<PAGE>
333-34017
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
PRICE COMMUNICATIONS CORPORATION
PRICE HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 4832 13-2991700
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION
JURISDICTION OF CLASSIFICATION NO.)
INCORPORATION OR CODE NUMBER)
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 CORPORATION
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:
PETER G. SAMUELS, ESQ.
PROSKAUER ROSE LLP
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 969-3000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
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: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING PRICE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1)(2) (1)(3) FEE(4)
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value...................... 10,000,000 $7.625 $76,250,000 $23,106.06
</TABLE>
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(1)Estimated solely for the purpose of calculating the registration fee.
(2)Based on the average of high and low prices reported on August 18, 1997.
(3) Represents the number of shares to be registered multiplied by the market
price of the securities being cancelled in the transaction, as determined
in accordance with Rule 457(f)(1).
(4) Previously paid.
----------------
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 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>
PRICE COMMUNICATIONS CORPORATION
CROSS-REFERENCE SHEET TO FORM S-4
ITEM OF FORM S-4 CAPTION IN PROXY STATEMENT AND PROSPECTUS
A.INFORMATION ABOUT THE
TRANSACTION
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus....... Facing Page; Cross Reference Sheet;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus......
Available Information
3. Risk Factors, Ratio of
Earnings to Fixed Charges and
Other Information..............
Summary; Risk Factors
4. Terms of the Transaction....... Summary; Background of the Offer; The
Offer; Description of Price Common Stock;
Market for Price Common Stock
5. Pro Forma Financial Unaudited Pro Forma Condensed
Information.................... Consolidated Financial Statements
6. Material Contacts with the
Company Being Acquired.........
The Acquisition
7. Additional Information
Required for Reoffering by
Persons and Parties Deemed to
be Underwriters................
Not Applicable
8. Interests of Named Experts and Legal Matters; Experts
Counsel........................
9. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities....................
N/A
B. INFORMATION ABOUT THE
REGISTRANT
10. Information with Respect to S-
3 Registrants..................
Not Applicable
11. Incorporation of Certain
Information by Reference.......
Not Applicable
12. Information with Respect to S-
2 or S-3 Registrants...........
Not Applicable
13. Incorporation of Certain
Information by Reference.......
Not Applicable
14. Information with Respect to
Registrants Other than S-3 or
S-2 Registrants................
Not Applicable
I-1
<PAGE>
ITEM OF FORM S-4 CAPTION IN PROXY STATEMENT AND PROSPECTUS
C.INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-
3 Companies....................
Not Applicable
16. Information with Respect to S-
2 or S-3 Companies.............
Not Applicable
17. Information with Respect to
Companies Other than S-3 or S-
2 Companies....................
Background of the Offer
D.VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies,
Consents or Authorizations are
to be Solicited................
19. Information if Proxies,
Consents or Authorizations are
not to be Solicited or in an
Exchange Offer.................
Outside Front Cover Page; Summary; The
Offer
I-2
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST , 1997
PROSPECTUS
OFFER TO EXCHANGE UP TO 3,000,000 SHARES OF CLASS A COMMON STOCK AND CLASS B
COMMON STOCK
OF
PALMER WIRELESS, INC.
FOR
$18.00 OF COMMON STOCK
OF
PRICE COMMUNICATIONS CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT NEW YORK CITY
TIME ON , 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). SHARES WHICH
ARE TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO
THE EXPIRATION DATE.
Price Communications Corporation, a New York corporation ("Price") hereby
offers, upon the terms and subject to the conditions set forth herein and in
the related Letter of Transmittal (collectively, the "Offer"), to exchange
$18.00 in shares of common stock, par value $0.01 per share, of Price ("Price
Common Stock") for up to 3,000,000 outstanding shares of Class A common stock,
par value $0.01 per share, and Class B common stock, par value $.01 per share
(each, a "Palmer Share" and collectively the "Palmer Shares"), of Palmer
Wireless, Inc., a Delaware corporation ("Palmer"). Each of the Palmer Shares
validly tendered on or prior to the Expiration Date and not properly withdrawn
will be entitled to receive that number of shares of Price Common Stock equal
to the Exchange Ratio (as defined below) (the "Stock Consideration"), subject
to proration in the event more than the 3,000,000 Palmer Shares sought in the
Offer are tendered as described below. The term "Exchange Ratio" means the
quotient (rounded to the nearest 1/100,000) determined by dividing $18.00 by
the average of the closing prices of Price Common Stock on the American Stock
Exchange (the "AMEX") (the "Price Communications Average Price") on each of
the five consecutive trading days ending on September 12, 1997. The Price
Common Stock is listed for trading under the symbol "PR" on the AMEX. On
August , 1997, the closing price of Price Common Stock on the AMEX was
$ . Based on such closing price, the Exchange Ratio would be . The
Exchange Ratio will change as the market price of the Price Common Stock
changes. Holders of Palmer Shares (the "Palmer Stockholders") may call
any time on or after the date hereof through the
Expiration Date for the current Exchange Ratio calculated based on the then-
current Price Communications Average Price for the five consecutive trading
days ending with the trading day immediately preceding the date the call is
placed. The actual Price Communications Average Price and Exchange Ratio will
be calculated as of September 12, 1997, as described above, and a press
release will be issued announcing the actual Exchange Ratio prior to the
opening of the trading day on September 15, 1997.
On May 23, 1997, Price, Price Communications Wireless, Inc., a wholly-owned
subsidiary of Price ("PCW"), and Palmer entered into the Agreement and Plan of
Merger (the "Palmer Merger Agreement"), which provides, among other things,
for the merger of PCW with and into Palmer, with Palmer as the surviving
corporation (the "Palmer Merger"). It is contemplated that the Offer will be
consummated immediately prior to consummation of the Palmer Merger, so that
(subject to proration as set forth below) Palmer Stockholders properly
tendering and not withdrawing Palmer Shares in the Offer will receive $18.00
in Price Common Stock per Palmer Share pursuant to the Offer and Palmer
Stockