent local exchange carriers. The FCC Order
established procedures for Palmer's renegotiation of interconnection
agreements with the incumbent local exchange carrier in each of Palmer's
markets. LECs and state regulators filed appeals of the FCC Order, which have
been consolidated in the US Court of Appeals for the Eighth Circuit. The Court
has temporarily stayed the effective date of the pricing rules until more
permanent relief can be fashioned.
The Company is currently negotiating with the incumbent local exchange
carriers and has already renegotiated certain interconnection agreements with
LECs in most of the Company's market. 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.
63
<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 the
Telecom Act, it will more readily receive local zoning approval for proposed
cellular base stations. In addition, the Telecom Act codified the Presidential
memorandum on the use of federal lands for siting wireless facilities by
requiring the President or his designee to establish procedures whereby
federal agencies will make available their properties, rights of ways and
other easements at a fair and reasonable price for service dependent upon
federal spectrum.
Environmental effect of radio frequency emissions. The Telecom Act provides
that state and local authorities cannot regulate personal wireless facilities
based on the environmental effects of radio frequency emissions if those
facilities comply with the federal standard.
Universal service. The Telecom Act also provides that all communications
carriers providing interstate communications services, including cellular
carriers, must contribute to the federal universal service support mechanisms
that the FCC will establish. The FCC implemented this provision of the Telecom
Act in a "Report and Order" released May 8, 1997 in the matter of "Federal-
State Joint Board on Universal Service," which also provides that any cellular
carrier is potentially eligible to receive universal service support.
The Communications Act preempts state and local regulation of the entry of,
or the rates charged by, any provider of cellular service.
EMPLOYEES
At September 30, 1997 Palmer had 575 full-time employees (excluding Fort
Myers and Georgia-1), none of whom is represented by a labor organization.
Management considers its relations with employees to be good.
PROPERTIES
For each market served by the Company's operations, the Company maintains at
least one sales or administrative office and operates a number of cell
transmitter and antenna sites. As of September 30, 1997, the Company had
approximately 31 leases for retail stores used in conjunction with its
operations and 3 leases for administrative offices. The Company also had
approximately 123 leases to accommodate cell transmitters and antennas as of
July 8, 1997.
LEGAL PROCEEDINGS
Neither the Company nor Palmer is currently involved in any pending legal
proceedings likely to have a material adverse impact on the Company.
64
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
William J. Ryan.... 65 President and Chief Executive Officer
M. Wayne Wisehart.. 50 Vice President, Treasurer, Chief Financial Officer
K. Patrick Meehan.. 39 Vice President--General Counsel and Secretary
Robert Price....... 64 Director
</TABLE>
EXECUTIVE OFFICERS
The following is a biographical summary of the experience of the executive
officers of Palmer who continue as executive officers of the Company. The
Company has entered into employment contracts with William J. Ryan and M.
Wayne Wisehart to continue as officers of the Company and has entered into
employment contracts with other key employees prior to the consummation of the
Merger.
WILLIAM J. RYAN, President and Chief Executive Officer. Mr. Ryan served as
Chief Executive Officer and President of PCI from 1984 until July 1995. Mr.
Ryan was Chief Operating Officer and President of PCI from 1982 to 1984. Mr.
Ryan has over 40 years of communications and telecommunications experience. He
joined PCI in 1970 following that company's acquisition of certain radio and
cable properties which Mr. Ryan had partially owned and operated since 1955.
In his capacity as Chief Executive Officer, Mr. Ryan has successfully led the
Company through 18 acquisitions of cellular telephone systems. Mr. Ryan is a
director of the Cellular Telecommunications Industry Association, the founding
chairman of Cable Television Advertising Bureau, Inc. and a former president
of the Florida Cable Association, the Florida Broadcasters Association and the
Southern Cable Association.
M. WAYNE WISEHART, Vice President, Treasurer and Chief Financial Officer.
Mr. Wisehart served as Chief Financial Officer of PCI from 1982 until July
1995. He was promoted to Treasurer of PCI in 1983 and to Vice President in
1987. Mr. Wisehart has over 15 years of communications and telecommunications
experience. In his capacity as Chief Financial Officer of PCI, he was
instrumental in the financial management and direction of the Company. Prior
to joining PCI, Mr. Wisehart served as Treasurer of the Des Moines Register &
Tribune Company of Des Moines, Iowa, for approximately five years. He began
his career in 1972 with Peat, Marwick, Mitchell & Co. in St. Louis, Missouri,
where he became a Certified Public Accountant. Mr. Wisehart then served as a
tax specialist for three years with General Dynamics Corporation in St. Louis,
Missouri.
K. PATRICK MEEHAN, Vice President-General Counsel and Secretary. Mr. Meehan
served as Vice President/General Counsel and Assistant Secretary of PCI from
1991 until July 1995. As an attorney with the law firm of Leibowitz & Spencer
in Miami, Florida, from 1985 to May 1991, Mr. Meehan represented clients
before the FCC and handled corporate transactions involving broadcast, paging
and cellular telephone companies. He is a 1985 graduate of the Columbus School
of Law and The Institute for Communications Law Studies at The Catholic
University of America in Washington, D.C. Mr. Meehan is a member of the
Florida Bar, the District of Columbia Bar and the American Bar Association.
DIRECTOR
ROBERT PRICE has served concurrently as a Director and the Chief Executive
Officer, President and Treasurer of PCC since 1979 and has been the Director
of the Guarantor, Holdings and PCW since 1997. Mr. Price has been a Director
of PriCellular since 1990. Mr. Price was the President and Assistant Treasurer
of PriCellular from 1990 until May 1997 and has served as Chairman of
PriCellular since May 1997. In 1992 PCC filed for protection from creditors
pursuant to Chapter 11 of the United States Bankruptcy Code. The Company's
65
<PAGE>
Amended Plan of Reorganization was confirmed on June 11, 1992 and became
effective on December 30, 1992. Mr. Price, an attorney, is a former General
Partner of Lazard Freres & Co. He has served as an Assistant United States
Attorney, practiced law in New York and served as Deputy Mayor of New York
City. In the early sixties, Mr. Price served as President and Director of
Atlantic States Industries, a corporation owning weekly newspapers and four
radio stations. After leaving public office, Mr. Price became Executive Vice
President of The Dreyfus Corporation and an Investment Officer of The Dreyfus
Fund. In 1972 he joined Lazard Freres & Co. Mr. Price has served as a Director
of Holly Sugar Corporation, Atlantic States Industries, The Dreyfus
Corporation, Graphic Scanning Corp. and Lane Bryant, Inc., and is currently a
member of The Council on Foreign Relations. Mr. Price serves as the
Representative of the Majority Leader and President Pro Tem of the New York
Senate and as a member on the Board of Directors of the Municipal Assistance
Corporation for the City of New York and as a Member of the Board of Trustees
of the City University of New York. Mr. Price is also a Director and president
of TLM Corporation.
DIRECTOR COMPENSATION
Directors are not paid fees.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation paid to the executive officers of Palmer for the year ended
December 31, 1996.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------ ------------------
NAME AND PRINCIPAL SECURITIES ALL OTHER
POSITION YEAR SALARY($) BONUS($) UNDERLYING OPTIONS COMPENSATION
------------------ ---- --------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
William J. Ryan, Presi-
dent and 1996 $339,731 $ 34,000 $31,422(1)
Chief Executive Officer 1995 $331,651 $119,880 130,000 $55,356
Robert G. Engelhardt,
Executive 1996 $251,538 $ 25,200 $18,726(2)
Vice President and Sec-
retary 1995 $239,019 $ 57,600 120,000 $26,073
M. Wayne Wisehart, Vice
President, 1996 $152,211 $ 15,250 $23,559(3)
Treasurer and Chief Fi-
nancial Officer 1995 $145,256 $ 34,800 75,000 $33,417
Leon J. Hensen, Senior
Vice 1996 $173,173 $ 13,880 $16,798(4)
President-General Man-
ager 1995 $163,862 $ 39,188 75,000 $22,764
K. Patrick Meehan, Vice
President- 1996 $124,423 $ 12,500 $19,386(5)
General Counsel and As-
sistant Secretary 1995 $109,936 $ 26,400 65,000 $15,108
</TABLE>
- --------
(1) Includes the following: PCI 401(k) Profit Sharing Plan and Trust ("401(k)
Plan") contributions of $9,500, auto allowance of $7,415 (including
insurance and license), tax services of $5,228, club dues of $5,535 and
medical reimbursements of $3,744.
(2) Includes the following: 401(k) Plan contributions of $9,500, auto
allowance of $6,744 (including insurance and license), tax services of
$850, club dues of $1,051 and medical reimbursements of $581.
(3) Includes the following: 401(k) Plan contributions of $9,500, auto
allowance of $6,798 (including insurance and license), tax services of $0,
club dues of $7,261 and medical reimbursements of $0.
(4) Includes the following: 401(k) Plan contributions of $9,078, auto
allowance of $6,501 (including insurance and license), tax services of $0,
club dues of $1,219 and medical reimbursements of $0.
(5) Includes the following: 401(k) Plan contributions of $9,500, auto
allowance of $6,975 (including insurance and license), tax services of
$275, club dues of $1,218 and medical reimbursements of $1,418.
66
<PAGE>
STOCK OPTIONS
During 1996, no stock options were granted to or exercised by the executive
officers of Palmer. The following table provides information regarding the
value of all unexercised options held at December 31, 1996 by the executive
officers of Palmer.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996(1)
------------------------- -------------------------
NAME UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
---- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
William J. Ryan............. 86,666 43,334 $ 0 $ 0
Robert G. Engelhardt........ 80,000 40,000 $ 0 $ 0
M. Wayne Wisehart........... 50,000 25,000 $ 0 $ 0
Leon J. Hensen.............. 50,000 25,000 $ 0 $ 0
K. Patrick Meehan........... 43,333 21,667 $ 0 $ 0
</TABLE>
- --------
(1) Based on a per share price of $10.375 on February 18, 1997.
EMPLOYMENT AGREEMENTS
In 1995, the Company entered into employment agreements (the "Palmer
Agreements") with each of Messrs. Ryan and Engelhardt, for an initial term of
three years, and Wisehart, Hensen and Meehan, for an initial term of two
years. Each Palmer Agreement had an automatic one-year renewal on each
anniversary date thereof. Base salaries under the Palmer Agreements for 1996
were $340,000, $252,000, $152,500, $173,500 and $125,000, respectively. Each
Palmer Agreement specified that if the executive officer is terminated by the
Company without cause (as defined therein), or if the executive officer
terminates the agreement for good reason (as defined therein, including if the
employment of the executive officer is terminated within one year of a change
in control of the Company), the Company will pay to the executive officer the
full base salary and benefits which would otherwise have been paid to such
officer during a fixed term (three years for Messrs. Ryan and Engelhardt; two
years for Messrs. Wisehart, Hensen and Meehan) (to be paid at the time such
payments are due). The Compensation Committee of the Board of Directors
approved 1997 base salaries under the Palmer Agreements as follows: $340,000
for Mr. Ryan; $178,500 for Mr. Hensen; $160,000 for Mr. Wisehart; and $140,000
for Mr. Meehan.
Pursuant to the change of control provision described above, approximately
$4.0 million of payments became payable under such contracts at the time of
the Merger. Approximately $1.4 million was paid on the effective date of the
Merger to Mr. Ryan as a severance payment pursuant to his existing employment
contract and approximately $2.6 million of severance payments are payable over
several years pursuant to existing employment contracts between Palmer and its
other executive officers. The Company has entered into employment contracts
with Mr. Ryan and Mr. Wisehart to continue as officers of the Company and has
entered into employment contracts with other key employees prior to the
consummation of the Acquisition (the "Price Agreements").
In 1997, the Company entered into an employment agreement with Mr. Ryan (the
"Ryan Agreement") for a term ending on December 31, 1999. The Ryan Agreement
contains an option to engage Mr. Ryan as a consultant for a period of one year
after December 31, 1999 at an annual salary equal to 50% of his base salary.
The base salary under the Ryan Agreement for 1997 is $500,000, plus an annual
bonus based upon the Company's financial performance. The Ryan Agreement
specifies that if Mr. Ryan is terminated by the Company other than for Cause
(as defined therein), disability or death or if Mr. Ryan terminates the
agreement for Good Reason (as defined therein), the Company will pay to Mr.
Ryan the full base salary and benefits which would otherwise have been paid to
Mr. Ryan, as well as a pro-rated bonus, through December 31, 1999 (to be paid
at the time such payments are due).
67
<PAGE>
In 1997, the Company entered into an employment agreement with Mr. Wisehart
(the "Wisehart Agreement") for an initial term ending on December 31, 1999.
The Wisehart Agreement has an automatic one-year renewal on each anniversary
date thereof. The base salary under the Wisehart Agreement for 1997 is
$300,000, plus an annual bonus based upon the Company's financial performance.
The Wisehart Agreement specifies that if Mr. Wisehart is terminated by the
Company other than for Cause (as defined therein), disability or death or if
Mr. Wisehart terminates the agreement for Good Reason (as defined therein),
the Company will pay to Mr. Wisehart the full base salary and benefits which
would otherwise have been paid to Mr. Wisehart, as well as a pro-rated bonus,
until two years after the date of termination (to be paid at the time such
payments are due).
The Wisehart and Ryan Agreements each contain a confidentiality provision
and provide that the executive officer may not during employment or for a
period of one year following termination of employment induce or attempt to
induce any employee of the Company to render services for any other person,
firm or corporation.
In 1997, the Company entered into an employment agreement with Mr. Meehan
(the "Meehan Agreement") for an initial term ending on December 31, 1998. The
Meehan Agreement has an automatic one-year renewal on each anniversary date
thereof. The base salary under the Meehan Agreement for 1997 is $180,000. The
Meehan Agreement specifies that if Mr. Meehan is terminated by the Company
other than for Cause (as defined therein), disability or death or if Mr.
Meehan terminates the agreement for Good Reason (as defined therein), the
Company will pay to Mr. Meehan the full base salary and benefits which would
otherwise have been paid to Mr. Meehan until one year after the date of
termination (to be paid at the time such payments are due).
The Price Agreements provide that for one year following termination of
employment, the executive officer will not, in any state in which the Company
is engaged or plans to engage in business, (i) compete with the Company on
behalf of the executive officer or any third party, (ii) participate as a
director, agent, representative, stockholder or partner or have any direct or
indirect financial interest in any enterprise which engages in the business in
which the Company is engaged, or (iii) participate as an employee or officer
in any enterprise in which such officer's responsibilities relate to the
cellular business or any other business in which the Company is engaged;
provided, however, that ownership by such officer of less than 5% of the
outstanding stock of any corporation listed on a national securities exchange
conducting any such business will not be deemed a violation of such non-
competition provision.
68
<PAGE>
PRINCIPAL STOCKHOLDERS
All of Holdings's issued and outstanding capital stock is owned indirectly
by PCC. The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock and PIK Preferred Stock of PCC as of
August 8, 1997 by (i) each person or group known to the Company who
beneficially owns more than five percent of PCC Common Stock and (ii) all
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
CLASS OF NUMBER OF PERCENTAGE
STOCK SHARES (1) OF CLASS
NAME OF BENEFICIAL OWNER -------- ---------- ----------
<S> <C> <C> <C>
Robert Price............ Common Stock 866,758 17.3%
Series A Preferred Stock(2) 728,133 100%
Series B Preferred Stock(3) 364,066 100%
William J. Ryan......... -- -- --
M. Wayne Wisehart....... -- -- --
K. Patrick Meehan....... -- -- --
NatWest Capital Markets
Limited................ PIK Preferred Stock 1,129,000(4) 100%
All directors and
officers as a
group (5 persons)...... Common Stock 866,758 17.3%
Series A Preferred Stock 728,133 100%
Series B Preferred Stock 364,066 100%
</TABLE>
- ---------------------
(1) Under the applicable rules of the Securities and Exchange Commission, each
person or entity is deemed to be a beneficial owner with the power to vote
and direct the disposition of these shares.
(2) The Series A Preferred Stock votes with the Common Stock on a share for
share basis.
(3) The Series B Preferred Stock votes with the Common Stock on a share for
share basis.
(4) The PIK Preferred Stock does not have voting rights (other than as
required by law).
DESCRIPTION OF NEW CREDIT FACILITY
The New Credit Facility which was entered into by PCW is provided by a
syndicate of banks, financial institutions and other "accredited investors"
(as defined in Regulation D under the Securities Act; each such bank,
financial institution and accredited investor being a "Lender" and,
collectively, the "Lenders"). The New Credit Facility includes a $325.0
million term loan facility and a $200.0 million revolving credit facility,
which provides for loans and under which letters of credit may be issued and a
portion of which will be made available as a swingline facility. The term loan
facility is comprised of tranche A term loans of up to $100.0 million, which
have a maturity of eight years, and tranche B term loans of up to $225.0
million, which have a maturity of nine years. The revolving credit facility
will terminate eight years after the closing date of the New Credit Facility
(October 6, 1997, the "Closing Date").
The New Credit Facility bears interest, at PCW's option, at the alternate
base rate or the reserve adjusted Euro-Dollar rate plus, in each case,
applicable margins of (i) in the case of tranche A term loans and revolving
loans (x) 2.50% for Euro-Dollar rate loans and (y) 1.50% for base rate loans
and (ii) in the case of tranche B term loans (x) 2.75% for Euro-Dollar rate
loans and (y) 1.75% for base rate loans. After the occurrence and during the
continuation of an event of default under the New Credit Agreement, interest
shall accrue at the rate for loans bearing interest at the rate determined by
reference to the base rate plus an additional 2.00% per annum and shall be
payable on demand.
PCW will pay commitment fees in an amount equal to 0.50% per annum on the
daily average unused portion of the revolving credit facility. Such fees shall
be payable quarterly in arrears and upon the maturity or termination of the
revolving credit facility.
Beginning six months after the Closing Date, the applicable margins for the
tranche A term loans and revolving loans will be determined based on the ratio
of consolidated total debt to consolidated EBITDA of PCW and its subsidiaries
(as defined in the New Credit Facility).
69
<PAGE>
PCW will pay, in respect of each letter of credit, a fee calculated on the
daily amount available to be drawn on the issued letter of credit at a rate
per annum equal to the applicable margin for Euro-Dollar rate loans under the
revolving credit facility, which shall be shared by all Lenders, and the
greater of $500 or an additional 0.25% per annum, which shall be retained by
the Lender issuing the letter of credit, which percentage shall be multiplied
by the amount available from time to time for drawing under such letter of
credit.
The New Credit Facility is subject to the following amortization schedule:
<TABLE>
<CAPTION>
REVOLVING
TRANCHE A TRANCHE B CREDIT
YEAR TERM LOANS TERM LOANS FACILITY
(%) (%) (%)
<S> <C> <C> <C>
1...................................... 0.0 1.0 0.0
2...................................... 0.0 1.0 0.0
3...................................... 10.0 1.0 10.0
4...................................... 12.5 1.0 12.5
5...................................... 15.0 1.0 15.0
6...................................... 17.5 1.0 17.5
7...................................... 20.0 1.0 20.0
8...................................... 25.0 1.0 25.0
9...................................... -- 92.0 --
----- ----- -----
100.0 100.0 100.0
</TABLE>
The New Credit Facility is subject to mandatory prepayment: (i) with the net
after-tax cash proceeds of the sale or other disposition of any property or
assets of PCW or any of its subsidiaries in excess of $5 million per year,
subject to certain exceptions, (ii) with 50% of the net cash proceeds received
from the issuance of equity securities of Holdings or any of its subsidiaries,
(iii) with the net cash proceeds received from certain issuances of debt
securities by Holdings or any of its subsidiaries, (iv) with 50% of excess
cash flow (as defined in the New Credit Facility) for each fiscal year,
payable within 90 days after the end of the applicable fiscal year. All
mandatory prepayment amounts shall be applied first to the prepayment of the
term loan facility and thereafter to the prepayment of the revolving credit
facility.
Holdings and all existing or future subsidiaries of PCW are guarantors of
the New Credit Facility. PCW's obligations under the New Credit Facility are
secured by: (i) all existing and after-acquired personal property of PCW and
the subsidiary guarantors, including a pledge of all of the stock of all
existing or future subsidiaries of PCW, (ii) first-priority perfected liens on
all existing and after-acquired real property fee and leasehold interests of
PCW and the subsidiary guarantors, subject to customary permitted liens (as
defined in the New Credit Facility), (iii) a pledge by Holdings of the stock
of PCW and (iv) a negative pledge on all assets of PCW and its subsidiaries,
subject to exceptions.
The New Credit Facility contains customary covenants and restrictions on
PCW's ability to engage in certain activities, including, but not limited to:
(i) limitations on other indebtedness, liens, investments and guarantees, (ii)
restrictions on dividends and redemptions and payments on subordinated debt
and (iii) restrictions on mergers and acquisitions, sales of assets and
leases.
The New Credit Facility also contains financial covenants requiring PCW to
maintain a minimum total debt service coverage test, a minimum EBITDA test, a
minimum interest coverage test, a minimum fixed charge coverage test and a
maximum leverage test.
Borrowing under the New Credit Facility is subject to significant
conditions, including compliance with certain financial ratios and the absence
of any material adverse change. See "Risk Factors--Leverage, Liquidity and
Ability to Meet Required Debt Service."
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DESCRIPTION OF CELLULAR ONE AGREEMENTS
The Company is currently party to sixteen license agreements with Cellular
One Group, a Delaware general partnership, which cover separate cellular
telephone system areas. The terms of each agreement (each, a "Cellular One
Agreement") are substantially identical. Pursuant to each Cellular One
Agreement, Cellular One Group has granted a license to use the "CELLULAR ONE"
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 to any other cellular telephone service provider in such
territory during the term of the agreement.
In connection with each Cellular One Agreement, the Company has agreed to
pay an annual licensing fee equal to $.02 per person in the Licensed Territory
based on the total population of the market, subject to a minimum payment of
$3000, and, in certain circumstances, will pay an annual advertising fee not
in excess of $.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 Agreement 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 Agreement at any time,
subject to delivery of written notice (i) if the Company fails to achieve 85%
customer satisfaction (or such higher percentage established by Cellular One
Group) for a prescribed amount of time or (ii) if the Company fails to achieve
65% customer satisfaction in any survey other than an initial customer
satisfaction survey by Cellular One, (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 ownership of, the Mark.
Finally, Cellular One Group may terminate the Agreement if the Company (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, (v) or permits a continued violation of any law or regulation
applicable to it, in each case subject to a thirty-day cure period.
The Agreement is 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.
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DESCRIPTION OF NOTES
GENERAL
The New Notes will be issued under an Indenture, dated as of August 11, 1997
(the "Indenture"), by and among the Company, the Guarantor and Bank of
Montreal Trust Company, as trustee (the "Trustee"), which has been filed as an
exhibit to the Registration Statement of which this Prospectus constitutes a
part. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the TIA. The following summaries of
certain provisions of the Indenture are summaries only, do not purport to be
complete and are qualified in their entirety by reference to all of the
provisions of those documents. Unless the context otherwise requires, all
references to the "Company" in this section refer to Price Communications
Cellular Holdings, Inc. Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to them in the Indenture. Wherever
particular provisions of the Indenture are referred to in this summary, such
provisions are incorporated by reference as a part of the statements made and
such statements are qualified in their entirety by such reference.
The terms of the New Notes are identical in all material respects to the
terms of the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes and except that, if the Exchange
Offer is not consummated by February 7, 1998, Holders that have complied with
their obligations under the Registration Rights Agreement will be entitled,
subject to certain exceptions, to liquidated damages in an amount equal to
$0.05 per week per $1,000 principal amount at maturity of Old Notes held by
such Holder until May 8, 1998 and up to $0.25 per week per $1,000 principal
amount at maturity of Old Notes thereafter until the consummation of the
Exchange Offer.
The Notes are general obligations of the Company ranking senior to all
subordinated indebtedness of the Company and pari passu in right of payment to
all other existing and future Indebtedness of the Company. As of September 30,
1997, on a pro forma basis after giving effect to the Offering, the
application of the estimated net proceeds therefrom and the Acquisition and
related financings described herein under "Unaudited Pro Forma Condensed
Consolidated Financial Statements," the Company, on a consolidated basis,
would have had approximately $697.3 million of Indebtedness. The Company is a
holding company and, therefore, the Notes are effectively subordinated to all
liabilities (including trade payables) of the Company's subsidiaries
(including the Senior Subordinated Notes and the New Credit Facility). At
September 30, 1997, on a pro forma basis as described above, the Company's
subsidiaries would have had outstanding $620.0 million of Indebtedness,
including Indebtedness under the Senior Subordinated Notes and the New Credit
Facility, and $312.8 million of other liabilities including $230.4 million of
deferred income tax liabilities recorded in connection with the purchase
accounting treatment of the Acquisition and including trade payables. The
Notes are issued only in fully registered form, without coupons, in
denominations of $1,000 and integral multiples thereof.
The Notes will mature on August 1, 2007. Interest payable in cash will not
commence to accrue on the Notes prior to August 2, 2002. Thereafter, interest
on the Notes will commence to accrue at the rate of 13 1/2% per annum, payable
in cash semi-annually. The Old Notes were issued at a substantial discount
from their principal amount, and the original issue discount on the Notes will
accrete from the date of the original issuance of the Old Notes through August
1, 2002. Thereafter, the Notes will bear interest at the rate per annum stated
on the cover page of this Prospectus from August 2, 2002 or from the most
recent Interest Payment Date to which interest has been paid or provided for,
payable semi-annually on February 1 and August 1 of each year, commencing
February 1, 2003 to the Persons in whose names such Notes are registered at
the close of business on the January 15 or July 15 preceding such Interest
Payment Date.
The Indenture does not contain provisions which would afford Holders of the
Notes protection in the event of a decline in the Company's credit quality
resulting from highly leveraged or other similar transactions involving the
Company.
Principal of, premium, liquidated damages, if any, and interest on the Notes
will be payable, and, subject to the following provisions, the Notes may be
presented for registration of transfer or exchange, at the office or
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agency of the Company maintained for such purpose, which office or agency
shall be maintained in the Borough of Manhattan of The City of New York. At
the option of the Company, payment of interest may be made by check mailed to
the Holders of the Notes at the addresses set forth upon the registry books of
the Company. No service charge will be made for any registration of transfer
or exchange of Notes, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Until otherwise designated by the Company, the Company's office or agency will
be the corporate trust office of the Trustee presently located at Wall Street
Plaza, 88 Pine Street, 19th floor, New York, New York 10005 c/o Corporate
Trust Department.
As the Company conducts its operations through its subsidiaries, the
Company's ability to meet its cash obligations is dependent upon the ability
of its subsidiaries to make cash distributions to the Company. Furthermore,
any right of the Company to receive the assets of any of its subsidiaries upon
any such subsidiary's liquidation (and the consequent right of the Holders of
the Notes to participate in the distribution of the proceeds of those assets)
effectively will be subordinated by operation of law to the claims of such
subsidiary's creditors (including trade creditors) and holders of its
preferred stock, except to the extent that the Company is itself recognized as
a creditor or preferred stockholder of such subsidiary, in which case the
claims of the Company would still be subordinate to any indebtedness or
preferred stock of such subsidiary senior in right of payment to that held by
the Company. In the event of the liquidation, bankruptcy, reorganization,
insolvency, receivership or similar proceeding or any assignment for the
benefit of the creditors of the Company or a marshalling of assets or
liabilities of the Company, Holders of the Notes may receive ratably less than
other such creditors or interest holders.
RANKING
The Notes are senior obligations of Holdings. The Notes will rank pari passu
in right of payment with all future senior indebtedness of Holdings and will
rank senior in right of payment to all future subordinated indebtedness of
Holdings. The Notes are effectively subordinated to all liabilities of
Holdings's subsidiaries. On a pro forma basis after giving effect to the
Offering and the Acquisition and related financings as if each occurred on
such date, as of September 30, 1997, Holdings would have had outstanding
approximately $77.3 million of Indebtedness and Holdings's subsidiaries would
have had outstanding $620.0 million of Indebtedness, including Indebtedness
under the Senior Subordinated Notes and the New Credit Facility and $312.8
million of other liabilities including $230.4 million of deferred income tax
liabilities recorded in connection with the purchase accounting treatment of
the Acquisition and including trade payables.
GUARANTEE
The Company's obligations under the Notes are unconditionally guaranteed
(the "Guarantee") by Price Communications Cellular Inc. (the "Guarantor"). See
"Description of the Guarantee"
NEGATIVE PLEDGE
Holdings is not permitted to pledge the stock of PCW except pursuant to the
Credit Agreement. Holdings is required to own 100% of the common stock of PCW.
SECURITY
The obligations of the Company with respect to the Notes are unsecured.
Pursuant to the Indenture, the Guarantor assigned and pledged to the Trustee,
for its benefit and the benefit of the Holders of the Notes, a security
interest in the capital stock of the Company and certain proceeds from time to
time received, receivable or otherwise distributed in respect thereof. See
"Description of the Guarantee--Security."
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REDEMPTION
Optional Redemption. Except as described under "Provisional Redemption"
below, the Company will not have the right to redeem any Notes prior to August
1, 2002. On or after August 1, 2002, the Company will have the right to redeem
all or any part of the Notes in cash at the redemption prices (expressed as a
percentage of the aggregate principal amount thereof) set forth below, in each
case including accrued and 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:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002........................................................... 106.750%
2003........................................................... 104.500%
2004........................................................... 102.250%
2005 and thereafter............................................ 100.000%
</TABLE>
Provisional Redemption. On or after August 1, 1998, the Company will have
the right to redeem all or any part of the Notes in cash at 120.000% of the
Accreted Value 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 Common Stock equals
or exceeds the prices set forth below for the ten consecutive trading days
prior to the redemption date in each period:
<TABLE>
<CAPTION>
PCC
YEAR STOCK PRICE
---- -----------
<S> <C>
1998.......................................................... $15.00
1999.......................................................... $20.00
2000.......................................................... $25.00
2001.......................................................... $30.00
</TABLE>
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis or in such other manner as
it deems appropriate and fair. The Notes may be redeemed in part in multiples
of $1,000 only.
The Notes do not have the benefit of a sinking fund.
Subject to the following, notice of any redemption will be sent, by first-
class mail, at least 30 days and not more than 60 days prior to the date fixed
for redemption to the Holder of each Note to be redeemed to such Holder's last
address as then shown upon the books of the Registrar. Any notice which
relates to a Note to be redeemed in part only must state the portion of the
principal amount to be redeemed and must state that on and after the date
fixed for redemption, upon surrender of such Note, a new Note or Notes in a
principal amount equal to the unredeemed portion thereof will be issued. On
and after the date fixed for redemption, interest will cease to accrue on the
portions of the Notes called for redemption.
CERTAIN COVENANTS
Transactions not Subject to Covenants. Notwithstanding anything to the
contrary in the Indenture, the following transactions shall not be prohibited
by the Indenture (regardless of the form or substance of the transaction or
series of transactions effecting the same):
(i) the Merger, including, without limitation, (A) payments made by PCW
to fund (x) the cash consideration payable in the Merger (including,
whether or not required by the Merger Agreement, pursuant
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to statutory appraisal rights and any settlement thereof) to security
holders of Palmer and (y) fees and expenses incurred in connection with the
Merger, (B) the Incurrence, as a result of the Merger, of any Indebtedness
of Palmer or any subsidiary of Palmer, which Indebtedness was in existence
immediately prior to the Merger and not incurred in contemplation thereof,
(C) the assumption or the suffering to exist of any consensual encumbrance
or restriction on the ability of Palmer or any Subsidiary thereof to pay
dividends or make other distributions on the Capital Stock of any
Subsidiary or to pay or satisfy any obligation to Palmer or any of its
Subsidiaries or to otherwise transfer assets or make or pay loans or
advances to Palmer or any of its Subsidiaries, which encumbrance or
restriction was contained in an instrument that was in effect immediately
prior to the Merger and not put into place in contemplation thereof and (D)
the Incurrence or the suffering to exist of any Lien upon any of the
property or assets of Palmer or any of its Subsidiaries which Liens were in
existence immediately prior to the effectiveness of the Merger and not
imposed in contemplation thereof;
(ii) the dividend, distribution or other payment by Holdings of an amount
sufficient to redeem the PIK Preferred Stock and certain warrants to
purchase PCC Common Stock made directly or indirectly to PCC; and
(iii) any transaction involving FMT Ltd. (the partnership that holds the
system serving Ft. Myers) or any subsidiary of FMT Ltd. or any of their
assets or PCW's partnership interest in FMT Ltd. (each "FMT-Related
Assets") provided that, in the case of this clause (iii), no such
transaction shall (a) in and of itself cause or result in an increase in
the consolidated Indebtedness of the Company and its Restricted
Subsidiaries on and after the 45th day after the Merger Date from that
existing immediately prior to such transaction, (b) cause or result in the
sale of any asset of the Company other than FMT-Related Assets, (c) cause
or result in the imposition of any Lien on any property or assets of the
Company or any of its Restricted Subsidiaries other than solely upon an
FMT-Related Asset, (d) cause or result in the imposition of any encumbrance
or restriction on the ability of any Restricted Subsidiary of the Company
(other than FMT Ltd. or any subsidiary thereof) to pay dividends or make
other distributions on the Capital Stock of any Restricted Subsidiary of
the Company or pay or satisfy any obligation to the Company or any of its
Restricted Subsidiaries or otherwise transfer assets or make or pay loans
or advances to the Company or any of its Restricted Subsidiaries or (e)
cause or result in any dividend or distribution by the Company or any
Investment in any Person except a Restricted Subsidiary or a Subsidiary of
FMT Ltd.; provided, however, that prior to the 45th day after the Merger
Date the Company's consolidated Indebtedness may increase as a result of
such transaction by no more than $169 million (plus accrued interest
thereon). Notwithstanding the foregoing provisions of this covenant,
neither the Company nor any of its Restricted Subsidiaries (other than FMT
Ltd. or any of its Subsidiaries) shall make any Investment in FMT Ltd. or
any of its Subsidiaries.
In addition, the Merger shall not constitute a Change of Control and no
transaction described in clauses (ii) or (iii), above, shall be taken into
account in any calculation under "--Limitation on Restricted Payments."
Repurchase of Notes at the Option of the Holder Upon a Change of Control
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such holder's option,
pursuant to an irrevocable and unconditional offer by the Company (the "Change
of Control Offer"), to require the Company to repurchase all or any part
(equal to $1,000 principal amount or an integral multiple thereof) of such
Holder's Notes, on a date (the "Change of Control Purchase Date") that is no
later than 45 Business Days after the occurrence of such Change of Control at
a cash price (the "Change of Control Purchase Price") equal to 101% of the
Accreted Value thereof, together with any accrued and unpaid interest to the
Change of Control Purchase Date. The Indenture provides, so long as the
Company has guaranteed the repayment of principal and interest on the Credit
Agreement, that prior to the commencement of a Change of Control Offer, but in
any event within 30 days following any Change of Control, the Company
covenants to, if at such time the terms of the Credit Agreement require
repayment upon a Change of Control, (i) repay in full and terminate all
commitments and Indebtedness under the Credit Agreement or, (ii)(A) offer to
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repay in full and terminate all commitments and all Indebtedness under the
Credit Agreement and (B) repay the Indebtedness owed to each such lender that
has accepted such offer or (iii) obtain the requisite consents under the
Credit Agreement to waive the provisions of this sentence. The Company's
failure to comply with the preceding sentence shall constitute an Event of
Default described in clause (iii) and not in clause (ii) under "Events of
Default," below. The Change of Control Offer shall be made within 20 Business
Days following a Change of Control and shall remain open for 20 Business Days
following its commencement (the "Change of Control Offer Period"). Upon
expiration of the Change of Control Offer Period, the Company shall purchase
all Notes properly tendered in response to the Change of Control Offer.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest) of all Notes so tendered and (iii) deliver to the Trustee Notes so
accepted together with an Officers' Certificate listing the Notes or portions
thereof being purchased by the Company. The Paying Agent promptly will deliver
to the Holders of Notes so accepted payment in an amount equal to the Change
of Control Purchase Price (together with any accrued and unpaid interest), and
the Trustee will promptly authenticate and mail or deliver to such Holders a
new Note equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted will be promptly mailed or delivered by
the Company to the Holder thereof. The Company will announce publicly the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Purchase Date.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company or its Parent, and, thus, the removal
of incumbent management. The Change of Control purchase feature resulted from
negotiations between the Company, its Parent and the Initial Purchasers and is
not the result of any intention on the part of the Company or its Parent or
their management to discourage the acquisition of the Company or its Parent.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under
the Exchange Act and the rules thereunder and all other applicable Federal and
state securities laws and the Company may modify a Change of Control Offer to
the extent necessary to effect such compliance.
Limitation on Incurrence of Additional Indebtedness
The Indenture provides that after the Issue Date the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
issue, create, incur, assume, guarantee or otherwise directly or indirectly
become liable for (including as a result of an acquisition), or otherwise
become responsible for, contingently or otherwise (individually or
collectively, to "Incur" or, as appropriate, an "Incurrence"), any
Indebtedness. Neither the accrual of interest (including the issuance of "pay
in kind" securities or similar instruments in respect of such accrued
interest) pursuant to the terms of Indebtedness Incurred in compliance with
this covenant, nor the accretion of original issue discount, nor the mere
extension of the maturity of any Indebtedness shall be deemed to be an
Incurrence of Indebtedness.
Notwithstanding the foregoing, if there exists no Default or Event of
Default immediately prior and subsequent thereto, (x) the Company may incur
Indebtedness if the Company's Annualized Operating Cash Flow Ratio, after
giving effect to the Incurrence of such Indebtedness, would have been less
than 8.5 to l and (y) PCW may incur Indebtedness if PCW'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 the Company or any of its Restricted
Subsidiaries constituting Existing Indebtedness, reduced by repayments of and
permanent reductions in commitments in satisfaction of the Net Cash Proceeds
application requirement set forth in the "Limitation on
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Asset Sales and Sales of Subsidiary Stock" covenant and by repayments and
permanent reductions in amounts outstanding pursuant to scheduled
amortizations and mandatory prepayments in accordance with the terms thereof,
(ii) Indebtedness, in an aggregate principal amount not in excess of
$525,000,000, permitted under the Credit Agreement, reduced by (a) repayments
of and permanent reductions in commitments in satisfaction of the Net Cash
Proceeds application requirement set forth in the "Limitation on Asset Sales
and Sales of Subsidiary Stock" covenant and (b) an amount equal to the
aggregate amount of Indebtedness Incurred pursuant to clause (x) below, so
long as such amounts Incurred pursuant to clause (x) remain outstanding;
provided that, if there exists a Default or an Event of Default immediately
prior or subsequent thereto, the Company and its Restricted Subsidiaries may
Incur Indebtedness pursuant to this clause (ii) so long as the proceeds from
such Incurrence are not used directly 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 the Company evidenced by the Notes and of PCW evidenced by the
Senior Subordinated Notes, (iv) (A) Permitted Acquisition Indebtedness of the
Company or PCW 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 the Company and any Restricted Subsidiary of the Company
or between Restricted Subsidiaries of the Company, provided that, in the case
of Indebtedness of the Company, such obligations shall be unsecured and
subordinated in all respects to the Holders' rights pursuant to the Notes, and
the date of any event that causes a Restricted Subsidiary no longer to be a
Restricted Subsidiary shall be an Incurrence Date with respect to such
Indebtedness, (vi) Capitalized Lease Obligations and Purchase Money
Indebtedness in an aggregate amount or aggregate principal amount, as the case
may be, outstanding at any time not to exceed in the aggregate $15,000,000,
provided that in the case of Purchase Money Indebtedness, such Indebtedness
shall not constitute less than 75% nor more than 100% of the cost (determined
in accordance with GAAP) to the Company or such Restricted Subsidiary of the
property purchased or leased with the proceeds thereof, (vii) Indebtedness of
the Company or any Restricted Subsidiary arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
guarantees or letters of credit, surety bonds or performance bonds securing
any obligations of the Company or its Restricted Subsidiaries pursuant to such
agreements, in any case Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary of the Company to the extent none of
the foregoing results in the obligation to repay an obligation for money
borrowed by any Person and are limited in aggregate amount to no greater than
10% of the fair market value of such business, assets or Restricted Subsidiary
so disposed of, (viii) Indebtedness of the Company or any Restricted
Subsidiary under standby letters of credit or reimbursement obligations with
respect thereto issued in the ordinary course of business and consistent with
industry practices (other than under the New Credit Facility) limited in
aggregate amount to $5,000,000 at any one time outstanding, (ix) Indebtedness
of the Company or PCW (other than Indebtedness permitted by 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 clauses (i) (as so reduced in
amount), (ii) (as so reduced in amount), (iii), (iv) and (x) of this
paragraph.
Indebtedness of any Person that is not a Restricted Subsidiary of the
Company (or that is a Non-Recourse Restricted Subsidiary designated to be a
Restricted Subsidiary, but no longer a Non-Recourse Restricted Subsidiary),
which Indebtedness is outstanding at the time such Person becomes such a
Restricted Subsidiary of the Company or is merged with or into or consolidated
with the Company or a Restricted Subsidiary of the Company shall be deemed to
have been Incurred, as the case may be, at the time such Person becomes such a
Restricted Subsidiary of the Company, or is merged with or into or
consolidated with the Company or a Restricted Subsidiary of the Company.
Limitation on Restricted Payments
The Indenture provides that after the Issue Date the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
make any Restricted Payment, if, immediately prior or after giving effect
thereto (a) a Default or an Event of Default would exist, (b) the Company's
Annualized Operating Cash Flow Ratio for the Reference Period would exceed 8.5
to 1, or (c) the aggregate amount of all Restricted
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Payments made by the Company and its Restricted Subsidiaries, including such
proposed Restricted Payment (if not made in cash, then the fair market value
of any property used therefor, as determined in good faith by the Board of
Directors) from and after the Issue Date and on or prior to the date of such
Restricted Payment, shall exceed the sum of (i) the amount determined by
subtracting (x) 2.0 times the aggregate Consolidated Interest Expense of the
Company for the period (taken as one accounting period) from the Issue Date to
the last day of the last full fiscal quarter prior to the date of the proposed
Restricted Payment (the "Computation Period") from (y) Operating Cash Flow of
the Company for the Computation Period, plus (ii) the aggregate Net Proceeds
(other than with respect to the PCC Equity Contribution consisting of cash or
Palmer stock) received by the Company from the sale (other than to a
Subsidiary of the Company) of its Qualified Capital Stock after the Issue Date
and on or prior to the date of such Restricted Payment, plus (iii) to the
extent not otherwise included in clauses (i) or (ii), above, an amount equal
to the net reduction in Investments in Unrestricted Subsidiaries resulting
from payments of dividends, repayment of loans or advances, or other transfers
of assets, in each case to the Company or any Wholly Owned Restricted
Subsidiary of the Company from Unrestricted Subsidiaries, or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investments"), not to exceed,
in the case of any Unrestricted Subsidiary, the amount of Investments
previously made by the Company and any Restricted Subsidiary in such
Unrestricted Subsidiary.
Notwithstanding the foregoing paragraph, the provisions set forth in clause
(b) or (c) of the immediately preceding paragraph will not prohibit (i) the
use of an aggregate of $10,000,000 to be used for Restricted Payments not
otherwise permitted by this "Limitation on Restricted Payments" covenant, (ii)
the distribution of amounts to Holdings sufficient to pay (x) the scheduled
interest owed by Holdings on the Notes as such interest becomes due and
payable and (y) amounts required to redeem the PIK Preferred Stock and certain
warrants to purchase PCC Common Stock and (iii) any dividend, distribution or
other payment by any Restricted Subsidiary on shares of its Capital Stock that
is paid pro rata to all holders of such Capital Stock, and notwithstanding the
foregoing paragraph, the provisions set forth in clause (a), (b) or (c) of the
immediately preceding paragraph will not prohibit (iv) the payment of any
dividend within 60 days after the date of its declaration if such dividend
could have been made on the date of its declaration in compliance with the
foregoing provisions, or (v) the redemption, defeasance, repurchase or other
acquisition or retirement of any Indebtedness or Capital Stock of the Company
or its Restricted Subsidiaries either in exchange for or out of the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary of
the Company) of Qualified Capital Stock (in the case of any redemption,
defeasance, repurchase or other acquisition or retirement of any Junior
Indebtedness or Capital Stock of the Company or its Restricted Subsidiaries)
or Junior Indebtedness (in the case of any redemption, defeasance, repurchase
or other acquisition or retirement of any Indebtedness of the Company or its
Restricted Subsidiaries) of the Company.
In determining the aggregate amount expended for Restricted Payments in
accordance with clause (c) of the first paragraph of this description of the
"Limitations on Restricted Payments" covenant, 100% of the amounts expended
under clauses (i) through (v) of the immediately preceding paragraph shall be
deducted.
Limitation on Restricting Subsidiary Dividends
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, with respect to securities issued directly
thereby or with respect to which they are obligors, directly or indirectly,
create, assume or suffer to exist any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary of the Company to pay dividends or
make other distributions on the Capital Stock of any Restricted Subsidiary of
the Company or pay or satisfy any obligation to the Company or any of its
Restricted Subsidiaries or otherwise transfer assets or make or pay loans or
advances to the Company or any of its Restricted Subsidiaries, except
encumbrances and restrictions existing under (i) any Indebtedness permitted by
the Indenture to be incurred by PCW or any of its Subsidiaries that are
Restricted Subsidiaries, (ii) the indentures governing the Notes and the
Senior Subordinated Notes, (iii) any Existing Indebtedness, (iv) the Credit
Agreement, (v) any applicable law or any governmental or administrative
regulation or order, (vi) Refinancing Indebtedness permitted under the
Indenture, provided that the restrictions contained in the instruments
governing such
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Refinancing Indebtedness are no more restrictive in the aggregate than those
contained in the instruments governing the Indebtedness being refinanced
immediately prior to such refinancing, (vii) restrictions with respect solely
to a Restricted Subsidiary of the Company imposed pursuant to a binding
agreement which has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Restricted
Subsidiary, provided such restrictions apply solely to the Capital Stock or
assets being sold of such Restricted Subsidiary, (viii) restrictions contained
in any agreement relating to the financing of the acquisition of a Person or
real or tangible personal property after the Issue Date which are not
applicable to any Person or property, other than the Person or property so
acquired and which either (A) were not put in place in anticipation of or in
connection with such acquisition or (B) constituted Permitted Acquisition
Indebtedness of a Person satisfying the provisions of clause (y) of the
definition thereof or (ix) any agreement (other than those referred to in
clause (viii)) of a Person acquired by the Company or a Restricted Subsidiary
of the Company, which restrictions existed at the time of acquisition and were
not put in place in anticipation of or in connection with such acquisition.
Notwithstanding the foregoing, neither (a) customary provisions restricting
subletting or assignment of any lease entered into the ordinary course of
business, consistent with past practices nor (b) Liens on assets securing
Indebtedness, shall in and of themselves be considered a restriction on the
ability of the applicable Restricted Subsidiary to transfer such agreement or
assets, as the case may be.
Limitation on Transactions with Related Persons
The Indenture provides that, after the Issue Date, the Company will not, and
will not permit any of its Restricted Subsidiaries or Unrestricted
Subsidiaries to, enter into any contract, agreement, arrangement or
transaction with any Related Person (each a "Related Person Transaction"), or
any series of Related Person Transactions, except for transactions made in
good faith, the terms of which are (i) fair and reasonable to the Company or
such Subsidiary, as the case may be, and (ii) are at least as favorable as the
terms which could be obtained by the Company or such Subsidiary, as the case
may be, in a comparable transaction made on an arm's length basis with Persons
who are not Related Persons.
Without limiting the foregoing, (a) any Related Person Transaction or series
of Related Person Transactions with an aggregate value in excess of $1,000,000
must first be approved by a majority of the Board of Directors of the Company
who are disinterested in the subject matter of the transaction pursuant to a
Board Resolution, and (b) with respect to any Related Person Transaction or
series of Related Person Transactions with an aggregate value in excess of
$5,000,000, the Company must first obtain a favorable written opinion from an
independent financial advisor of national reputation as to the fairness from a
financial point of view of such transaction to the Company or such Subsidiary,
as the case may be.
Notwithstanding the foregoing, the following shall not constitute Related
Person Transactions: (i) reasonable and customary payments on behalf of
directors, officers or employees of the Company or any of its Restricted
Subsidiaries, or in reimbursement of reasonable and customary payments or
reasonable and customary expenditures made or incurred by such Persons as
directors, officers or employees, (ii) any contract, agreement, arrangement,
or transaction solely between or among the Company and any of its Restricted
Subsidiaries or between or among Restricted Subsidiaries of the Company, (iii)
any Restricted Payment of the type described by clauses (i) and (ii) of the
definition thereof made to all stockholders on a pro rata basis and not
prohibited by the "Limitation on Restricted Payments" covenant, (iv) any loan
or advance by the Company or a Restricted Subsidiary to employees of the
Company or a Restricted Subsidiary in the ordinary course of business, in an
aggregate amount at any one time outstanding not to exceed $500,000 and (v)
any payment pursuant to a tax-sharing agreement between the Company and any
other Person with which the Company is required or permitted to file a
consolidated tax return or with which the Company is or could be part of a
consolidated group for tax purposes, which payments are not in excess of the
tax liabilities attributable solely to the Company and its Restricted
Subsidiaries (as a consolidated group).
Limitation on Asset Sales and Sales of Subsidiary Stock
The Indenture provides that after the Issue Date the Company will not, and
will not permit any of its Restricted Subsidiaries to, in one or a series of
related transactions, convey, sell, transfer, assign or otherwise dispose of,
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directly or indirectly, any of its property, businesses or assets, including
by merger or consolidation, and including any sale or other transfer or
issuance of any Capital Stock of any Restricted Subsidiary of the Company,
whether by the Company or a Restricted Subsidiary (an "Asset Sale"), unless
(1) (a) within 360 days after the date of such Asset Sale, an amount equal to
the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied to
the optional redemption of the Notes in accordance with the terms of the
Indenture and other Indebtedness of the Company ranking on a parity with the
Notes from time to time outstanding with similar provisions requiring the
Company to make an offer to purchase or to redeem such Indebtedness with the
proceeds from asset sales, pro rata in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an
original issue discount) of the Notes and such other Indebtedness then
outstanding or to the repurchase of the Notes and such other Indebtedness
pursuant to an irrevocable, unconditional offer (pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Notes and such other
Indebtedness then outstanding) (the "Asset Sale Offer") to repurchase such
Indebtedness at a purchase price (the "Asset Sale Offer Price") of 100% of the
Accreted Value thereof in the case of the Notes or 100% of the principal
amount of such other Indebtedness (or accreted value in the case of
Indebtedness issued with an original issue discount) plus, in each case,
accrued interest to the date of payment, made within 330 days of such Asset
Sale, or (b) within 330 days of such Asset Sale, the Asset Sale Offer Amount
is (i) invested (or committed, pursuant to a binding commitment subject only
to reasonable, customary closing conditions, to be invested, and in fact is so
invested, within an additional 90 days) in tangible assets and property (other
than notes, obligations or securities), which in the good faith reasonable
judgment of the Board of Directors of the Company are of a type used in a
Related Business, or Capital Stock of a Person (which, if such Person becomes
a Subsidiary of the Company by virtue of such Asset Sale, shall initially be
designated a Restricted Subsidiary) all or substantially all of whose assets
and property (in the good faith reasonable judgment of the Board of Directors
of the Company) are of a type used in a Related Business (provided that, with
respect to such Capital Stock, all of the requirements of the last proviso of
clause (v) of the following paragraph shall have been satisfied), or (ii) used
to retire permanently Indebtedness of a Restricted Subsidiary, (2) with
respect to any transaction or related series of transactions of securities,
property or assets with an aggregate fair market value in excess of
$1,000,000, at least 75% of the value of consideration for the assets disposed
of in such Asset Sale (excluding (a) pari passu 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 the covenant
"Limitation on Incurrence of Additional Indebtedness" (including that in the
case of a revolver or similar arrangement that makes credit available, such
commitment is permanently reduced by such amount), (b) Purchase Money
Indebtedness secured exclusively by the assets subject to such Asset Sale
which is assumed by a transferee and (c) marketable securities that are
promptly converted into cash or Cash Equivalents) consists of cash or Cash
Equivalents, provided that any cash or Cash Equivalents received within 12
months following any such Asset Sale upon conversion of any property or assets
(other than in the form of cash or Cash Equivalents) received in consideration
of such Asset Sale shall be applied promptly in the manner required of Net
Cash Proceeds of any such Asset Sale as set forth above, (3) no Default or
Event of Default shall occur or be continuing after giving effect to, on a pro
forma basis, such Asset Sale, unless such Asset Sale is in consideration
solely of cash or Cash Equivalents and such consideration is applied
immediately to the permanent reduction of the principal amount of Indebtedness
outstanding pursuant to the Credit Agreement, and (4) the Board of Directors
of the Company determines in good faith that the Company or such Restricted
Subsidiary, as applicable, would receive fair market value in consideration of
such Asset Sale. The Indenture provides that an Asset Sale Offer may be
deferred until the accumulated Net Cash Proceeds from Asset Sales not applied
to the uses set forth in (1) (b) above exceeds $5,000,000 and that each Asset
Sale Offer shall remain open for 20 Business Days following its commencement
and no longer, except as otherwise required by applicable law (the "Asset Sale
Offer Period"). Upon expiration of the Asset Sale Offer Period, the Company
shall apply the Asset Sale Offer Amount, plus an amount equal to accrued
interest to the purchase of all Indebtedness properly tendered (on a pro rata
basis as described above if the Asset Sale Offer Amount is insufficient to
purchase all Indebtedness so tendered) at the Asset Sale Offer Price (together
with accrued interest).
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Notwithstanding the foregoing provisions of the prior paragraph:
(i) the Company and its Restricted Subsidiaries may, in the ordinary
course of business, convey, sell, lease, transfer, assign or otherwise
dispose of assets acquired and held for resale in the ordinary course of
business;
(ii) the Company and its Restricted Subsidiaries may convey, sell, lease,
transfer, assign or otherwise dispose of assets pursuant to and in
accordance with the "Limitation on Mergers, Sales or Consolidations";
(iii) the Company and its Restricted Subsidiaries may sell or dispose of
damaged, worn out or other obsolete property in the ordinary course of
business so long as such property is no longer necessary for the proper
conduct of the business of the Company or such Restricted Subsidiary, as
applicable;
(iv) the Company and its Restricted Subsidiaries may convey, sell, lease,
transfer, assign or otherwise dispose of assets to the Company or any of
its Restricted Subsidiaries; and
(v) the Company and its Restricted Subsidiaries may, in the ordinary
course of business (or, if otherwise than in the ordinary course of
business, upon receipt of a favorable written opinion by an independent
financial advisor of national reputation as to the fairness from a
financial point of view to the Company or such Restricted Subsidiary of the
proposed transaction), exchange all or a portion of its property,
businesses or assets for property, businesses or assets which, or Capital
Stock of a Person all or substantially all of whose assets, are of a type
used in a Related Business (provided that such Person shall initially be
designated a Restricted Subsidiary if such Person becomes a Subsidiary of
the Company by virtue of such Asset Sale), or a combination of any such
property, businesses or assets, or Capital Stock of such a Person and cash
or Cash Equivalents; provided that (i) there shall not exist immediately
prior or subsequent thereto a Default or an Event of Default, (ii) a
majority of the independent directors of the Board of Directors of the
Company shall have approved a resolution of the Board of Directors that
such exchange is fair to the Company or such Restricted Subsidiary, as the
case may be, and (iii) any cash or Cash Equivalents received pursuant to
any such exchange shall be applied in the manner applicable to Net Cash
Proceeds from an Asset Sale as set forth pursuant to the provisions of the
immediately preceding paragraph of this covenant; and provided, further,
that any Capital Stock of a Person received in an Asset Sale pursuant to
this clause (v) shall be owned directly by the Company or a Restricted
Subsidiary and, when combined with the Capital Stock of such Person already
owned by the Company and its Restricted Subsidiaries, shall constitute a
majority of the voting power and Capital Stock of such Person, unless (A)
(i) the Company has received a binding commitment from such Person (or the
direct or indirect parent of such Person) that such Person (or the direct
or indirect parent of such Person) will distribute to the Company in cash
an amount equal to the Company's Annualized Operating Cash Flow (determined
as of the date of such Asset Sale) attributable to the property, business
or assets of the Company and its Restricted Subsidiaries exchanged in
connection with such Asset Sale during each consecutive 12-month period
subsequent to such Asset Sale (unless and until the Company shall have sold
all of such Capital Stock, provided that the provisions of clause (B)
below, if applicable, shall have been satisfied), (ii) immediately after
such Asset Sale the aggregate number of Net Pops of the wireless
communications systems in which the Company or any of its Restricted
Subsidiaries has ownership interests ("Company Systems") that are owned
directly by a Person or Persons a majority of whose voting power and
Capital Stock is owned directly or indirectly by the Company is no less
than 80% of the aggregate number of Net Pops of Company Systems immediately
prior to such Asset Sale and (iii) upon consummation of such Asset Sale, on
a pro forma basis, the ratio of such Person's Annualized Operating Cash
Flow to the product of Consolidated Interest Expense for the Reference
Period multiplied by four (but excluding from Consolidated Interest Expense
all amounts that are not required to be paid in cash on a current basis)
shall be at least 1 to 1, or (B) in the case of Capital Stock of a Person
that is not a Subsidiary of the Company owned by the Company or a
Restricted Subsidiary that is exchanged (the "Exchanged Capital Stock") for
Capital Stock of another Person all or substantially all of whose assets
are of a type used in a Related Business, either (i) the Exchanged Capital
Stock shall not have been acquired prior to such Asset Sale in reliance
upon clause (A) of this proviso or (ii) the requirements of subclauses (A)
(i) (based on the original guaranteed cash flow) and (A) (iii) shall be
satisfied with respect to any Capital Stock acquired in consideration of
the Exchanged Capital Stock.
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Restricted Payments that are made in compliance with, and are counted
against amounts available to be made as Restricted Payments pursuant to clause
(c) of, the "Limitation on Restricted Payments" covenant, without giving
effect to clause (i) of the second paragraph thereof, shall not be deemed to
be Asset Sales.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the
Exchange Act and the rules and regulations thereunder and all other applicable
Federal and state securities laws.
Limitations on Liens
The Indenture provides that the Company will not and will not permit any
Restricted Subsidiary, directly or indirectly, to Incur or suffer to exist any
Lien (other than Permitted Liens) upon any of its property or assets, whether
now owned or hereafter acquired.
Limitation on Status as Investment Company
The Indenture prohibits the Company and its Restricted Subsidiaries from
becoming "investment companies" (as that term is defined in the Investment
Company Act of 1940, as amended), or from otherwise becoming subject to
regulation under the Investment Company Act.
Limitation on Merger, Sale or Consolidation
The Indenture provides that the Company will not consolidate with or merge
with or into another Person, or sell, lease, convey, transfer or otherwise
dispose of all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions,
to another Person or group of affiliated Persons, unless (i) either (a) the
Company is the continuing entity or (b) the resulting, surviving or transferee
entity is a corporation organized under the laws of the United States, any
state thereof or the District of Columbia and expressly assumes by
supplemental indenture all of the obligations of the Company in connection
with the Notes and the Indenture; (ii) no Default or Event of Default shall
exist or shall occur immediately after giving effect on a pro forma basis to
such transaction; (iii) (A) immediately after giving effect to such
transaction on a pro forma basis, the consolidated resulting surviving or
transferee entity would immediately thereafter be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Annualized Operating Cash
Flow Ratio provision set forth in the second paragraph of the "Limitation on
Incurrence of Additional Indebtedness" covenant or (B), if the requirement of
clause (A) is not satisfied, (x) any Indebtedness of the resulting surviving
or transferee entity in excess of the amount of the Company's Indebtedness
immediately prior to such transaction is Permitted Acquisition Indebtedness
and (y) the requirement of clause (A) is not satisfied solely due to the
Incurrence of such Permitted Acquisition Indebtedness; and (iv) the Company
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, if applicable, confirming compliance with the requirements of this
covenant.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the Company is merged
or to which such transfer is made, shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Indenture
with the same effect as if such successor corporation had been named therein
as the Company, and the Company shall be released from the obligations under
the Notes and the Indenture.
Limitation on Lines of Business
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries shall directly or indirectly engage in any line or lines of
business activity other than that which, in the reasonable, good faith
judgment of the Board of Directors of the Company, is a Related Business.
Restriction on Sale and Issuance of Subsidiary Stock
The Indenture provides that the Company will not sell, and will not permit
any of its Restricted Subsidiaries to issue or sell, any shares of Capital
Stock of any Restricted Subsidiary of the Company other than Disqualified
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Capital Stock of PCW to any Person other than the Company or a Wholly Owned
Restricted Subsidiary of the Company, except for shares of common stock with
no preferences or special rights or privileges and with no redemption or
prepayment provisions ("Special Rights"); provided that, in the case of a
Restricted Subsidiary that is a partnership or joint venture partnership (a
"Restricted Partnership") the Company or any of its Restricted Subsidiaries
may sell or such Restricted Partnership may issue or sell Capital Stock of
such Restricted Partnership with Special Rights no more favorable than those
held by the Company or such Restricted Subsidiary in such Restricted
Partnership. Notwithstanding the foregoing, Holdings is required to own 100%
of the capital stock of PCW.
REPORTS
The Indenture provides that whether or not the Company is subject to the
reporting requirements of Section 13 or 15 (d) of the Exchange Act, the
Company shall deliver to the Trustee and to each Holder, within 15 days after
it is or would have been required to file such with the Commission, annual and
quarterly financial statements substantially equivalent to financial
statements that would have been included in reports filed with the Commission,
if the Company were subject to the requirements of Section 13 or 15(d) of the
Exchange Act, including, with respect to annual information only, a report
thereon by the Company's certified independent public accountants as such
would be required in such reports to the Commission, and in each case,
together with a management's discussion and analysis of financial condition
and results of operations which would be so required.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure by the Company
to pay any installment of interest on the Notes as and when the same becomes
due and payable and the continuance of any such failure for 30 days, (ii) the
failure by the Company to pay all or any part of the Accreted Value, or
premium, if any, on the Notes when and as the same becomes due and payable at
maturity, redemption, by acceleration or otherwise, including, without
limitation, payment of the Change of Control Purchase Price or the Asset Sale
Offer Price, (iii) the failure by the Company to observe or perform any other
covenant or agreement contained in the Notes or the Indenture and, subject to
certain exceptions, the continuance of such failure for a period of 30 days
after written notice is given to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in aggregate principal amount
of the Notes outstanding, (iv) certain events of bankruptcy, insolvency or
reorganization in respect of the Company or any of its Significant Restricted
Subsidiaries, (v) the failure to pay at final stated maturity (giving effect
to any applicable grace periods and any extensions thereof) the principal
amount of any Indebtedness of the Company or any Restricted Subsidiary of the
Company or the acceleration of the final stated maturity of any Indebtedness
if the aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to pay
principal at final maturity or which has been accelerated, aggregates
$15,000,000 or more at any time, and (vi) final unsatisfied judgments not
covered by insurance aggregating in excess of $5,000,000, at any one time
rendered against the Company or any of its Restricted Subsidiaries and not
stayed, bonded or discharged within 60 days. The Indenture provides that if a
default occurs and is continuing, the Trustee must, within 90 days after the
occurrence of such default, give to the Holders notice of such default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv) above) relating to the Company or any
Restricted Subsidiary, then in every such case, unless the Accreted Value of
all of the Notes shall have already become due and payable, either the Trustee
or the Holders of 25% in aggregate principal amount of the Notes then
outstanding, by notice in writing to the Company (and to the Trustee if given
by Holders) (an "Acceleration Notice"), may declare the Accreted Value 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 Agreement and the Company has guaranteed the
repayment of principal and interest on the Credit Agreement, shall become
immediately due and payable upon the first to occur of an acceleration under
the Credit Agreement or five business days after receipt by the Company and
the representative of the holders of the Indebtedness under the Credit
Agreement of the Acceleration Notice, but
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only if such Event of Default is then continuing. If an Event of Default
specified in clause (iv) above, relating to the Company or any significant
Restricted Subsidiary occurs, the Accreted Value 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 Accreted Value of, premium, if
any, and interest on the Notes which have become due solely by such
acceleration, have been cured or waived.
The Indenture provides that in the event of a declaration of acceleration of
the Notes because an Event of Default has occurred and is continuing as a
result of the acceleration of any Indebtedness described in clause of (v) of
the first paragraph under "--Events of Default and Remedies," the declaration
of acceleration of the Notes shall be automatically annulled if the holders of
all Indebtedness described in clause (v) (without any payment 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 Accreted Value of or interest on any Note not
yet cured, or a default with respect to any covenant or provision which cannot
be modified or amended without the consent of the Holder of each outstanding
Note affected. Subject to the provisions of the Indenture relating to the
duties of the Trustee, the Trustee will be under no obligation to exercise any
of its rights or powers under the Indenture at the request, order or direction
of any of the Holders, unless such Holders have offered to the Trustee
reasonable security or indemnity. Subject to all provisions of the Indenture
and applicable law, the Holders of a majority in aggregate principal amount of
the Notes at the time outstanding will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may, at its option and at any time,
elect to have its obligations discharged with respect to the outstanding Notes
("Legal Defeasance"). Such Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented, and
the Indenture shall cease to be of further effect as to all outstanding Notes,
except as to (i) rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments
are due from the trust funds; (ii) the Company's obligations with respect to
such Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes, and the maintenance of an office
or agency for payment and money for security payments held in trust; (iii) the
rights, powers, trust, duties, and immunities of the Trustee, and the
Company's obligations in connection therewith; and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to have the obligations of the Company released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, U.S. Legal Tender, non-callable government
securities or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on such Notes on the
stated date for payment thereof or on the redemption date of such principal or
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installment of principal of, premium, if any, or interest on such Notes, and
the holders of Notes must have a valid, perfected, exclusive security interest
in such trust; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from,
or there has been published by the Internal Revenue Service, a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
Federal income tax law, in each case to the effect that, and based thereon
such opinion of counsel shall confirm that, the holders of such Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
such Legal Defeasance, and will be subject to Federal income tax in the same
amount, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to such Trustee confirming
that the holders of such Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will
be subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance had
not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance shall not result in a breach or violation of, or
constitute a default under the Indenture or any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company shall
have delivered to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders
of such Notes over any other creditors of the Company or with the intent of
defeating, hindering, delaying or defrauding any other creditors of the
Company or others; and (vii) the Company shall have delivered to the Trustee
an Officers' Certificate stating that all conditions precedent provided for or
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Company and the Trustee to
enter into a supplemental indenture for certain limited purposes without the
consent of the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding,
the Company and the Trustee are permitted to amend or supplement the Indenture
or any supplemental indenture or modify the rights of the Holders; provided
that no such modification may, without the consent of each Holder affected
thereby: (i) change the Stated Maturity of any Note, or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest
thereon or any premium payable upon the redemption thereof, or change the
place of payment where, or the coin or currency in which, any Note or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption Date), or
reduce the Change of Control Purchase Price, or the Asset Sale Offer Price or
alter the security or redemption provisions or the provisions of the
"Repurchase of Notes at the Option of the Holder Upon a Change of Control"
covenant in a manner adverse to the Holders, or (ii) reduce the percentage in
principal amount of the outstanding Notes, the consent of whose Holders is
required for any such amendment, supplemental indenture or waiver provided for
in the Indenture, or (iii) modify any of the waiver provisions, except to
increase any required percentage or to provide that certain other provisions
of the Indenture cannot be modified or waived without the consent of the
Holder of each outstanding Note affected thereby. With the consent of Holders
of two-thirds of the outstanding aggregate principal amount of the Notes, the
Company and the Trustee are permitted to change the Change of Control Purchase
Date and the Asset Sale Offer Period.
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company or any
successor entity shall have any personal liability in respect of the
obligations of the Company under the Indenture or the Notes by reason of his
or its status as such stockholder, employee, officer or director.
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CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms contained in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Accreted Value" means, as of any date of determination prior to August 1,
2002, the sum of (a) the initial offering price of each Unit and (b) the
portion of the excess of the principal amount of each Note over such initial
offering price which shall have been accreted thereon through such date, such
amount to be so accreted at the rate of 13 1/2% per annum of the initial
offering price of the Units, compounded semi-annually on each February 1 and
August 1, from the date of issuance of the Units through the date of
determination. On and after August 1, 2002, the Accreted Value of the Notes
shall be equal to the principal amount thereof.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person or (ii) any officer,
director, or controlling stockholder of such other Person. For purposes of
this definition, the term "control" means (a) the power to direct the
management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
contract, or otherwise, or without limiting the foregoing, the beneficial
ownership of 10% or more of the voting power of the voting common equity of
such Person (on a fully diluted basis) or of warrants or other rights to
acquire such equity (whether or not presently exercisable).
"Annualized Operating Cash Flow" on any date, means with respect to any
Person the Operating Cash Flow for the Reference Period multiplied by four.
"Annualized Operating Cash Flow Ratio" on any date (the "Transaction Date")
means, with respect to any Person and its Subsidiaries, the ratio of (i)
consolidated Indebtedness of such Person and its Subsidiaries on the
Transaction Date (after giving pro forma effect to the Incurrence of such
Indebtedness) divided by (ii) the aggregate amount of Annualized Operating
Cash Flow of such Person (determined on a pro forma basis after giving effect
to all acquisitions or dispositions of businesses made by such Person and its
Subsidiaries from the beginning of the Reference Period through the
Transaction Date as if such acquisition or disposition had occurred at the
beginning of such Reference Period); provided that for purposes of such
computation, in calculating Annualized Operating Cash Flow and consolidated
Indebtedness, (a) the transaction giving rise to the need to calculate the
Annualized Operating Cash Flow Ratio will be assumed to have occurred (on a
pro forma basis) on the first day of the Reference Period; (b) the incurrence
of any Indebtedness during the Reference Period or subsequent thereto and on
or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to retire Indebtedness or to acquire businesses)
will be assumed to have occurred (on a pro forma basis) on the first day of
such Reference Period; (c) Consolidated Interest Expense attributable to any
Indebtedness (whether existing or being incurred) bearing a floating interest
rate shall be computed as if the rate in effect on the Transaction Date had
been the applicable rate for the entire period; and (d) all members of the
consolidated group of such Person on the Transaction Date that were acquired
during the Reference Period shall be deemed to be members of the consolidated
group of such Person for the entire Reference Period. When the foregoing
definition is used in connection with the Company and its Restricted
Subsidiaries, references to a Person and its Subsidiaries in the foregoing
definition shall be deemed to refer to the Company and its Restricted
Subsidiaries and when used in connection with PCW and its Subsidiaries shall
be deemed to refer to PCW and its Subsidiaries that are Restricted
Subsidiaries.
"Capitalized Lease Obligations" means obligations under a lease that are
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations, as determined in accordance with
GAAP.
"Capital Stock" means, with respect to any Person, any capital stock of such
Person and shares, interests, participations or other ownership interests
(however designated) of any Person and any rights (other than debt
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securities convertible into capital stock), warrants and options to purchase
any of the foregoing, including (without limitation) each class of common
stock and preferred stock of such Person if such Person is a corporation and
each general and limited partnership interest of such Person if such Person is
a partnership.
"Cash Equivalents" means (i) Securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) in each case maturing within
one year after the date of acquisition, (ii) time deposits and certificates of
deposit and commercial paper issued by the parent corporation of any domestic
commercial bank of recognized standing having capital and surplus in excess of
$500 million and commercial paper issued by others rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition and (iii) investments
in money market funds substantially all of whose assets comprise securities of
the types described in clauses (i) and (ii) above.
"Change of Control" means (i) any sale, transfer or other conveyance,
whether direct or indirect, of a majority of the fair market value of the
assets of the Company or Parent, on a consolidated basis, in one transaction
or a series of related transactions, if, immediately after giving effect to
such transaction, any "person" or "group" (as such terms are used for purposes
of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable),
other than an Excluded Person or Excluded Group or, if the Company is a direct
or indirect Subsidiary of any other Person immediately prior to such
transaction, other than such other Person or any Subsidiary of such other
Person that is a Parent or a Subsidiary of the Company, is or becomes the
"beneficial owner" (as such term is used in Rule l3d-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 l3d-3 promulgated
pursuant to the Exchange Act), directly or indirectly, of more than 50% of the
equity of the Company (unless the Company is a direct or indirect Subsidiary
of any other Person at any time of determination, in which case, of more than
50% of the equity of such other Person) then outstanding normally entitled to
vote in elections of directors, or (iii) during any period of 12 consecutive
months after the Issue Date, individuals who at the beginning of any such 12-
month period constituted the Board of Directors of the Company or Parent
(together with any new directors whose election by such Board or whose
nomination for election by the shareholders of the Company or Parent was
approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company or Parent then
in office; provided, however, that a merger or consolidation of Parent with or
into PriCellular Corporation will not be deemed to be a Change of Control.
"Consolidated Interest Expense" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case in
accordance with GAAP) of (a) interest expensed or capitalized, paid, accrued,
or scheduled to be paid or accrued (including, in accordance with the
following sentence, interest attributable to the Capitalized Lease
Obligations) of such Person and its consolidated Subsidiaries during such
period, including (i) original issue discount and non-cash interest payments
or accruals on any Indebtedness, (ii) the interest portion of all deferred
payment obligations, and (iii) all commissions, discounts and other fees and
charges owed with respect to bankers' acceptances and letters of credit
financings and currency and Interest Swap and Hedging Obligations, in each
case to the extent attributable to such period, and (b) the amount of
dividends accrued or payable by such Person or any of its consolidated
Subsidiaries in respect of Preferred Stock (other than by Restricted
Subsidiaries of such Person to such Person or such Person's Wholly Owned
Subsidiaries). For purposes of this definition, (x) interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined by the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP and (y) interest expense
attributable to any Indebtedness represented by the guaranty by such Person or
a Subsidiary of such Person of an obligation of another Person shall be deemed
to be the interest expense attributable to the Indebtedness guaranteed. When
the foregoing definition is used in
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connection with the Company and its Restricted Subsidiaries, references to a
Person and its Subsidiaries in the foregoing definition shall be deemed to
refer to the Company and its Restricted Subsidiaries and when used in
connection with PCW and its Subsidiaries shall be deemed to refer to PCW 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, (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 the Company and its Restricted
Subsidiaries, references to a Person and its Subsidiaries in the foregoing
definition shall be deemed to refer to the Company and its Restricted
Subsidiaries and when used in connection with PCW and its Subsidiaries shall
be deemed to refer to PCW and its Subsidiaries that are Restricted
Subsidiaries.
"Credit Agreement" means, the Credit Agreement described under "Description
of New Credit Facility," or any other senior loan facility in lieu thereof,
together with the related documents thereto (including, without limitation,
any guarantee agreements and security documents), in each case as such
agreements may be amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing, replacing or otherwise restructuring
or adding Restricted Subsidiaries of the Issuer as additional borrowers or
guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders. There can only be one such credit
facility or loan agreement designated to be the "Credit Agreement" at any one
time. Any Indebtedness in excess of $525,000,000 Incurred under the Credit
Agreement, which at the time of Incurrence satisfies the tests for incurrence
of additional indebtedness under paragraph two of the "Limitation on
Additional Indebtedness" covenant, shall thereafter be deemed to be
Indebtedness permitted under the Credit Agreement for all purposes, including,
without limitation, for purposes of clause (ii) of the third paragraph of the
"Limitation on Additional Indebtedness" and for purposes of application of
proceeds from Asset Sales pursuant to clause (3) of the first paragraph of the
"Limitation on Asset Sales and Sales of Subsidiary Stock" covenant.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect
against fluctuation in currency values.
"Default" means any event or condition that is, or after notice or passage
of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means, so long as it is in effect, the
Credit Agreement and, thereafter, any Senior Indebtedness designated by the
Company to be "Designated Senior Indebtedness."
"Disqualified Capital Stock" means, with respect to any Person, Capital
Stock of such Person that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the
happening of any event or the passage of time would be, required to be
redeemed or repurchased (including at the option of the holder thereof) by
such Person or any of its Subsidiaries, in whole or in part, on or prior to
the
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Stated Maturity of the Notes; provided that Capital Stock will not be deemed
to be Disqualified Capital Stock if it may only be so redeemed or repurchased
solely in consideration of Qualified Capital Stock of the Company or Parent.
"Excluded Group" means a "group" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) that includes one or more Excluded Persons;
provided that the voting power of the Capital Stock of the Company or Parent
"beneficially owned" (as such term is used in Rule 13d-3 promulgated under the
Exchange Act) by such Excluded Persons (without attribution to such Excluded
Persons of the ownership by other members of the "group") represents a
majority of the voting power of the Capital Stock "beneficially owned" (as
such term is used in Rule 13d-3 promulgated under the Exchange Act) by such
group.
"Excluded Person" means members of the Price family who owned Capital Stock
of the Parent and PriCellular Corporation on the Issue Date and any Affiliate
of any of the foregoing that is wholly owned by one of the foregoing.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence and outstanding on the Issue Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board ("FASB") or in such other statements
by such other entity as may be approved by a significant segment of the
accounting profession; 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.
"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.
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"Interest Swap and Hedging Obligations" means any obligations of any Person
pursuant to any interest rate swaps, caps, collars and similar arrangements
providing protection against fluctuations in interest rates. For purposes of
the Indenture, the amount of such obligations shall be the amount determined
in respect thereof as of the end of the then most recently ended fiscal
quarter of such Person, based on the assumption that such obligation had
terminated at the end of such fiscal quarter, and in making such
determination, if any agreement relating to such obligation provides for the
netting of amounts payable by and to such Person thereunder or if any such
agreement provides for the simultaneous payment of amounts by and to such
Person, then in each such case, the amount of such obligations shall be the
net amount so determined, plus any premium due upon default by such Person.
"Investment" by any Person in any other Person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise)
by such Person (whether for cash, property, services, securities or otherwise)
of capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities of such other Person or any agreement to make
any such acquisition; (b) the making by such Person of any deposit with, or
advance, loan or other extension of credit to, such other Person (including
the purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such other
Person) or any commitment to make any such advance, loan or extension; (c) the
entering into by such Person of any guarantee of, or other contingent
obligation with respect to, Indebtedness or other liability of such other
Person; (d) the making of any capital contribution by such Person to such
other Person; and (e) the designation by the Board of Directors of the Company
of any Person to be an Unrestricted Subsidiary. For purposes of the
"Limitation on Restricted Payments" covenant, (i) "Investment" shall include
and be valued at the fair market value of the net assets of any Restricted
Subsidiary at the time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any
Investment shall be the fair market value of such Investment plus the fair
market value of all additional Investments by the Company or any of its
Restricted Subsidiaries at the time any such Investment is made; provided
that, for purposes of this sentence, the fair market value of net assets in
excess of $5,000,000 shall be as determined by an independent appraiser of
national reputation.
"Issue Date" means the time and date of the first issuance of the Notes
under the Indenture.
"Junior Indebtedness" means Indebtedness of the Company that (i) requires no
payment of principal prior to or on the date on which all principal of and
interest on the Notes is paid in full and (ii) is subordinate and junior in
right of payment to the Notes in all respects.
"Lien" means any mortgage, lien, pledge, charge, security interest, or other
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement and any lease deemed to constitute a security interest and any
option or other agreement to give any security interest).
"Maturity Date" means, when used with respect to any Note, the date
specified on such Note as the fixed date on which the final installment of
principal of such Note is due and payable (in the absence of any acceleration
thereof pursuant to the provisions of the Indenture regarding acceleration of
Indebtedness or any Change of Control Offer, Proceeds Purchase Offer or Asset
Sale Offer).
"Merger" means the merger of PCW with and into Palmer.
"Merger Date" means the time and date of the consummation of the Merger.
"Net Cash Proceeds" means the aggregate amount of cash and Cash Equivalents
received by the Company and its Restricted Subsidiaries in respect of an Asset
Sale (including upon the conversion to cash and Cash Equivalents of (A) any
note or installment receivable at any time, or (B) any other property as and
when any cash and Cash Equivalents are received in respect of any property
received in an Asset Sale but only to the extent
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such cash and Cash Equivalents are received within one year after such Asset
Sale), less the sum of (i) all reasonable out-of-pocket fees, commissions and
other expenses incurred in connection with such Asset Sale, including the
amount (estimated in good faith by the Board of Directors of the Company) of
income, franchise, sales and other applicable taxes required to be paid by the
Company or any Restricted Subsidiary of the Company in connection with such
Asset Sale and (ii) the aggregate amount of cash so received which is used to
retire any existing Indebtedness of the Company 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 the Company or any of its
Restricted Subsidiaries, as the case may be.
"Net Pops" of any Person with respect to any System means the Pops of the
MSA or RSA served by such System multiplied by the direct and/or indirect
percentage interest of such Person in the entity licensed or designated to
receive an authorization by the Federal Communications Commission to construct
or operate a System in that MSA or RSA.
"Net Proceeds" means the aggregate net proceeds (including the fair market
value of non-cash proceeds constituting equipment or other assets of a type
generally used in a Related Business an amount reasonably determined by the
Board of Directors of the Company for amounts under $5,000,000 and by a
financial advisor or appraiser of national reputation for equal or greater
amounts) received by a Person from the sale of Qualified Capital Stock (other
than to a Subsidiary of such Person) after payment of out-of-pocket expenses,
commissions and discounts incurred in connection therewith.
"Obligation" means any principal, premium, interest (including interest
accruing subsequent to a bankruptcy or other similar proceeding whether or not
such interest is an allowed claim enforceable against the Company in a
bankruptcy case under Federal bankruptcy law), penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable
pursuant to the terms of the documentation governing any Indebtedness.
"Operating Cash Flow" of any Person means (a), with respect to any period,
the Consolidated Net Income of such Person for such period, plus (b) the sum,
without duplication (and only to the extent such amounts are deducted from net
revenues in determining such Consolidated Net Income), of (i) the provisions
for income taxes for such period for such Person and its consolidated
Subsidiaries, (ii) depreciation, amortization and other non-cash charges of
such Person and its consolidated Subsidiaries and (iii) Consolidated Interest
Expense of such Person for such period, determined, in each case, on a
consolidated basis for such Person and its consolidated Subsidiaries in
accordance with GAAP, less (c) the amount of all cash payments made during
such period by such Person and its Subsidiaries to the extent such payments
relate to non-cash charges that were added back in determining Operating Cash
Flow for such period or for any prior period. When the foregoing definition is
used in connection with the Company and its Restricted Subsidiaries,
references to a Person and its Subsidiaries in the foregoing definition shall
be deemed to refer to the Company and its Restricted Subsidiaries and when
used in connection with PCW and its Subsidiaries shall be deemed to refer to
PCW 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 the Company.
"Permitted Acquisition Indebtedness" means, with respect to any Person,
Indebtedness Incurred in connection with the acquisition of property,
businesses or assets which, or Capital Stock of a Person all or substantially
all of whose assets, are of a type generally used in a Related Business;
provided that, in the case of the Company or its Restricted Subsidiaries, as
applicable, (x) (i) the Company's or PCW's, 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) the Company's
or PCW's, as the case may be, consolidated unsubordinated Indebtedness,
divided by the Net Pops of the Company or PCW, 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 $120, (iii) the Company's or
PCW's, as the case may be, consolidated Indebtedness divided by the Net Pops
of the Company or PCW, as the case may be, and its
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Restricted Subsidiaries does not exceed $160 as a result of the acquisition
and such Incurrence and (iv) after giving effect to such acquisition and such
Incurrence the acquired property, businesses or assets or such Capital Stock
is owned directly by the Company or PCW, 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 the Company or any Person that constituted a
Restricted Subsidiary immediately prior to the consummation of such
acquisition or any of their property or assets, (ii) the obligor of such
Indebtedness shall have, immediately after giving effect to such acquisition
and such Incurrence on a pro forma basis, a ratio of Annualized Operating Cash
Flow as of the date of the acquisition to the product of Consolidated Interest
Expense for the Reference Period multiplied by four (but excluding from
Consolidated Interest Expense all amounts that are not required to be paid in
cash on a current basis) of at least l to l and (iii) immediately subsequent
to the Incurrence of such Indebtedness, the obligor thereof shall be a
Restricted Subsidiary and shall have been designated by the Company (as
evidenced by an Officers' Certificate delivered promptly to the Trustee) to be
a "Non-Recourse Restricted Subsidiary."
"Permitted Investment" means (i) Investments in Cash Equivalents; (ii)
Investments in the Company or a Restricted Subsidiary (other than a Non-
Recourse Restricted Subsidiary); (iii) Investments in a Person substantially
all of whose assets are of a type generally used in a Related Business (an
"Acquired Person") if, as a result of such Investments, (A) the Acquired
Person immediately thereupon becomes a Restricted Subsidiary (other than a
Non-Recourse Restricted Subsidiary) or (B) the Acquired Person immediately
thereupon either (1) is merged or consolidated with or into the Company or any
of its Restricted Subsidiaries (other than a Non-Recourse Restricted
Subsidiary) and the surviving Person is the Company or a Restricted Subsidiary
(other than a Non-Recourse Restricted Subsidiary) or (2) transfers or conveys
all or substantially all of its assets to, or is liquidated into, the Company
or any of its Restricted Subsidiaries (other than a Non-Recourse Restricted
Subsidiary); (iv) Investments in accounts and notes receivable acquired in the
ordinary course of business; (v) any securities received in connection with an
Asset Sale (other than those of a Non-Recourse Restricted Subsidiary) and any
investment with the Net Cash Proceeds from any Asset Sale in Capital Stock of
a Person, all or substantially all of whose assets are of a type used in a
Related Business, that complies with the "Limitation on Asset Sales and Sales
of Subsidiary Stock" covenant; (vi) any guarantee issued by a Restricted
Subsidiary in respect of Indebtedness of 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 the
Company or a Restricted Subsidiary; (viii) Investments in Non-Recourse
Restricted Subsidiaries with the proceeds of contributions irrevocably and
unconditionally received without restriction by the Company from Parent; and
(ix) customary loans or advances made in the ordinary course of business to
officers, directors or employees of the Company or any of its Restricted
Subsidiaries for travel, entertainment, and moving and other relocation
expenses.
"Permitted Lien" means (a) Liens existing on the Issue Date; (b) Liens
imposed by governmental authorities for taxes, assessments or other charges
not yet subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (c) statutory
liens of carriers, warehousemen, mechanics, materialmen, landlords, repairmen
or other like Liens arising by operation of law in the ordinary course of
business provided that (i) the underlying obligations are not overdue for a
period of more than 30 days, and (ii) such Liens are being contested in good
faith and by appropriate proceedings and adequate reserves with respect
thereto are maintained on the books of the Company in accordance with GAAP;
(d) Liens securing the performance of bids, trade contracts (other than
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business; (e) easements, rights-of-way, zoning, similar
restrictions and other similar encumbrances or title defects which, singly or
in the aggregate, do not in any case materially detract from the value of the
property, subject thereto (as such property is used by the Company or any of
its Restricted Subsidiaries) or interfere with the ordinary conduct of the
business of the Company or any of its Restricted Subsidiaries; (f) Liens
arising by operation of law in connection with judgments, only to the extent,
for an amount and for a period not resulting in an Event of Default with
respect
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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 the Company or a Restricted Subsidiary, provided that such Liens
were in existence prior to the date of such acquisition, merger or
consolidation, were not incurred in anticipation thereof, and do not extend to
any other assets; (l) Liens arising from Purchase Money Indebtedness permitted
under the Indenture; (m) Liens securing Refinancing Indebtedness Incurred to
refinance any Indebtedness that was previously so secured in a manner no more
adverse to the Holders of the Notes than the terms of the Liens securing such
refinanced Indebtedness; and (n) Liens in favor of the Company or a Wholly
Owned Restricted Subsidiary.
"Person" means any corporation, individual, joint stock company, joint
venture, partnership, unincorporated association, governmental regulatory
entity, country, state or political subdivision thereof, trust, municipality
or other entity.
"Pops" means the estimate of the population of a Metropolitan Statistical
Area ("MSA") or Rural Service Area ("RSA") as derived from: (i) the most
recent Donnelly Market Service or if such statistics are no longer printed in
the Donnelly Market Service or the Donnelly Market Service is no longer
published, the most recent Rand McNally Commercial Atlas, or if such
statistics are no longer printed in the Rand McNally Commercial Atlas or if
the Rand McNally Commercial Atlas is no longer published, such other
nationally recognized source of such information; or (ii) the most recent
United States Census Bureau reports as to any year in respect of which such
reports are published.
"Purchase Money Indebtedness" means Indebtedness of the Company or its
Restricted Subsidiaries Incurred in connection with the purchase of property
or assets for the business of the Company or its Restricted Subsidiaries,
provided that the recourse of the lenders with respect to such Indebtedness is
limited solely to the property or assets so purchased without further recourse
to either the Company or any of its Restricted Subsidiaries.
"Qualified Capital Stock" means any Capital Stock of a Person that is not
Disqualified Capital Stock.
"Reference Period" with regard to any Person means the last full fiscal
quarter of such Person for which financial information (which the Company
shall use its best efforts to compile in a timely manner) in respect thereof
is available ended on or immediately preceding any date upon which any
determination is to be made pursuant to the terms of the Notes or the
Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or
(b) constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the
case of Disqualified Capital Stock, liquidation preference (or if such
Indebtedness or Disqualified Capital Stock does not require cash payments
prior to maturity or is otherwise issued at a discount, the original issue
price of such Indebtedness or Disqualified Capital Stock), not to exceed the
sum of (x) the lesser of (i) the principal amount or, in the case of
Disqualified Capital Stock, liquidation preference, of the Indebtedness or
Disqualified Capital Stock so Refinanced and (ii) if such Indebtedness being
Refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such
Refinancing, (y) the amount of any premium required to be paid in connection
with such refinancing pursuant to the terms of such Indebtedness and (z) all
other customary fees and expenses of the Company or such Restricted Subsidiary
reasonably incurred in connection
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with such refinancing; provided that (A) Refinancing Indebtedness issued by
any Restricted Subsidiary of the Company shall only be used to Refinance
outstanding Indebtedness or Disqualified Capital Stock of such Restricted
Subsidiary, (B) Refinancing Indebtedness shall (x) not have a Weighted Average
Life shorter than the Indebtedness or Disqualified Capital Stock to be so
refinanced at the time of such Refinancing and (y) in all respects, be no less
subordinated or junior, if applicable, to the rights of Holders of the Notes
than was the Indebtedness or Disqualified Capital Stock to be refinanced and
(C) such Refinancing Indebtedness shall have no installments of principal (or
redemption payment) scheduled to come due earlier than the scheduled maturity
of any installment of principal (or redemption payment) of the Indebtedness or
Disqualified Capital Stock to be so refinanced which was scheduled to come due
prior to the Stated Maturity of the Notes.
"Related Business" means any business directly related to the ownership,
development, operation, and acquisition of wireless cellular communications
systems.
"Related Person" means, with respect to any Person, (i) any Affiliate of
such Person or any spouse, immediate family member, or other relative who has
the same principal residence of any Affiliate of such Person and (ii) any
trust in which any Person described in clause (i) above, has a beneficial
interest.
"Restricted Payment" means, with respect to any Person, (i) any dividend or
other distribution on shares of Capital Stock of such Person, its Parent, or
any Subsidiary of such Person, (ii) any payment on account of the purchase,
redemption or other acquisition or retirement for value, or any payment in
respect of any amendment (in anticipation of or in connection with any such
retirement, acquisition or defeasance) in whole or in part, of any shares of
Capital Stock of such Person, its Parent, or any Subsidiary of such Person
held by Persons other than such Person or any of its Restricted Subsidiaries,
(iii) any defeasance, redemption, repurchase or other acquisition or
retirement for value, or any payment in respect of any amendment (in
anticipation of or in connection with any such retirement, acquisition or
defeasance) in whole or in part, of any Indebtedness of the Company (other
than the scheduled repayment thereof at maturity and any mandatory redemption
or mandatory repurchase thereof pursuant to the terms thereof) by such Person
or a Subsidiary of such Person that is subordinate in right of payment to, or
ranks pari passu (other than the Notes) with, the Notes (other than in
exchange for Refinancing Indebtedness permitted to be Incurred under the
Indenture and except for any such defeasance, redemption, repurchase, other
acquisition or payment in respect of Indebtedness held by any Restricted
Subsidiary) and (iv) any Investment (other than a Permitted Investment);
provided, however, that the term "Restricted Payment" does not include (i) any
dividend, distribution or other payment on shares of Capital Stock of the
Company or any Restricted Subsidiary solely in shares of Qualified Capital
Stock, (ii) any dividend, distribution or other payment to the Company, or any
dividend to any of its Restricted Subsidiaries, by any of its Subsidiaries,
(iii) the purchase, redemption or other acquisition or retirement for value of
shares of Capital Stock of any Restricted Subsidiary (other than Non-Recourse
Restricted Subsidiaries) held by Persons other than the Company or any of its
Restricted Subsidiaries, (iv) payments to satisfy obligations to pay statutory
appraisal rights resulting from the Merger and any settlement in respect
thereof to security holders of Palmer, (v) fees and expenses incurred in
connection with the Merger and (vi) cash payments in respect of purchases of
options and rights for shares of Palmer common stock issued pursuant to
Palmer's 1995 Stock Option Plan, 1995 Directors' Stock Option Plan, 1995
Employee Stock Purchase Plan and 1995 Non-Employee Director Stock Purchase
Plan.
"Restricted Subsidiary" means any Subsidiary of the Company which at the
time of determination is not an Unrestricted Subsidiary. The Board of
Directors of the Company may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if, immediately before and after giving effect to
such designation, there would exist no Default or Event of Default and the
Company could incur at least $1.00 of Indebtedness pursuant to the Annualized
Operating Cash Flow Ratio test of the "Limitation on Incurrence of Additional
Indebtedness" covenant, on a pro forma basis taking into account such
designation.
"Significant Restricted Subsidiary" means one or more Restricted
Subsidiaries having an aggregate net book value of assets in excess of 5% of
the net book value of the assets of the Company and its Restricted
Subsidiaries on a consolidated basis.
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"Stated Maturity" means the date fixed for the payment of any principal or
premium pursuant to the Indenture and the Notes, including the Maturity Date,
upon redemption, acceleration, Asset Sale Offer, Proceeds Purchase Offer,
Change of Control Offer or otherwise.
"Subsidiary" with respect to any Person, means (i) a corporation at least
fifty percent of whose Capital Stock with voting power, under ordinary
circumstances to elect directors is at the time, directly or indirectly, owned
by such Person, by such Person and one or more Subsidiaries of such Person or
by one or more Subsidiaries of such Person, or (ii) a partnership in which
such Person or a Subsidiary of such Person is, at the time, a general partner
of such partnership, or (iii) any Person in which such Person, one or more
Subsidiaries of such Person, or such Person and one or more Subsidiaries of
such Person, directly or indirectly, at the date of determination thereof has
(x) at least a fifty percent ownership interest or (y) the power to elect or
direct the election of the directors or other governing body of such Person.
"Unrestricted Subsidiary" shall mean any Subsidiary of the Company that, at
the time of determination, shall be an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below). The Board of
Directors of the Company may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary at or prior to the
time it is so formed or acquired) to be an Unrestricted Subsidiary if (a) no
Default or Event of Default is existing or will occur as a consequence
thereof, (b) such Subsidiary does not own any Capital Stock of, or own or hold
any Lien on any property or asset of, the Company or any Restricted Subsidiary
that is not a Subsidiary of the Subsidiary to be so designated and (c) such
Subsidiary and each of its Subsidiaries has not at the time of designation,
and does not thereafter, create, incur, issue, assume, guarantee, or otherwise
become directly or indirectly liable with respect to any Indebtedness pursuant
to which the lender has recourse to any property or assets of the Company or
any of its Restricted Subsidiaries (except that such Subsidiary and its
Subsidiaries may guarantee the Notes); provided that either (A) the Subsidiary
to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, that such designation would be
permitted under the "Limitation on Restricted Payments" covenant. Each such
designation shall be evidenced by filing with the Trustee a certified copy of
the resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions.
"Voting Stock" means Capital Stock of the Company having generally the right
to vote in the election of a majority of the directors of the Company or
having generally the right to vote with respect to the organizational matters
of the Company.
"Weighted Average Life" means, as of the date of determination, with respect
to any debt instrument, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such debt instrument
multiplied by the amount of each such respective principal payment by (ii) the
sum of all such principal payments.
"Wholly Owned" means, with respect to a Subsidiary of the Company, (i) a
Subsidiary that is a corporation, of which not less than 99% of the Capital
Stock (except for directors' qualifying shares or certain minority interests
owned by other Persons solely due to local law requirements that there be more
than one stockholder, but which interest is not in excess of what is required
for such purpose) is owned directly by such Person or through one or more
other Wholly Owned Subsidiaries of such Person, or (ii) any entity other than
a corporation in which such Person, directly or indirectly, owns not less than
99% of the Capital Stock of such entity.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Holders of New Notes are not entitled to any registration rights with
respect to the New Notes. Holders of Old Notes are entitled to certain
registration rights pursuant to the Registration Rights Agreement. Pursuant to
the Registration Rights Agreement, the Company has agreed to file with the SEC
and have declared effective on or prior to January 8, 1998 a registration
statement (the "Exchange Offer Registration Statement") under the Securities
Act with respect with the Exchange Offer. The Company also agreed that, after
the effectiveness of the Exchange Offer Registration Statement, it would,
subject to certain conditions, offer to the Holders of Old Notes who are able
to make certain representations the opportunity to exchange their Old Notes
for New Notes.
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In the event that applicable interpretations of the staff of the SEC do not
permit the Company to effect the Exchange Offer ("SEC Blockage") or do not
permit any Holder of Old Notes, subject to certain limitations, to participate
in such Exchange Offer, the Company has agreed to file with the SEC a shelf
registration statement (the "Shelf Registration Statement") to cover resales
of the applicable Old Notes. The Registration Statement of which this
Prospectus is a part constitutes the Exchange Offer Registration Statement.
The Registration Rights Agreement provides that the Company will use its
reasonable best efforts to have the Exchange Offer Registration Statement
(and, if applicable, a Shelf Registration Statement) declared effective by the
SEC on or prior to January 8, 1998. If the Exchange Offer has not been
consummated by February 7, 1998 (unless there exists a SEC Blockage) (such
event, a "Registration Default"), the Company will pay liquidated damages to
each Holder of Old Notes, during the first 90-day period immediately following
the occurrence of such Registration Default in an amount equal to $0.05 per
week per $1,000 principal amount at maturity of Notes constituting Old Notes
held by such Holder. The amount of the liquidated damages will increase by an
additional $0.05 per week per $1,000 of Accreted Value constituting Old Notes
for each subsequent 90-day period until the Exchange Offer is consummated, up
to a maximum amount of liquidated damages of $0.25 per week per $1,000
principal amount at maturity of Notes constituting Old Notes. All accrued
liquidated damages shall be paid to Holders in the same manner as interest
payments on the Notes and on interest payment dates for the Notes.
The Registration Rights Agreement provides that the Company (i) shall make
available for a period of 90 days after the consummation of the Exchange Offer
a prospectus meeting the requirements of the Securities Act to any broker-
dealer for use in connection with any resale of any such New Notes and (ii)
shall pay all expenses incident to the Exchange Offer (including the expenses
of one counsel to the Holders of the Notes) and will indemnify certain Holders
of the Notes (including any broker-dealer) against certain liabilities,
including liabilities under the Securities Act.
Holders of Old Notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
liquidated damages set forth in the preceding sentence. In addition, for so
long as the Notes are outstanding, the Company will continue to provide to
Holders of Notes and to prospective purchasers of the Notes the information
required by Rule 144A(d)(4). The Company will provide a copy of the
Registration Rights Agreement to prospective investors upon request.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee
contained in the Indenture by the Guarantor in for the benefit of the Trustee
and the holders from to time of the Notes. The Guarantee is issued under the
Indenture, which has been filed as an exhibit to the Registration Statement of
which this Prospectus constitutes a part. The terms of the Guarantee include
those stated in the Indenture and those made part of the Indenture by
reference to the TIA. The following summary of certain provisions of the
Guarantee 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.
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.
GENERAL
Pursuant to the Guarantee, the Guarantor has irrevocably and unconditionally
agreed, to the extent set forth therein, to pay in full, to the holders of
Notes authenticated and delivered by the Trustee and to the Trustee, (without
duplication of amounts theretofore paid by the Company), irrespective of the
validity and enforceability of the Indenture, the Notes or the obligations of
the Company thereunder, the following payments or distributions to the extent
not paid or made by the Company (the "Guaranteed Obligations") (without
duplication): (i) the due and punctual payment of the principal of, premium,
if any, interest (including post-petition interest in any proceeding under any
bankruptcy law whether or not an allowed claim in such proceeding) and
interest (including post-petition interest in any proceeding under any
bankruptcy law whether or not an allowed claim in such proceeding) on overdue
principal, premium, if any, and interest, if lawful on such Note, and (ii) all
other monetary obligations payable by the Company under the Indenture and the
Notes, when and as the same shall become due and payable, whether by
acceleration thereof, call for redemption or otherwise.
The Guarantee shall not be valid or become obligatory for any purpose with
respect to any Note until the certificate of authentication on such Note shall
have been signed by or on behalf of the Note. The delivery of any Note by the
Trustee, after the authentication thereof, shall constitute due delivery of
the Guarantee.
CERTAIN COVENANTS OF THE GUARANTOR
The Guarantee restricts the business in which the Guarantor is permitted to
engage to the ownership of 100% of the capital stock of the Company and to
acquire licenses pending before the FCC in respect of television stations on
August 1, 1997 and related television stations and properties, and prohibits
the Guarantor and its Subsidiaries from taking any action or omitting to take
any action, which action or omission would or could reasonably be expected to
have the effect of impairing the security interest in favor of the Trustee on
behalf of the holders of the Notes with respect to the Collateral. The
Guarantor is required to own 100% of the capital stock of PCW. The Guarantee
prohibits the Guarantor from incurring or permitting to exist Indebtedness
(other than pursuant to the Guarantee) and from creating, incurring, or
permitting to exist any Liens on its assets (other than Liens securing the
Guarantee). The Guarantee also prohibits the Guarantor from selling,
transferring or otherwise disposing of any of its assets other than Qualified
Capital Stock and television licenses and related television stations and
properties described above. In addition the Guarantee prohibits the Guarantor
from making Investments in any Person (other than common equity contributions
to the Company) except for Permitted Investments of the kind described in
clauses (i) and (ii) of the definition of Permitted Investments.
AMENDMENTS AND ASSIGNMENT
The Guarantee may be amended in accordance with the general provisions of
the Indenture governing amendments. See "Description of the Notes--Amendments
and Supplements". The Guarantee shall bind the successors and assigns of the
Guarantor and shall inure to the benefit of the Trustee and the holders of the
Notes
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and, in the event of any transfer or assignment of rights by any holder or the
Trustee, the rights and privileges conferred upon that party in the Indenture
and in the Notes shall automatically extend to and be vested in such
transferee or assignee, subject to the terms and conditions of the Indenture.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect when the
Indenture shall have terminated and the principal of and interest on the Notes
and all other Guaranteed Obligations shall have been paid in full.
Notwithstanding the foregoing, if at any time any payment of the principal of
or interest on any Note or any other payment in respect of any Guaranteed
Obligation is rescinded or must be otherwise restored or returned, the
Guarantor's obligations under the Guarantee with respect to such payment shall
be reinstated as though such payment has been due but not made at such time
and the Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect.
STATUS OF THE GUARANTEE
The Guarantee ranks pari passu in right of payment with all other senior
indebtedness of the Guarantor and senior in right of payment to all
subordinated indebtedness of the Guarantor. As of the Issue Date, the
Company's capital stock is the only significant asset of the Guarantor and
dividends on the Company's capital stock will be the sole source of funds
available to the Guarantor to meet its obligations, including its obligations
under the Guarantee. The Guarantor is required to own 100% of the common stock
of Holdings. The payment of dividends on the Company's capitals stock,
however, is significantly restricted by certain covenants contained in the
Indenture, the Senior Subordinated Notes Indenture and in the Credit Agreement
and may be restricted by other agreements entered into by the Company in the
future and by applicable law. See "Risk Factors--Guarantee and Security for
the Notes." The Guarantee is secured, in the manner and to the extent
summarized below under "Description of the Guarantee--Security," by a pledge
of all of the issued and outstanding capital stock of the Company.
The Guarantee constitutes a guarantee of payment, performance and compliance
when due and not of collection (that is, the guaranteed party may institute a
legal proceeding directly against the guarantor to enforce its rights under
the guarantee without first instituting a legal proceeding against any other
person or entity). The Guarantee provides that (x) the maturity of the
Guaranteed Obligations may be accelerated as provided in "Description of the
Notes--Events of Default and Remedies" for the purposes of the Guarantee
notwithstanding any prohibition preventing such acceleration of the Guaranteed
Obligations and (y) in the event of any declaration of acceleration of the
Guaranteed Obligations, such Guaranteed Obligations shall forthwith become due
and payable by the Guarantor for the purpose of the Guarantee. The rights and
limitations described in "Description of Notes--Events of Default and
Remedies" are applicable to the Guarantee, and if the Guarantor fails to make
any guarantee payment, a holder of the Notes may directly institute a
proceeding against the Guarantor for the enforcement of the Guarantee for such
payment. The Guarantor has agreed to pay any and all costs and expenses
(including reasonable attorney's fees) incurred by the Trustee or any holder
in enforcing any rights under the Guarantee.
SECURITY
Pursuant to the Indenture, the Guarantor assigned and pledged to the
Trustee, for its benefit and the benefit of the Holders of the Notes, a
security interest in the capital stock of the Company and certain proceeds
from time to time received, receivable or otherwise distributed in respect
thereof (the "Collateral"). The Guarantor also agreed to assign and pledge to
the Trustee as part of the Collateral all shares of capital stock of the
Company hereafter acquired by it. The security interest in the Collateral is a
first-priority security interest. However, absent an acceleration of the
Notes, the Guarantor will be able to vote, as it sees fit in its sole
discretion, the capital stock of the Company. Further, any transfer of the
power to vote the capital stock of the Company, including as a result of
foreclosure on pledged capital stock, will require FCC approval.
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There can be no assurance that the proceeds of any sale of the Collateral
pursuant to the Indenture following an Event of Default would be sufficient to
satisfy payments due on the Notes. See "Risk Factors,Guarantee and Security
for the Notes." In addition, the ability of the Holders of Notes to realize
upon the Collateral may be subject to obtaining FCC approval as described
above and certain bankruptcy law limitations in the event of a bankruptcy. See
"Risk Factors--Certain Other Bankruptcy Considerations."
If an Event of Default occurs under the Indenture, the Trustee, on behalf of
the Holders of the Notes, in addition to any rights or remedies available to
it under the Indenture, may take such action as it deems advisable to protect
and enforce its rights in the Collateral, including the institution of
foreclosure proceedings. The proceeds received by the Trustee from any
foreclosure will be applied by the Trustee first to pay the expenses of such
foreclosure and fees and other amounts then payable to the Trustee under the
Indenture and, thereafter, to pay the principal of and interest on the Notes.
GOVERNING LAW
The Guarantee is governed by, and construed in accordance with, the laws of
the State of New York.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not result in any federal income tax consequences to Holders. When a Holder
exchanges an Old Note for a New Note pursuant to the Exchange Offer, the
Holder will have the same adjusted basis and holding period in the New Note as
in the Old Note immediately before the exchange.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 90 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any such broker-dealer for use in connection with any such
resale. The Company will not receive any proceeds from any sale of New Notes
by broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker-dealer that participates
in a distribution of such New Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
New Notes and any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities Act. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal.
The Company has agreed in the Registration Rights Agreement to indemnify
each broker-dealer reselling New Notes pursuant to this Prospectus, and their
officers, directors and controlling persons, against certain liabilities in
connection with the offer and sale of the New Notes, including liabilities
under the Securities Act, or to contribute to payments that such broker-
dealers may be required to make in respect thereof.
LEGAL MATTERS
The legality of the New Notes offered hereby will be passed upon for the
Company by Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated balance sheet of Price Communications Cellular Holdings,
Inc. and subsidiaries as of September 30, 1997, and the related statements of
operations, shareholder's equity and cash flows for the period since inception
(May 29, 1997) through September 30, 1997 and the consolidated balance sheet
of Price Communications Cellular Inc. and subsidiaries as of September 30,
1997 included in this prospectus and elsewhere in the registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
100
<PAGE>
The consolidated balance sheets of Palmer Wireless, Inc. and subsidiaries as
of December 31, 1996 and 1995 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three years ended December 31, 1996 appearing in this Prospectus and
Registration Statement have been audited by KPMG Peat Marwick LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
AVAILABLE INFORMATION
This Prospectus constitutes a part of the Registration Statement on Form S-4
under the Securities Act filed by the Company with the SEC under the
Securities Act. As permitted by the rules and regulations of the SEC, this
Prospectus does not contain all of the information contained in the
Registration Statement and the exhibits and schedules thereto and reference is
hereby made to the Registration Statement and the exhibits and schedules
thereto for further information with respect to the Company and the Notes
offered hereby. Statements contained herein concerning the provisions of any
documents filed as an exhibit to the Registration Statement or otherwise filed
with the SEC are not necessarily complete, and in each instance reference is
made to the copy of such document so filed. Each such statement is qualified
in its entirety by such reference.
CERTAIN TERMS
Interests in cellular markets that are licensed by the FCC are commonly
measured on the basis of the population of the market served, with each person
in the market area referred to as a "Pop." The number of Pops or Net Pops
owned is not necessarily indicative of the number of subscribers or potential
subscribers. As used in this Prospectus, unless otherwise indicated, the term
"Pops" means the estimate of the 1996 population of an MSA or RSA, as derived
from the 1996 Donnelley Market Information Service. The term "Net Pops" means
the estimated population with respect to a given service area multiplied by
the percentage interest that the Company owns in the entity licensed in such
service area. MSAs and RSAs are also referred to as "markets." The term
"wireline" license refers to the license for any market initially awarded to a
company or group that was affiliated with a local landline telephone carrier
in the market, and the term "non-wireline" license refers to the license for
any market that was initially awarded to a company, individual or group not
affiliated with any landline carrier. The term "System" means an FCC-licensed
cellular telephone system. The term "CTIA" means the Cellular
Telecommunications Industry Association.
101
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PALMER WIRELESS, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets, December 31, 1995 and 1996 ................ F-3
Consolidated Statements of Operations, Years Ended December 31, 1994,
1995 and 1996 ......................................................... F-4
Consolidated Statements of Stockholders' Equity, Years Ended December
31, 1994, 1995 and 1996................................................ F-5
Consolidated Statements of Cash Flows, Years Ended December 31, 1994,
1995 and 1996 ......................................................... F-6
Notes to Consolidated Financial Statements ............................. F-8
Condensed Consolidated Balance Sheets, December 31, 1996 and September
30, 1997(Unaudited) ................................................... F-20
Condensed Consolidated Statements of Operations, Nine Months Ended
September 30, 1996 and 1997 (Unaudited) ............................... F-21
Condensed Consolidated Statements of Stockholders' Equity, Year Ended
December 31, 1996 and Nine Months Ended September 30, 1997 (Unaudited)
....................................................................... F-22
Condensed Consolidated Statements of Cash Flows, Nine Months Ended
September 30, 1996 and 1997 (Unaudited) ............................... F-23
Notes to Condensed Consolidated Financial Statements (Unaudited) ....... F-24
</TABLE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
<TABLE>
<S> <C>
Report of Independent Accountants....................................... F-25
Consolidated Balance Sheet, September 30, 1997.......................... F-26
Consolidated Statement of Operations for the period since inception (May
29, 1997) through September 30, 1997................................... F-27
Consolidated Statement of Cash Flows for the period since inception (May
29, 1997) through September 30, 1997................................... F-28
Consolidated Statement of Stockholder's Equity for the period since
inception (May 29, 1997) through September 30, 1997.................... F-29
Notes to Consolidated Financial Statements.............................. F-30
</TABLE>
PRICE COMMUNICATIONS CELLULAR INC.
<TABLE>
<S> <C>
Report of Independent Accountants........................................ F-32
Consolidated Balance Sheet, September 30, 1997........................... F-33
Notes to Consolidated Financial Statements............................... F-34
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Palmer Wireless, Inc.:
We have audited the accompanying consolidated balance sheets of Palmer
Wireless, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Palmer
Wireless, Inc. and subsidiaries at December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Des Moines, Iowa
January 30, 1997,
except for Note 10 which is as of
February 1, 1997
F-2
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS (NOTE 4)
Current assets:
Cash and cash equivalents....................... $ 3,436 $ 1,698
Trade accounts receivable, net of allowance for
doubtful accounts of $1,880 in 1995 and $1,791
in 1996........................................ 17,347 18,784
Receivable from other cellular carriers......... 3,936 1,706
Prepaid expenses and deposits................... 1,111 2,313
Inventory....................................... 2,434 5,106
Deferred income taxes (note 5).................. 821 830
-------------- --------------
Total current assets.......................... $ 29,085 $ 30,437
-------------- --------------
Property, plant and equipment:
Land and improvements........................... 3,796 5,238
Buildings and improvements...................... 5,120 7,685
Equipment, communication systems, and
furnishings.................................... 127,140 166,735
-------------- --------------
$ 136,056 $ 179,658
Less accumulated depreciation and amortization.. 35,120 47,220
-------------- --------------
Net property, plant and equipment............... $ 100,936 $ 132,438
-------------- --------------
Licenses and goodwill, at cost less accumulated
amortization of $20,828 in 1995 and $30,188 in
1996 (note 3)................................... 321,053 375,808
Other intangible assets and other assets, at cost
less accumulated amortization of $4,471 in 1995
and $7,311 in 1996.............................. 11,797 11,259
-------------- --------------
Total assets.................................. $ 462,871 $ 549,942
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note
4)............................................. $ 7,441 $ 5,296
Notes payable (note 4).......................... -- 1,366
Accounts payable................................ 10,795 10,394
Accrued interest payable........................ 2,508 2,341
Accrued salaries and employee benefits.......... 2,267 2,432
Other accrued liabilities....................... 4,058 3,626
Deferred revenue................................ 2,860 3,929
Customer deposits............................... 591 757
-------------- --------------
Total current liabilities..................... $ 30,520 $ 30,141
Long-term debt, excluding current installments
(note 4)........................................ 343,000 337,000
Deferred income taxes (note 5)................... 9,636 11,500
Minority interests............................... 5,162 6,371
-------------- --------------
Total liabilities............................. $ 388,318 $ 385,012
-------------- --------------
Stockholders' equity (note 7):
Preferred stock par value $.01 per share;
10,000,000 shares authorized; none issued...... -- --
Class A Common Stock par value $.01 per share;
73,000,000 shares authorized; 6,095,772 shares
issued in 1995 and 11,119,681 shares issued in
1996 including shares in treasury and Class B
Common Stock par value $.01 per share;
18,000,000 shares authorized; 17,293,578
shares issued in 1995 and 1996................. 234 284
Additional paid-in capital...................... 72,466 166,975
Retained earnings............................... 1,853 6,535
-------------- --------------
$ 74,553 $ 173,794
Less Class A Common Stock in treasury at cost --
600,000 shares in 1996.......................... -- 8,864
-------------- --------------
Total stockholders' equity.................... $ 74,553 $ 164,930
Commitments and contingencies (note 8).
-------------- --------------
Total liabilities and stockholders' equity.... $ 462,871 $ 549,942
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1994 1995 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue:
Service............... $ 61,021 $ 96,686 $ 151,119
Equipment sales and
installation......... 7,958 8,220 8,624
------------------ ------------------ ------------------
Total revenue..... $ 68,979 $ 104,906 $ 159,743
------------------ ------------------ ------------------
Operating expenses:
Engineering,
technical, and other
direct............... 12,776 18,184 28,717
Cost of equipment..... 11,546 14,146 17,944
Selling, general, and
administrative:
Related party, net
(note 6)........... (442) (408) (414)
Other............... 20,199 31,398 47,306
Depreciation and
amortization......... 9,817 15,004 25,013
------------------ ------------------ ------------------
Total operating
expenses......... $ 53,896 $ 78,324 $ 118,566
------------------ ------------------ ------------------
Operating income........ $ 15,083 $ 26,582 $ 41,177
------------------ ------------------ ------------------
Other income (expense):
Interest income:
Investment.......... 93 211 62
Related party (note
6)................. 78 -- --
Interest expense:
Long-term debt...... (11,158) (21,424) (31,524)
Related party (note
6)................. (1,728) -- --
------------------ ------------------ ------------------
Interest expense,
net................ $ (12,715) $ (21,213) $ (31,462)
Other expense, net.... (70) (687) (429)
------------------ ------------------ ------------------
Total other
expense.......... $ (12,785) $ (21,900) $ (31,891)
------------------ ------------------ ------------------
Income before minority
interest share of
income and income tax
expense................ $ 2,298 $ 4,682 $ 9,286
Minority interest share
of income.............. 636 1,078 1,880
------------------ ------------------ ------------------
Income before income tax
expense................ $ 1,662 $ 3,604 $ 7,406
Income tax expense (note
5)..................... -- 2,650 2,724
------------------ ------------------ ------------------
Net income.............. $ 1,662 $ 954 $ 4,682
================== ================== ==================
Net income per share of
common stock........... $ 0.09 $ 0.04 $ 0.18
================== ================== ==================
Average shares
outstanding............ 18,000,000 22,326,613 26,132,455
================== ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK (ACCUMULATED
CLASS A CLASS B ADDITIONAL DEFICIT) TREASURY STOCK TOTAL
------------------ ----------------- PAID-IN RETAINED --------------- STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
----------- ------ ---------- ------ ---------- ------------ ------- ------- -------------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1993................... 706,422 $ 7 17,293,578 $173 $ 3,064 $ -- -- $ -- $ 3,244
Partnership earnings
before business
combination............ -- -- -- -- 1,829 -- -- -- 1,829
Net loss................ -- -- -- -- -- (167) -- -- (167)
Capital contribution,
net before business
combination............ -- -- -- -- 9 -- -- -- 9
----------- ---- ---------- ---- -------- ------ ------- ------- --------
Balances at December 31,
1994................... 706,422 $ 7 17,293,578 $173 $ 4,902 $ (167) -- $ -- $ 4,915
Partnership loss before
business combination... -- -- -- -- (1,066) -- -- -- (1,066)
Public offering, net of
issuance costs of
$8,114................. 5,369,350 54 -- -- 68,345 -- -- -- 68,399
Exercise of stock
options................ 20,000 -- -- -- 285 -- -- -- 285
Net income.............. -- -- -- -- -- 2,020 -- -- 2,020
----------- ---- ---------- ---- -------- ------ ------- ------- --------
Balances at December 31,
1995................... 6,095,772 $ 61 17,293,578 $173 $ 72,466 $1,853 -- $ -- $ 74,553
Public offering, net of
issuance costs of
$5,826................. 5,000,000 50 -- -- 94,124 -- -- -- 94,174
Exercise of stock
options................ 6,666 -- -- -- 95 -- -- -- 95
Employee and non-
employee director stock
purchase plans......... 17,243 -- -- -- 290 -- -- -- 290
Treasury shares
purchased.............. -- -- -- -- -- -- 600,000 (8,864) (8,864)
Net income.............. -- -- -- -- -- 4,682 -- -- 4,682
----------- ---- ---------- ---- -------- ------ ------- ------- --------
Balances at December 31,
1996................... 11,119,681 $111 17,293,578 $173 $166,975 $6,535 600,000 $(8,864) $164,930
=========== ==== ========== ==== ======== ====== ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
(DOLLAR AMOUNTS IN THOUSANDS)
Cash flows from operating activities:
Net income.................................... $ 1,662 $ 954 $ 4,682
--------- --------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 9,817 15,004 25,013
Minority interest share of income............ 636 1,078 1,880
Deferred income taxes........................ -- 2,650 1,855
Increase in trade accounts receivable........ (4,195) (2,741) (1,561)
(Increase) decrease in inventory............. (3,672) 4,076 (2,595)
Increase (decrease) in accounts payable...... 2,508 2,623 (841)
Increase (decrease) in accrued interest
payable...................................... 1,184 (14) (167)
Interest deferred and added to related party
borrowings................................... 1,611 -- --
Deferred interest paid to related party...... (6,475) -- --
Interest deferred and added to other debt.... 537 607 355
Payment of deferred interest................. -- -- (1,080)
Increase in accrued salaries and employee
benefits..................................... 466 241 165
Increase (decrease) in other accrued
liabilities.................................. 895 583 (507)
Increase in deferred revenue................. 1,163 658 912
Increase (decrease) in customer deposits..... 191 (53) 134
Change in other accounts..................... 910 1,994 1,885
--------- --------- ---------
Total adjustments.......................... $ 5,576 $ 26,706 $ 25,448
--------- --------- ---------
Net cash provided by operating activities.. $ 7,238 $ 27,660 $ 30,130
--------- --------- ---------
Cash flows from investing activities:
Cash payment for purchases of non-wireline
cellular telephone systems and licenses
(note 3)..................................... (91,720) (158,397) (67,588)
Purchases of minority interests.............. (3,097) (1,543) (1,854)
Capital expenditures......................... (22,541) (36,564) (41,445)
Proceeds from sales of property, plant and
equipment.................................... 150 38 5
Decrease (increase) in other intangible
assets and other assets...................... 358 (310) (2,180)
Collection of purchase price adjustment...... -- -- 2,452
--------- --------- ---------
Net cash used in investing activities...... $(116,850) $(196,776) $(110,610)
--------- --------- ---------
Cash flows from financing activities:
Advances from Palmer Communications
Incorporated................................. 4,176 -- --
Payments on advances from Palmer
Communications Incorporated................. (2,359) (1,650) --
Increase in notes payable.................... -- -- 1,366
Proceeds from long-term debt................. 137,000 171,000 100,000
Repayment of long-term debt.................. (75) (65,125) (108,319)
Repayment of related party borrowings........ (20,000) -- --
Payment of debt issuance costs............... (6,454) (4,803) --
Public offering proceeds, net................ -- 71,144 95,000
Proceeds from stock options exercised........ -- 285 95
Payment of deferred offering costs........... (1,448) (1,297) (826)
Collection of common stock subscriptions
receivable................................... 100 -- --
Purchase of treasury stock................... -- -- (8,864)
Proceeds from sales under stock purchase
plans........................................ -- -- 290
--------- --------- ---------
Net cash provided by financing activities.. $ 110,940 $ 169,554 $ 78,742
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................ $ 1,328 $ 438 $ (1,738)
Cash and cash equivalents at beginning of
year.......................................... 1,670 2,998 3,436
--------- --------- ---------
Cash and cash equivalents at end of year...... $ 2,998 $ 3,436 $ 1,698
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During 1994, certain assets net of certain liabilities were transferred
between Palmer Wireless, Inc. and Palmer Communications Incorporated. These
transfers were treated as contributions to and distributions from equity and
amounted to a net contribution of $9 for the year ended December 31, 1994.
During 1994, Palmer Wireless, Inc. accrued $188 for unpaid deferred offering
costs.
During 1995, Palmer Wireless, Inc. committed to purchase certain minority
interests in 1996. This commitment totaling $451 was accrued in 1995 and paid
in 1996.
During 1996, the Company increased the purchase obligations related to the
final purchase price adjustment for the controlling interest in a non-wireline
cellular telephone system purchased in 1991. This increase amounted to $899
and resulted in an increase in licenses.
Acquisitions of non-wireline cellular telephone systems in 1994, 1995 and
1996 (note 3):
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Cash payment...................................... $91,720 $158,397 $67,588
======= ======== =======
Allocated to:
Fixed assets.................................... $11,332 $ 22,846 $ 5,678
Licenses........................................ 79,383 136,940 61,433
Deferred income taxes........................... -- (6,165) --
Current assets and liabilities, net............. 1,005 4,776 477
------- -------- -------
$91,720 $158,397 $67,588
======= ======== =======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1994 1995 1996
<S> <C> <C> <C>
Cash paid for interest.............................. $15,199 $18,435 $29,733
Cash paid for income taxes.......................... -- -- $ 1,591
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Palmer
Wireless, Inc. and its subsidiaries (the "Company"), all of which the Company
has an ownership interest in greater than 50 percent.
Palmer Wireless, Inc. ("Wireless") is a Delaware corporation and was
incorporated on December 15, 1993 to effect an initial public offering of its
Class A Common Stock. At December 31, 1996, Palmer Communications Incorporated
("PCI") owned 61 percent of Wireless' outstanding common stock and had 75
percent of Wireless' voting rights and therefore Wireless is a subsidiary of
PCI.
In March of 1995, Wireless issued common stock for 100 percent of the
partnership interests of Palmer Cellular Partnership (the "Partnership") (see
note 2). Since this exchange was between related parties it has been accounted
for in a manner similar to a pooling of interests. Therefore, the statements
of operations, stockholders' equity and cash flows for the year ended December
31, 1994 have been restated to include the accounts of the Partnership.
Losses in subsidiaries, attributable to minority stockholders and partners,
in excess of their capital accounts and cash capital call provisions are not
eliminated in consolidation.
Significant intercompany accounts and transactions have been eliminated in
the consolidation.
OPERATIONS
The Company has majority ownership in corporations and partnerships which
operate the non-wireline cellular telephone systems in nine Metropolitan
Statistical Areas ("MSA") in three states: Florida (two), Georgia (five) and
Alabama (two). The Company's ownership percentages in these entities range
from approximately 78 percent to 100 percent. The Company owns directly and
operates eight non-wireline cellular telephone systems in Rural Service Areas
("RSA") in Georgia (seven) and Alabama (one).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows the Company considers
repurchase agreements with a maturity of three months or less to be cash
equivalents.
TRADE ACCOUNTS RECEIVABLE
The Company grants credit to its customers. Substantially all of the
customers are residents of the local areas served by the Company. Generally,
the Company discontinues service to customers whose accounts are 60 days past
due. The activity in the Company's allowance for doubtful accounts for the
years ended December 31, 1994, 1995, and 1996 consisted of the following:
<TABLE>
<CAPTION>
ADDITIONS--
BALANCE AT ADDITIONS ALLOWANCE AT BALANCE
BEGINNING CHARGED TO DATES OF DEDUCTIONS NET AT END
OF YEAR EXPENSES ACQUISITIONS OF RECOVERIES OF YEAR
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1994................... $ 681 $1,453 $ 211 $ 778 $1,567
====== ====== ====== ====== ======
Year ended December 31,
1995................... $1,567 $2,078 $ 432 $2,197 $1,880
====== ====== ====== ====== ======
Year ended December 31,
1996................... $1,880 $3,946 $1,270 $5,305 $1,791
====== ====== ====== ====== ======
</TABLE>
F-8
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INVENTORY
Inventory consisting primarily of cellular telephones and telephone parts is
stated at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
principally by the straight-line method over the estimated useful lives,
ranging from 5 to 20 years for buildings and improvements and 5 to 10 years
for equipment, communications systems and furnishings.
ACQUISITIONS AND LICENSES
The cost of acquired companies is allocated first to the identifiable
assets, including licenses, based on the fair market value of such assets at
the date of acquisition (as determined by independent appraisers or management
of the Company). The excess of the total consideration over the amounts
assigned to identifiable assets is recorded as goodwill.
Also included in licenses are expenditures related directly to acquiring
licenses which were not developed or operating at the time of purchase.
Licenses and goodwill are being amortized from the date of commencement of
service to customers (with applicable interest capitalized from acquisition
date to this date) on a straight-line basis over a 40-year period.
Subsequent to the acquisition of the licenses, the Company continually
evaluates whether later events and circumstances have occurred that indicate
the remaining estimated useful life of licenses may warrant revision or that
the remaining balance of the license rights may not be recoverable. The
Company has undergone an annual independent appraisal of its licenses' value.
The Company utilizes projected undiscounted cash flows over the remaining life
of the licenses and sales of comparable businesses to evaluate the recorded
value of licenses. The assessment of the recoverability of the remaining
balance of the license rights will be impacted if projected cash flows are not
achieved.
OTHER INTANGIBLE ASSETS AND OTHER ASSETS
Other intangibles and other assets consist primarily of deferred financing
costs, covenants not to compete, subscriber base, and other items. These costs
are being amortized by the interest or straight-line method over their
respective useful lives, which range from 5 to 10 years.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method
of accounting for deferred income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The 1994 consolidated financial statements made no provision for income
taxes, due to the fact that the losses of the Partnership were included in the
income tax returns of the individual partners. Also, the consolidated
financial statements made no provision for income taxes of subsidiary
corporations of the Company since those
F-9
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
corporations had approximately $16,182 of net operating loss carryforwards at
December 31, 1994 for federal income tax purposes. In addition, the 1994
consolidated financial statements made no provision for income taxes on the
loss of Wireless due to the non-utilization of Wireless' net operating loss
for the year.
INTEREST RATE SWAP AND CAP AGREEMENTS
The differential to be paid or received in connection with interest rate
swap agreements is accrued as interest rates change and is recognized over the
life of the agreements.
Premiums paid for purchased interest rate cap agreements are amortized to
interest expense over the term of the caps. Unamortized premiums are included
in other assets in the consolidated balance sheet. Amounts receivable under
cap agreements are accrued as a reduction of interest expense.
REVENUE RECOGNITION
Service revenue includes local subscriber revenue and roamer revenue.
The Company earns local subscriber revenue by providing access to the
cellular network (access revenue) or, as applicable, for usage of the cellular
network (airtime revenue). Access revenue is billed one month in advance and
is recognized when earned. Airtime revenue is recognized when the service is
rendered.
Roamer revenue represents revenue earned by the Company for usage of its
cellular network by subscribers of other cellular carriers. Roamer revenue is
recognized when the services are rendered.
Equipment sales and installation revenue is recognized upon delivery or
installation of the equipment to the customer.
OPERATING EXPENSES--ENGINEERING, TECHNICAL AND OTHER DIRECT
Engineering, technical and other direct operating expenses represent certain
costs of providing cellular telephone service to customers. These costs
include cost of incollect roaming service. Incollect roaming is the result of
the Company's subscribers using cellular networks of other cellular carriers.
Incollect roaming revenue is netted against the cost of incollect roaming
service to determine net incollect roaming expense.
STOCK OPTION PLANS
Prior to January 1, 1996, the Company accounted for its stock option plans
in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense would be recorded on the date
of grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No.123
had been applied. The Company has elected to continue to apply the provisions
of APB Opinion No.25 and provide the pro forma disclosure provisions of SFAS
No. 123.
F-10
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods and assumptions used to estimate the fair
value of the Company's financial instruments are set forth below:
For cash and cash equivalents, trade accounts receivable, receivable from
other cellular carriers, notes payable, accounts payable and accrued expenses,
the carrying amount approximates the estimated fair value due to the short-
term nature of those instruments.
Rates currently available to the Company for long-term debt with similar
terms and remaining maturities are used to discount the future cash flows to
estimate the fair value for long-term debt. Note 4 presents the fair value for
long-term debt and the related interest rate cap and swap agreements.
Fair value estimates are made as of a specific point in time, based upon the
relevant market information about the financial instruments. Because no market
exists for a majority of the Company's financial instruments, fair value
estimates are based on judgements regarding current economic conditions and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of judgement and, therefore, cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.
COMPUTATION OF NET INCOME PER SHARE
The computation of net income per share is based on the weighted average
number of common and dilutive common equivalent shares (common stock options
using the treasury stock method) outstanding during the periods presented.
Average shares of common stock outstanding has been computed assuming that the
704,755 shares of Class A Common Stock and 17,288,578 shares of Class B Common
Stock issued in the Exchange (as defined in note 2) have been outstanding
since January 1, 1994 and the 1,667 shares of Class A Common Stock and the
5,000 shares of Class B Common Stock issued in the initial capitalization of
Wireless have been outstanding since January 1, 1994.
(2) OFFERING AND EXCHANGE
On March 21, 1995 and April 18, 1995, Wireless issued 5,000,000 and 369,350
shares, respectively, of Class A Common Stock in an initial public offering
(the "Offering") for net proceeds of $68,399. In connection with the Offering,
on March 21, 1995, Wireless issued 704,755 shares of Class A Common Stock and
17,288,578 shares of Class B Common Stock in exchange for 100 percent of the
Partnership interests of the Partnership (the "Exchange"). The assets and
liabilities received in the Exchange were recorded at their historical cost to
the Partnership and not revalued at fair value on the date of transfer. Since
the Exchange was between related parties it has been accounted for in a manner
similar to a pooling of interests (see note 1).
(3) ACQUISITIONS AND PURCHASE OF LICENSES
On October 31, 1994, the Company acquired the assets of and the licenses to
operate the non-wireline cellular telephone systems serving the Georgia Rural
Service Area Market Nos. 377, 378, 380 and 382, otherwise known as Georgia-7
RSA, Georgia-8 RSA, Georgia-10 RSA and Georgia-12 RSA, respectively, for an
aggregate purchase price of $91,720. The acquisition was accounted for by the
purchase method of accounting. In connection with this acquisition, $79,383 of
the purchase price was allocated to licenses. From the date of acquisition to
December 31, 1994, revenue, depreciation and amortization, operating loss and
net loss before interest expense related to the purchase price of the non-
wireline cellular telephone systems purchased were $1,803, $744, $(645) and
$(644), respectively.
On December 1, 1995, the Company purchased all of the outstanding stock of
Augusta Metronet, Inc. and Georgia Metronet, Inc., which owned either directly
(or in the case of Georgia Metronet, Inc., through its 97.9 percent interest
in the Savannah Cellular Limited Partnership) the licenses to operate the non-
wireline cellular
F-11
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
telephone systems in the Savannah and Augusta, Georgia MSAs, respectively, for
an aggregate purchase price of $158,397. The acquisition was accounted for by
the purchase method of accounting. In connection with this acquisition,
$136,940 of the purchase was allocated to licenses. From the date of
acquisition to December 31, 1995, revenue, depreciation and amortization,
operating income and net income before interest expense related to the
purchase price of the non-wireline cellular telephone systems were $2,126,
$508, $208 and $202, respectively.
On June 20, 1996, the Company acquired the assets of and the license to
operate the non-wireline cellular telephone system serving the Georgia Rural
Service Area Market No. 371, otherwise known as Georgia-1 RSA for an aggregate
purchase price of $31,616. The acquisition was accounted for by the purchase
method of accounting. In connection with the acquisition, $27,942 of the
purchase price was allocated to licenses. From the date of acquisition to
December 31, 1996, revenue, depreciation and amortization, operating loss and
net loss before interest expense related to the purchase of the non-wireline
cellular telephone system were $1,239, $556, $(278), and $(278), respectively.
On July 5, 1996, two of the Company's majority-owned subsidiaries acquired
the assets of and the license to operate the non-wireline cellular telephone
system serving the Georgia Rural Service Area Market No. 376, otherwise known
as Georgia-6 RSA for an aggregate purchase price of $35,972. The acquisition
was accounted for by the purchase method of accounting. In connection with the
acquisition, $33,491 of the purchase price was allocated to licenses. From the
date of acquisition to December 31, 1996, revenue, depreciation and
amortization, operating income, and net income before interest expense related
to the purchase of the non-wireline cellular telephone system were $2,682,
$578, $743, and $743, respectively.
Assuming the 1995 and 1996 acquisitions had occurred on January 1, 1995,
unaudited pro forma revenue, net (loss) income and net (loss) income per share
for the year ended December 31, 1995 would have been $132,958, $(12,437), and
$(.56), respectively, and for the year ended December 31, 1996, would have
been $163,393, $3,840, and $.15, respectively. These pro forma amounts assume
that the financing requirements were met by the incurrence of bank debt and
are not necessarily indicative of what the actual consolidated results of
operation might have been if the acquisition had been effective on January 1,
1995.
(4) NOTES PAYABLE AND LONG-TERM DEBT
On December 1, 1995, the Company entered into a loan agreement with a bank
which provides for a revolving line of credit of up to $5,000 to facilitate
day-to-day cash management needs. The loan agreement provides for interest at
the bank's prime rate and matures November 30, 1997.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
<S> <C> <C>
Credit agreement (a)......................................... $343,000 $337,000
Purchase obligations (b)..................................... 7,441 5,296
-------- --------
$350,441 $342,296
Less current installments.................................... 7,441 5,296
-------- --------
Long-term debt, excluding current installments............... $343,000 $337,000
======== ========
</TABLE>
(a) On December 1, 1995, the Company entered into an amended and restated
credit agreement with 21 banks which provides for a revolving line of credit
of up to $500,000, subject to certain limitations through June 30, 2004. This
credit agreement increased the Company's previously existing $275,000
revolving line of credit. The credit agreement provides for quarterly
commitment reductions commencing September 30, 1998 and commitment reductions
of 25 to 50 percent of Excess Cash Flow (as defined in the credit agreement),
if any, are
F-12
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
required on April 15, 1998 and annually thereafter. Interest is payable at
variable rates and under various interest rate options. The interest rate at
December 31, 1996 ranged from 7.42 to 8.88 percent before the effect of the
interest rate swap and cap agreements outlined below. The credit agreement
also provides for a commitment fee of .5 percent per year on any unused
amounts of the credit agreement. Amounts outstanding are secured by the assets
of the Company.
The credit agreement provides for various compliance covenants and
restrictions, including items related to mergers or acquisition transactions,
the declaration or payment of dividends or other payments to stockholders,
capital expenditures and maintenance of certain financial ratios. At December
31, 1996, the Company was in compliance with all but one financial ratio
covenant. This covenant was based upon operating results for the year ended
December 31, 1996. The Company obtained a waiver of the noncompliance with
this 1996 financial ratio covenant.
The Company has entered into interest rate swap and cap agreements to reduce
the impact of changes in interest rates on its floating debt and thus were
entered into for purposes other than trading. At December 31, 1996, the
Company had outstanding ten interest rate swap agreements and four interest
rate cap agreements having a total notional value of $295,000. These interest
rate swap and cap agreements effectively change the Company's interest rate
exposure on a quarterly basis on $295,000 of credit.
The cap and swap agreements are summarized as follows:
<TABLE>
<CAPTION>
MAXIMUM NOTIONAL
TYPE OF AGREEMENT MATURITY LIBOR(1) VALUE
<S> <C> <C> <C>
Cap....................................... Nov. 17, 1997 8.00 $ 10,000
Swap...................................... Nov. 17, 1997 8.10 10,000
Swap...................................... Nov. 17, 1997 7.48 20,000
Participating Cap (2)..................... Nov. 23, 1997 8.75 15,000
Participating Swap (3).................... Nov. 24, 1997 8.29 15,000
Trigger Cap (4)........................... Nov. 28, 1997 7.50/8.50 15,000
Pay Later Cap (5)......................... Jan. 12, 1998 8.50 20,000
Swap...................................... Aug. 3, 1998 5.26 25,000
Participating Swap (6).................... Aug. 10, 1998 5.98 15,000
Swap...................................... Aug. 6, 1999 6.36 25,000
Swap...................................... Aug. 7, 2000 6.04 50,000
Swap...................................... Aug. 20, 2000 6.07 25,000
Swap...................................... Oct. 10, 2000 6.03 25,000
Swap...................................... Oct. 11, 2000 5.99 25,000
--------
$295,000
========
</TABLE>
- ---------------------
(1) The maximum interest rate is 2.5 percent over the LIBOR stated in the
table below. The 2.5 percent interest rate over such LIBOR decreases if
certain leverage ratios are met by the Company.
(2) On 36 percent ($5,400) the interest rate is set at 8.75 percent, the
balance is set at the three-month LIBOR up to a maximum 8.75 percent.
(3) When the three-month LIBOR is less than 8.29 percent the Company
participates in 50 percent of the difference.
(4) When LIBOR is below 8.5 percent the rate is 7.5 percent, when LIBOR is 8.5
percent or above the rate is 8.5 percent.
(5) When the three-month LIBOR rate is 8.5 percent or higher the Company
receives a quarterly payment of $98.
(6) When the six-month LIBOR is less than 5.98 percent the Company
participates in 45 percent of the difference.
F-13
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Fees in the amount of $240 were incurred in connection with certain of the
cap agreements and are being amortized over the lives of the respective cap
agreements.
The market value of the swap and cap agreements above, which has not been
reflected in the consolidated financial statements as of December 31, 1996, is
a loss of $1,545.
The Company is exposed to interest rate risk in the event of nonperformance
by the other party to the interest rate swap and cap agreements. However, the
Company does not anticipate nonperformance by any of the banks.
(b) In connection with the purchase of controlling interest in a non-
wireline cellular telephone system in 1991, the Company incurred certain
purchase obligations. The obligations, were retired in July 1996 and January
1997.
Based upon current borrowing rates the fair value approximates the carrying
value of the long-term debt outstanding under the credit agreement described
in (a) above and the purchase obligations described in (b) above.
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
<S> <C> <C>
1997........................... $ 5,296
1998........................... --
1999........................... --
2000........................... --
2001........................... 72,000
Thereafter..................... 265,000
--------
$342,296
========
</TABLE>
(5) INCOME TAXES
Components of income tax expense consist of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
<S> <C> <C> <C>
Year ended December 31, 1995:
Current............................................. $ -- $-- $ --
Deferred............................................ 2,550 100 2,650
------ ---- ------
$2,550 $100 $2,650
====== ==== ======
Year ended December 31, 1996:
Current............................................. $ -- $869 $ 869
Deferred............................................ 1,795 60 1,855
------ ---- ------
$1,795 $929 $2,724
====== ==== ======
</TABLE>
F-14
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The consolidated effective tax rate differs from the statutory United States
federal tax rate for the following reasons and by the following percentages:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER
31,
------------
1995 1996
<S> <C> <C>
Statutory United States federal tax rate........................ 34.0% 34.0%
Partnership loss prior to corporate status...................... 10.1 --
License amortization not deductible for tax..................... 7.7 32.5
Net operating loss carryforwards................................ (59.0) (42.8)
State taxes..................................................... -- 8.3
Recognition of deferred income taxes related to the difference
between financial statement and income tax bases of certain
assets and liabilities in connection with the Exchange......... 73.5 --
Other........................................................... 7.2 4.8
----- -----
Consolidated effective tax rate................................. 73.5% 36.8%
===== =====
</TABLE>
The components of the deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts..................... $ 658 $ 609
Nondeductible accruals.............................. 163 221
Net operating loss carryforwards.................... 4,314 4,100
-------- --------
Total deferred tax assets......................... $ 5,135 $ 4,930
Valuation allowance................................. (3,898) --
-------- --------
$ 1,237 $ 4,930
-------- --------
Deferred tax liabilities:
Property, plant and equipment....................... (7,323) (7,415)
Licenses............................................ (2,729) (8,185)
-------- --------
Total deferred tax liabilities.................... $(10,052) $(15,600)
-------- --------
Deferred tax liability, net......................... $ (8,815) $(10,670)
======== ========
</TABLE>
The net change in the total valuation allowance for the year ended December
31, 1996 was a decrease of $3,898. A valuation allowance had been recorded
primarily to offset the gross deferred tax assets created by net operating
loss carryforwards until such time as earnings of the Company or alternative
tax planning strategies warranted full recognition. Management believes that
it is more likely than not that the results of future operations will generate
sufficient taxable income to realize that portion of the deferred tax asset
related to the net operating loss carryforwards. The net operating loss
carryforwards totaled approximately $11,700 at December 31, 1996 and expire in
amounts ranging from approximately $400 to $4,100 through 2011. For
carryforwards of approximately $10,900, generated in periods prior to the
Exchange, utilization is limited to the subsidiary that generated the
carryforwards, unless the Company utilizes alternative tax planning
strategies.
F-15
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(6) RELATED PARTY TRANSACTIONS
During 1994, the Company had a subordinated demand note of $20,000 with
Palmer Broadcasting Limited Partnership, a majority-owned subsidiary of PCI.
Interest expense under the note was $1,611 for the year ended December 31,
1994. The note was paid off in 1994.
PCI had previously extended the Company a line of credit in the amount of
$3,000 that was used for the initial operations of the Company, to pay
organization expenses and to pay expenses of the Offering. The line of credit
bore interest at 2 percent above the prime rate. Interest expense on the line
of credit amounted to $117 for the year ended December 31, 1994. The
borrowings totaling $1,615 were repaid with the proceeds of the Offering.
During 1994, the Company earned $78 of interest income from advances to PCI.
During 1994, the Company performed certain management functions for PCI.
These functions included general management, human resources administration,
accounting, and computer services. PCI was charged a fee based on the
Company's estimate of its time spent managing PCI and usage of its computer.
Concurrently with the Offering and the Exchange, the Company and PCI entered
into both a transitional management and administrative services agreement and
a computer services agreement that extend each December 31 for additional one-
year periods unless and until either party notifies the other. The fees from
these arrangements amounted to a total of $509, $492, and $534 for the years
ended December 31, 1994, 1995, and 1996, respectively, and are included as a
reduction of selling, general and administrative expenses.
During 1994, PCI provided certain tax consulting services to the Company.
Concurrently with the Offering and the Exchange, the Company and PCI entered
into a tax consulting agreement that extends each December 31 for additional
one-year periods unless and until either party notifies the other. The fees
for tax consulting services amounted to a total of $67, $84, and $120 for the
years ended December 31, 1994, 1995, and 1996, respectively, and are included
in selling, general and administrative expenses.
PCI has a 401(k) plan with a noncontributory retirement feature and a
matching provision for employees who meet length of service and other
requirements. The Company participates in this plan and was allocated 401(k)
retirement and matching expense of $305, $493, and $696 for the years ended
December 31, 1994, 1995, and 1996, respectively.
(7) COMMON STOCK AND STOCK PLANS
During 1994, the Company amended its certificate of incorporation to
increase the number of authorized shares of common stock from 60,000,000 to
91,000,000 and to provide for Class A Common Stock and Class B Common Stock.
The Class A Common Stock has one vote per share. The Class B Common Stock,
which may be owned only by PCI or certain successors of PCI and of which no
shares may be issued subsequent to the Offering, has five votes per share,
provided, however, that, so long as any Class A Common Stock is issued and
outstanding, at no time will the total outstanding Class B Common Stock have
the right to cast votes having more than 75 percent of the total voting power
of the common stock in the aggregate. Shares of Class B Common Stock shall be
converted into Class A Common Stock on a share-for-share basis: (i) at any
time at the option of the holder; (ii) immediately upon the transfer of shares
of Class B Common Stock to any holder other than a successor of PCI; (iii)
immediately if the shares of Class B Common Stock held by PCI or its
successors constitute 33 percent or less of the outstanding shares of the
Company; (iv) at the end of 20 years from original issuance of those shares of
Class B Common Stock; or (v) if more than 50 percent of the equity interests
in PCI become beneficially owned by persons other than: (i) beneficial owners
of PCI as of December 29, 1994 ("Current PCI Beneficial Owners"); (ii)
affiliates of Current PCI Beneficial Owners; (iii) heirs or devisees of
F-16
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
any individual Current PCI Beneficial Owner, successors of any corporation or
partnership which is a Current PCI Beneficial Owner and beneficiaries of any
trust which is a Current PCI Beneficial Owner; and (iv) any relative, spouse
or relative of a spouse of any Current PCI Beneficial Owner.
The Company adopted a Stock Option Plan in connection with the Offering,
under which options for an aggregate of 1,600,000 shares of Class A Common
Stock are available for grants to key employees. The Company also adopted a
Director's Stock Option Plan in connection with the Offering, under which
options for an aggregate of 300,000 shares of Class A Common Stock are
available for grants to directors who are not officers or employees of the
Company. Stock options under both plans are granted with an exercise price
equal to the stock's fair value at the date of grant. The stock options
granted under the Stock Option Plan have 10-year terms and vest and become
exercisable ratably over three years from the date of grant. The stock options
granted under the Director's Stock Option Plan are vested and become fully
exercisable upon the date of the grant. At December 31, 1996, there were
options with respect to 693,334 and 45,000 shares of Class A Common Stock
outstanding under the Stock Option Plan and the Director's Stock Option Plan,
respectively. At December 31, 1996, there were 880,000 and 255,000 additional
shares available for grant under the Stock Option Plan and the Director's
Stock Option Plan, respectively.
The Company applies APB Opinion No. 25 in accounting for its Stock Option
Plan and Director's Stock Option Plan ("the Plans") and accordingly, no
compensation cost has been recognized for its stock options in the
consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under
SFAS No.123, the Company's net income (loss) and net income (loss) per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------
1995 1996
<S> <C> <C>
Net income-as reported...................................... $ 954 $4,682
Net (loss) income-pro forma................................. $(777) $2,850
Net income per share-as reported............................ $ .04 $ .18
Net (loss) income per share-pro forma....................... $(.03) $ .11
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the weighted-average assumptions
as follows: dividend yield of 0.0%; expected volatility of 101%; risk-free
interest rate of 5.5%; and expected lives of five years. The fair value of the
option grants in 1995 and 1996 were $11.04 and $13.36 per share, respectively.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Balance December 31, 1994 -- --
Granted......................................... 692,500 $14.25
Exercised....................................... (20,000) 14.25
-------
Balance December 31, 1995......................... 672,500 14.25
Granted......................................... 72,500 17.25
Exercised....................................... (6,666) 14.25
-------
Balance December 31, 1996......................... 738,334 14.54
=======
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $14.25--$17.25 and 8.3
years, respectively.
F-17
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
At December 31, 1995 and 1996, the number of options exercisable was 37,500
and 250,000, respectively, and the weighted average exercise price of those
options was $14.25 and $14.34, respectively.
The Company adopted a stock purchase plan for employees (the "Employee Stock
Purchase Plan") and a stock purchase plan for non-employee directors (the
"Non-Employee Director Stock Purchase Plan"). Under the Employee Stock
Purchase Plan, 160,000 shares of Class A Common Stock are available for
purchase by eligible employees of the Company or any of its subsidiaries.
Under the Non-Employee Director Stock Purchase Plan, 25,000 shares of Class A
Common Stock are available for purchase by non-employee directors of the
Company. The purchase price of each share of Class A Common Stock purchased
under the Employee Stock Purchase Plan or the Non-Employee Director Stock
Purchase Plan will be the lesser of 90 percent of the fair market value of the
Class A Common Stock on the first trading day of the plan year or on the last
day of such plan year; provided, however, that in no event shall the purchase
price be less than the par value of the stock. Both plans will terminate in
2005, unless terminated at an earlier date by the board of directors. During
the year ended December 31, 1996, 15,541 shares were issued under the Employee
Stock Purchase Plan and 1,702 shares were issued under the Non-Employee
Director Stock Purchase Plan at a purchase price of $16.85. Compensation cost
computed under the provisions of SFAS No. 123 related to the shares issued
under the Employee Stock Purchase Plan and the Non-Employee Director Stock
Purchase Plan is immaterial to the consolidated financial statements.
(8) COMMITMENTS AND CONTINGENCIES
LEASES
The Company occupies certain buildings and uses certain tower sites, cell
sites and equipment under noncancellable operating leases which expire through
2014. The operating leases for a building and certain tower sites and cell
sites are with related parties.
Future minimum lease payments under noncancellable operating leases as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
RELATED PARTIES OTHERS
<S> <C> <C>
1997............................................. $285 $ 3,429
1998............................................. 285 2,899
1999............................................. 52 2,507
2000............................................. 14 2,011
2001............................................. -- 1,348
Later years through 2014......................... -- 4,522
---- -------
Total minimum lease payments................... $636 $16,716
==== =======
</TABLE>
Rental expense was $1,609, $2,487, and $3,551 for the years ended December
31, 1994, 1995 and 1996, respectively, of which $253, $269, and $278 was paid
to related parties for 1994, 1995 and 1996, respectively.
CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial statements.
F-18
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
EMPLOYMENT AGREEMENTS
The Company has employment agreements with six officers of the Company. The
agreements have terms of two or three years and provide for aggregate annual
salaries of $1,181 in 1997. Each employment agreement provides that if the
officer is terminated by the Company without cause (as defined therein) or
terminates the agreement for good reason (as defined therein), the Company
will pay the officer the full base salary and benefits which would have been
paid to such officer during the remaining term of the agreement.
(9) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 FIRST QUARTER(a) SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL
<S> <C> <C> <C> <C> <C>
Total Revenue........... $22,374 $25,931 $26,055 $30,546 $104,906
======= ======= ======= ======= ========
Operating Income........ $ 4,872 $ 6,892 $ 8,152 $ 6,666 $ 26,582
======= ======= ======= ======= ========
Net (Loss) Income....... $(3,958) $ 1,620 $ 2,801 $ 491 $ 954
======= ======= ======= ======= ========
Net (Loss) Income Per
Share*................. $ (.21) $ .07 $ .12 $ .02 $ .04
======= ======= ======= ======= ========
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 FIRST QUARTER (b) SECOND QUARTER (b) THIRD QUARTER (b) FOURTH QUARTER (c) TOTAL
<S> <C> <C> <C> <C> <C>
Total Revenue........... $36,950 $40,031 $41,171 $41,591 $159,743
======= ======= ======= ======= ========
Operating Income........ $ 8,514 $11,281 $11,977 $ 9,405 $ 41,177
======= ======= ======= ======= ========
Net Income (Loss)....... $ 76 $ 1,684 $ 2,976 $ (54) $ 4,682
======= ======= ======= ======= ========
Net Income (Loss) Per
Share*................. $ .00 $ .07 $ .10 $ (.00) $ .18
======= ======= ======= ======= ========
</TABLE>
- ---------------------
(a) First quarter operating income increased from $3,334 in fourth quarter
1994, and first quarter loss increased approximately $2,600 from the loss
incurred in fourth quarter 1994. First quarter loss was increased by
$2,650 due to the recognition of deferred income taxes relating to the
difference between financial statement and income tax return bases of
certain assets and liabilities in connection with the Exchange.
(b) Certain reclassifications have been made to conform to the fourth quarter
presentation.
* Weighted average shares outstanding for the quarters are calculated
independent of the weighted average shares outstanding for the year;
therefore, quarterly net income (loss) per share may not total to annual
net income per share.
(c) The decrease in operating income, and the net loss, in the fourth quarter
is consistent with prior years and is as a result of customer acquisition
costs, including advertising, commissions and phone discounts, related to
Christmas sales.
(10) SUBSEQUENT EVENT
On February 1, 1997, one of the Company's majority-owned subsidiaries
acquired the assets of and license to operate the non-wireline cellular
telephone system serving the Georgia Rural Service Area Market No. 383,
otherwise known as Georgia-13 RSA for a total purchase price of $30,000,
subject to certain adjustments.
F-19
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents................ $ 1,698 $ 3,581
Trade Accounts Receivable, Net of
Allowance for Doubtful Accounts......... 18,784 19,076
Receivable from Other Cellular Carriers.. 1,706 3,102
Deferred Income Taxes.................... 830 930
Prepaid Expenses and Deposits............ 2,313 2,481
Inventory................................ 5,106 2,466
-------------- --------------
Total Current Assets................... $ 30,437 $ 31,636
Net Property, Plant and Equipment.......... 132,438 161,351
Licenses, Net of Amortization.............. 375,808 396,282
Other Intangible Assets and Other Assets,
at Cost Less Accumulated Amortization..... 11,259 10,546
-------------- --------------
$ 549,942 $ 599,815
============== ==============
LIABILITIES AND EQUITY
Current Liabilities:
Notes Payable............................ $ 1,366 $ --
Current Installments of Long-Term Debt... 5,296 --
Accounts Payable......................... 10,394 9,461
Accrued Expenses......................... 8,399 10,341
Other Liabilities........................ 4,686 4,823
-------------- --------------
Total Current Liabilities.............. $ 30,141 $ 24,625
Long-Term Debt, Excluding Current
Installments.............................. 337,000 378,000
Deferred Income Taxes...................... 11,500 11,389
Minority Interests......................... 6,371 7,445
-------------- --------------
Total Liabilities...................... $ 385,012 $ 421,459
-------------- --------------
Stockholders' Equity....................... 164,930 178,356
-------------- --------------
$ 549,942 $ 599,815
============== ==============
</TABLE>
- ---------------------
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
F-20
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
30,
------------------------------
1996 1997
(DOLLAR AMOUNTS IN THOUSANDS
EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
Revenue:
Service...................................... $ 111,803 $ 134,123
Equipment Sales and Installation............. 6,349 7,613
-------------- --------------
Total Revenue.............................. $ 118,152 $ 141,736
-------------- --------------
Operating Expenses:
Engineering, Technical and Other Direct...... 22,100 23,301
Cost of Equipment............................ 12,271 16,111
Selling, General and Administrative.......... 33,842 41,014
Depreciation and Amortization................ 18,167 23,313
-------------- --------------
Total Operating Expenses................... $ 86,380 $ 103,739
-------------- --------------
Operating Income........................... $ 31,772 $ 37,997
-------------- --------------
Other Income (Expense):
Interest Expense, Net........................ (23,654) (24,468)
Other Income, Net............................ (242) 208
-------------- --------------
Total Other Expense........................ $ (23,896) $ (24,260)
-------------- --------------
Income Before Minority Interest Share of Income
and Income Taxes.............................. $ 7,876 $ 13,737
Minority Interest Share of Income.............. (1,562) (1,310)
-------------- --------------
Income Before Income Taxes..................... $ 6,314 $ 12,427
Income Taxes................................... (1,578) --
-------------- --------------
Net Income................................. $ 4,736 $ 12,427
============== ==============
Net Income Per Share of Common Stock........... $ 0.19 $ 0.45
============== ==============
Average Shares Outstanding..................... 25,492,054 27,826,080
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-21
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
CLASS A CLASS B TREASURY STOCK
----------------- ----------------- ----------------
ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December
31, 1995............... 6,095,772 $ 61 17,293,578 $173 $ 72,466 $ 1,853 -- $ -- $74,553
Public offering, net of
issuance costs
of $5,826.............. 5,000,000 50 -- -- 94,124 -- -- -- 94,174
Exercise of stock
options................ 6,666 -- -- -- 95 -- -- -- 95
Employee and non-
employee director stock
purchase plans......... 17,243 -- -- -- 290 -- -- -- 290
Treasury shares
purchased.............. -- -- -- -- -- 600,000 (8,864) (8,864)
Net income.............. -- -- -- -- -- 4,682 -- -- 4,682
---------- ---- ---------- ---- -------- ------- ------- -------- --------
Balances at December 31,
1996................... 11,119,681 $111 17,293,578 $173 $166,975 $ 6,535 600,000 $(8,864) $164,930
Exercise of stock
options................ 70,000 1 -- -- 998 -- -- -- 999
Net income.............. -- -- -- -- -- 12,427 -- -- 12,427
---------- ---- ---------- ---- -------- ------- ------- -------- --------
Balances at September
30, 1997............... 11,189,681 $112 17,293,578 $173 $167,973 $18,962 600,000 $ (8,864) $178,356
========== ==== ========== ==== ======== ======= ======= ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-22
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
<S> <C> <C>
1996 1997
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 4,736 $ 12,427
--------------- --------------
Adjustments to reconcile net income to net
cash provided by operating
activities:
Depreciation and amortization............. 18,167 23,313
Minority interest share of income......... 1,562 1,310
Deferred income taxes..................... 809 (210)
Loss on disposal of property.............. 59 7
Interest deferred and added to long-term
debt...................................... 355 --
Payment of deferred interest.............. (1,080) (1,514)
Decrease in trade accounts receivable..... (337) 473
Decrease in inventory..................... (553) 2,800
Increase in accounts payable and accrued
expenses.................................. (3,789) 536
Change in other accounts.................. 1,991 (351)
--------------- --------------
Total adjustments....................... $ 17,184 $ 26,364
--------------- --------------
Net cash provided by operating
activities.............................. $ 21,920 $ 38,791
--------------- --------------
Cash flows from investing activities:
Capital expenditures........................ (30,174) (40,757)
Proceeds from sales of property and
equipment................................... 4 201
Purchase of cellular systems................ (67,580) (31,469)
Collection of purchase price adjustment..... 2,452 --
Purchases of minority interests............. (1,854) (956)
Deposits for PCS auction.................... (5,132) --
Increase in other intangible assets and
other assets................................ (522) (778)
--------------- --------------
Net cash used in investing activities..... $ (102,806) $ (73,759)
--------------- --------------
Cash flows from financing activities:
Increase in short-term notes payable........ 2,964 (1,366)
Repayment of long-term debt................. (108,319) (3,782)
Proceeds from long-term debt................ 91,000 41,000
Public offering proceeds.................... 94,200 --
Exercise of stock options................... 95 999
Employee and non-employee director stock
purchase plans.............................. 290 --
--------------- --------------
Net cash provided by financing activities. $ 80,230 $ 36,851
--------------- --------------
Net increase in cash and cash equivalents. $ (656) $ 1,883
Cash and cash equivalents at the beginning of
period........................................ 3,436 1,698
--------------- --------------
Cash and cash equivalents at the end of
period........................................ $ 2,780 $ 3,581
=============== ==============
Supplemental disclosure of cash flow
information:
Income taxes paid (received), net........... $ 1,498 $ (736)
=============== ==============
Interest paid............................... $ 21,312 $ 27,471
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-23
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Palmer
Wireless, Inc. and subsidiaries (the "Company") have been prepared without
audit pursuant to Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financials. In the opinion of management, all adjustments (none of which were
other than normal recurring items) considered necessary for a fair
presentation have been included. The results of operations for the interim
periods reported are not necessarily indicative of results to be expected for
the year.
The computation of net income per share is based on the weighted average
number of common and, as appropriate, dilutive common equivalent shares
(common stock options using the treasury stock method) outstanding during the
periods presented.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 Statement of Operations
to conform to the 1997 presentation.
(2) ACQUISITION AND PURCHASE OF LICENSE
On February 1, 1997, one of the Company's majority-owned subsidiaries
acquired the assets of and license to operate the non-wireline cellular
telephone system serving the Georgia Rural Service Area Market No. 383,
otherwise known as Georgia-13 RSA, for a total purchase price of $31,096.
(3) SALE OF THE COMPANY
On October 6, 1997, the outstanding shares of common stock of the Company
were sold to Price Communications Corporation for a purchase price of $17.50
per share, for an aggregate purchase price of approximately $486,000. In
addition, Price Communications Corporation also repaid approximately $378,000
of outstanding indebtedness of the Company.
F-24
<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 September 30, 1997, and the related statements of
operations, shareholder's equity and cash flows for the period since inception
(May 29, 1997) through September 30, 1997. 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 audit.
We conducted our audit 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 audit provides 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 September 30, 1997, and the
results of their operations and their cash flows for the period since
inception (May 29, 1997) through September 30, 1997 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1998
F-25
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current assets:
Cash and cash equivalents.......................................... $274,637
--------
Total current assets............................................. 274,637
Deferred financing, at cost less accumulated amortization of $148.... 7,125
--------
Total assets..................................................... $281,762
========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
<S> <C>
Current liabilities:
Accrued interest................................................... $ 4,627
--------
Total current liabilities........................................ 4,627
Long-term debt....................................................... 252,327
Due to Price Communications Corporation.............................. 28,419
--------
Total liabilities................................................ 285,373
--------
Shareholder's Equity:
Common stock, par value $.01 per share; authorized 3,000 shares;
outstanding 100 shares............................................ --
Additional paid-in-capital......................................... --
Deficit............................................................ (3,611)
--------
Total shareholder's equity....................................... (3,611)
--------
Total liabilities and shareholder's equity....................... $281,762
========
</TABLE>
See accompanying notes to consolidated financial statements
F-26
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD SINCE INCEPTION (MAY 29, 1997) THROUGH SEPTEMBER 30, 1997
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
Interest income.................................................. $ 2,778
Interest expense................................................. (6,241)
Amortization..................................................... (148)
-------
Net loss..................................................... $(3,611)
=======
</TABLE>
See accompanying notes to consolidated financial statements
F-27
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD SINCE INCEPTION (MAY 29, 1997) THROUGH SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................... $ (3,611)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Amortization of deferred financing costs......................... 148
Accretion of interest............................................ 1,614
Increase in accrued interest..................................... 4,627
--------
Net cash provided by operating activities...................... 2,778
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by investing activities...................... --
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt......................................... 243,440
Advances from affiliate............................................ 28,419
--------
Net cash provided by financing activities...................... 271,859
--------
Net increase in cash and cash equivalents...................... 274,637
CASH AND CASH EQUIVALENTS, beginning of period....................... --
--------
CASH AND CASH EQUIVALENTS, end of period............................. $274,637
========
</TABLE>
See accompanying notes to consolidated financial statements
F-28
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
FOR THE PERIOD SINCE INCEPTION (MAY 29, 1997) THROUGH SEPTEMBER 30, 1997
(DOLLARS AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------
NUMBER ADDITIONAL
OF PAID-IN
SHARES VALUE CAPITAL DEFICIT TOTAL
------ ------ ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance at inception, May 29, 1997.. -- $ -- $ -- $ -- $ --
Shares issued under initial
capitalization................... 100 -- -- -- --
Net loss.......................... -- -- -- (3,611) (3,611)
----- ------ ------ ------- -------
Balance, September 30, 1997......... 100 $ -- $ -- $(3,611) $(3,611)
===== ====== ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F- 29
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS
Price Communications Cellular Holdings, Inc. ("PCCH" or "Company"), a
wholly-owned indirect subsidiary of Price Communications Corporation ("PCC")
and the parent company of Price Communications Wireless, Inc. ("PCW"), was
incorporated on May 29, 1997 to fund a portion of the purchase price of Palmer
Wireless, Inc. ("Palmer") by PCW. In August 1997, PCCH raised $80 million
through the issuance of 153,400 units consisting of 13.5% Senior Secured
Discount Notes due 2007 (the "Notes") and warrants to purchase 527,696 shares
of common stock of PCC (the "Warrants"). Other than this issuance and its
investment in PCW, the Company has no operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of PCCH and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
Use of estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in its consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with
maturities of three months or less at the time of purchase to be cash
equivalents.
Deferred financing costs
Deferred financing costs are being amortized by the straight-line method
over ten years, the life of the related debt.
3. LONG-TERM DEBT
Long term debt at September 30, 1997 includes the following:
<TABLE>
<S> <C>
11.75% senior subordinated notes (a)........................ $175,000,000
13.5% senior secured discount notes (b)..................... 77,327,000
------------
Long-term debt.............................................. $252,327,000
</TABLE>
- --------
(a) In July 1997, a subsidiary of the Company, PCW, issued $175 million 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. As of September 30, 1997 the Company was in
compliance with all covenants of the 11.75% Notes. The carrying value of
the 11.75% Notes approximates fair value as of September 30, 1997.
(b) In August 1997, the Company issued 153,400 units, consisting of Notes and
Warrants, in exchange for $80 million. The fair value of the Warrants was
recorded as an intercompany loan from PCC. 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,
F-30
<PAGE>
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
payable semi-annually. The Notes will be redeemable at the option of the
Company, 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, par value $0.01 per share 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.
As of September 30, 1997 the Company was in compliance with all covenants
of the Notes. The Warrants have been assigned a value of $4.288 million,
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 $77.327 million as of September 30, 1997.
In October 1997, a subsidiary of the Company 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 million. The
Credit Agreement includes a $325 million term loan facility and a $200 million
revolving credit facility. The term loan facility is comprised of tranche A
term loans of up to $100 million, which will have a maturity of eight years,
and tranche B term loans of up to $225 million, which will have a maturity of
nine years. The revolving credit facility will terminate eight years after the
closing date of the Credit Agreement. The Credit Agreement bears interest at
the alternate base rate, as defined in the Credit Agreement, or the reserve
adjusted Euro-Dollar rate plus, in each case, applicable margins of (i) in the
case of tranche A term loans and revolving loans (x) 2.5% 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.
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. The Company is a guarantor of the Credit Agreement.
4. SUBSEQUENT EVENT
On October 6, 1997, PCW completed the acquisition of Palmer. Concurrently,
the Company transferred its entire cash balance to PCW to fund a portion of
the purchase price.
F-31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Price Communications Cellular, Inc.
We have audited the accompanying consolidated balance sheet of Price
Communications Cellular, Inc. (a Delaware corporation) and subsidiaries as of
September 30, 1997. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Price Communications Cellular,
Inc. and subsidiaries as of September 30, 1997, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1998
F-32
<PAGE>
PRICE COMMUNICATIONS CELLULAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current assets:
Cash and cash equivalents.......................................... $274,637
--------
Total current assets............................................. 274,637
Deferred financing, at cost less accumulated amortization of $148.... 7,125
--------
Total assets..................................................... $281,762
========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
<S> <C>
Current liabilities:
Accrued expenses................................................... $ 4,627
--------
Total current liabilities........................................ 4,627
Long-term debt....................................................... 252,327
Due to Price Communications Corporation.............................. 28,419
--------
Total liabilities................................................ 285,373
--------
Shareholder's Equity:
Common stock, par value $.01 per share; authorized 3,000 shares;
outstanding 100 shares............................................ --
Additional paid-in-capital......................................... --
Deficit............................................................ (3,611)
--------
Total shareholder's equity....................................... (3,611)
--------
Total liabilities and shareholder's equity....................... $281,762
========
</TABLE>
See accompanying notes to consolidated financial statement
F-33
<PAGE>
PRICE COMMUNICATIONS CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
1. OPERATIONS
Price Communications Cellular, Inc. (the "Company"), is a wholly-owned
subsidiary of Price Communications Corporation ("PCC") and owns 100% of Price
Communications Cellular Holdings, Inc. ("PCCH"), which own 100% of Price
Communications Wireless, Inc. ("PCW"). The Company has no assets, other than
its investment in PCCH, and has no business activity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in the consolidated financial statements.
Use of estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in its consolidated financial
statement and accompanying notes. Actual results could differ from those
estimates.
Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with
maturities of three months or less at the time of purchase to be cash
equivalents.
Deferred financing costs
Deferred financing costs are being amortized by the straight-line method
over ten years, the life of the related debt.
3. LONG-TERM DEBT
Long-Term Debt
Long term debt at September 30, 1997 includes the following:
<TABLE>
<S> <C>
11.75% senior subordinated notes (a)........................ $175,000,000
13.5% senior secured discount notes (b)..................... 77,327,000
------------
Long-term debt.............................................. $252,327,000
</TABLE>
- --------
(a) In July 1997, PCW issued $175 million 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.
As of September 30, 1997 the Company was in compliance with all covenants
of the 11.75% Notes. The carrying value of the 11.75% Notes approximates
fair value as of September 30, 1997.
(b) In August 1997, PCCH issued 153,400 units, consisting of Notes and
Warrants, in exchange for $80 million. The fair value of the Warrants was
recorded as an intercompany loan from PCC. 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,
F-34
<PAGE>
PRICE COMMUNICATIONS CELLULAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
payable semi-annually. The Notes will be redeemable at the option of the
Company, 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, par value $0.01 per share 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.
As of September 30, 1997 the Company was in compliance with all covenants
of the Notes. The Warrants have been assigned a value of $4.288 million,
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 $77.327 million as of September 30, 1997.
In October 1997, a subsidiary of the Company 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 million. The
Credit Agreement includes a $325 million term loan facility and a $200 million
revolving credit facility. The term loan facility is comprised of tranche A
term loans of up to $100 million, which will have a maturity of eight years,
and tranche B term loans of up to $225 million, which will have a maturity of
nine years. The revolving credit facility will terminate eight years after the
closing date of the Credit Agreement. The Credit Agreement bears interest at
the alternate base rate, as defined in the Credit Agreement, or the reserve
adjusted Euro-Dollar rate plus, in each case, applicable margins of (i) in the
case of tranche A term loans and revolving loans (x) 2.5% 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.
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. The Company is a guarantor of the Credit Agreement.
4. SUBSEQUENT EVENT
On October 6, 1997, PCW completed the acquisition of Palmer. Concurrently,
the Company transferred its entire cash balance to PCW to fund a portion of
the purchase price.
F-35
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE INITIAL PURCHASERS OR ANY OTHER PERSON. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 14
The Acquisition........................................................... 22
Use of Proceeds........................................................... 23
Capitalization............................................................ 24
Unaudited Pro Forma Condensed Consolidated Financial Statements........... 25
Selected Consolidated Financial Data...................................... 33
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 35
The Exchange Offer........................................................ 46
Business of the Company................................................... 52
Management................................................................ 65
Principal Stockholders.................................................... 69
Description of New Credit Facility........................................ 69
Description of Notes...................................................... 72
Description of the Guarantee.............................................. 97
United States Federal Income Tax Consequences of the Exchange Offer....... 100
Plan of Distribution...................................................... 100
Legal Matters............................................................. 100
Experts................................................................... 100
Available Information..................................................... 101
Certain Terms............................................................. 101
Index to Financial Statements............................................. F-1
</TABLE>
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$153,400,000
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
13 1/2% SERIES B SENIOR SECURED DISCOUNT NOTES DUE 2007
--------------
PROSPECTUS
--------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty,
except (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) pursuant
to Section 174 of the DGCL (providing for liability of directors for the
unlawful payment of dividends or unlawful stock purchases or redemptions) or
(iv) for any transaction from which a director derived an improper personal
benefit.
Section 145 of the DGCL empowers the Company to indemnify, subject to the
standards set forth therein, any person in connection with any action, suit or
proceeding brought before or threatened by reason of the fact that the person
was a director, officer, employee or agent of such company, or is or was
serving as such with respect to another entity at the request of such company.
The DGCL also provides that the Company may purchase insurance on behalf of
any such director, officer, employee or agent.
The Company's Certificate of Incorporation and By-laws provide in effect for
the indemnification by the Company of each director and officer of the Company
to the fullest extent permitted by applicable law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits (see index to exhibits at E-1)
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes;
(a)(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
II-1
<PAGE>
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(c) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(d) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, NEW YORK, ON FEBRUARY 11, 1998.
PRICE COMMUNICATIONS CELLULAR
HOLDINGS, INC.
/s/ Robert Price
By: _________________________________
ROBERT PRICE
DIRECTOR, PRESIDENT AND TREASURER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Robert Price Director,
_____________________________________ President and February 11,
ROBERT PRICE Treasurer 1998
(Principal
Executive
Officer,
Financial Officer
and Accounting
Officer)
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, NEW YORK, ON FEBRUARY 11, 1998.
PRICE COMMUNICATIONS CELLULAR INC.
/s/ Robert Price
By: _________________________________
ROBERT PRICE
DIRECTOR, PRESIDENT AND TREASURER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Robert Price Director,
_____________________________________ President and February 11,
ROBERT PRICE Treasurer 1998
(Principal
Executive
Officer,
Financial Officer
and Accounting
Officer)
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 The Merger Agreement*
3.1 Certificate of Incorporation of Holdings, as amended*
3.2 By-laws of Holdings*
3.3 Certificate of Incorporation of the Guarantor, as amended*
3.4 By-laws of the Guarantor*
4.1 Indenture to 13 1/2% Senior Secured Discount Notes due 2007 between
Holdings, the Guarantor and Bank of Montreal Trust Company, as Trustee
(including form of Note)*
4.2 Registration Rights Agreement*
4.3 Guarantee (included in Exhibit 4.1)
5.1 Opinion of Davis Polk & Wardwell regarding the validity of the New
Notes
10.1 Credit Agreement dated as of September 30, 1997 among Holdings, PCW,
the lenders listed therein, DLJ Capital Funding, Inc., as syndication
agent and Bank of Montreal, Chicago branch, as administrative agent*
10.2 Fort Myers Sale Agreement*
10.3 Georgia Sale Agreement*
10.4 Ryan Agreement*
10.5 Wisehart Agreement*
10.6 Meehan Agreement*
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges*
21.1 Subsidiaries of the Company*
23.1 Consent of KPMG Peat Marwick LLP relating to the financial statements
of Palmer
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Davis Polk & Wardwell (see exhibit 5.1)
25.1 Statement of Eligibility of Bank of Montreal Trust Company with
respect to the 13 1/2% Senior Secured Discount Notes due 2007 of
Holdings*
25.2 Statement of Eligibility of Bank of Montreal Trust Company with
respect to the Guarantee of the Notes by the Guarantor*
99.1 Form of Letter of Transmittal to 13 1/2% Senior Secured Discount Notes
due 2007 of Holdings*
99.2 Form of Notice of Guaranteed Delivery to 13 1/2% Senior Secured
Discount Notes due 2007 of Holdings*
99.3 Form of Instruction to Registered Holder and/or Book-Entry Transfer of
Participant from Owner of Holdings*
99.4 Form of Letter to Clients*
99.5 Form of Letter to Registered Holders and Depository Trust Company
Participants*
</TABLE>
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* Previously filed.
E-1
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF DAVIS POLK & WARDWELL]
February 12, 1998
Price Communications Cellular Holdings, Inc.
45 Rockefeller Plaza
New York, New York 10020
Price Communications Cellular Inc.
45 Rockefeller Plaza
New York, New York 10020
Ladies and Gentlemen:
We have acted as special counsel to Price Communications Cellular
Holdings, Inc. (the "Company") and Price Communications Cellular Inc. (the
"Guarantor") in connection with the Company's offer (the "Exchange Offer") to
exchange its 13 1/2% Series B Senior Secured Discount Notes due 2007 (the "New
Notes") for any and all of its outstanding 13 1/2% Series A Senior Secured
Discount Notes due 2007 (the "Old Notes") and the guarantee of the New Notes
by the Guarantor (the "Guarantee").
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments as we have deemed necessary or
advisable for the purpose of rendering this opinion.
Upon the basis of the foregoing and assuming the due execution and
delivery of the New Notes and the Guarantee, we are of the opinion that the New
Notes, when executed, authenticated and delivered in exchange for the Old Notes
in accordance with the Exchange Offer, will be valid and binding obligations of
the Company and that the Guarantee, when the New Notes and the Guarantee are
executed, authenticated and delivered
<PAGE>
Price Communications Cellular Holdings, Inc. February 12, 1998
Price Communications Cellular Inc.
2
in accordance with the Exchange Offer, will be a valid and binding obligation of
the Guarantor, in each case subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and similar laws affecting
creditors' rights generally and equitable principles. We express no opinion as
to the enforceability of the security interest purported to be created thereby.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of the
United States of America and the General Corporation Law of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement relating to the Exchange Offer. We also consent to the
reference to us under the caption "Legal Matters" in the Prospectus contained in
such Registration Statement.
This opinion is rendered to you in connection with the above matter.
This opinion may not be relied upon by you for any other purpose. Bank of
Montreal Trust Company, as Exchange Agent for the Exchange Offer, may rely upon
this opinion as if it were addressed directly to it.
Very truly yours
/s/ Davis Polk & Wardwell
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Price Communications Wireless, Inc. (formerly Palmer Wireless, Inc.):
We consent to the inclusion of our report dated January 30, 1997, except for
Note 10 which is as of February 1, 1997, with respect to the consolidated
balance sheets of Palmer Wireless, Inc. and subsidiaries, as of December 31,
1996 and 1995 and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996, which report appears in the Form S-4 of Price
Communications Cellular Holdings, Inc. and Price Communications Cellular Inc.
and to the reference to our firm under the heading "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Des Moines, Iowa
February 10, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
Registration Statement File No. 333-41227.
/s/ ARTHUR ANDERSEN LLP
New York, New York
February 10, 1998
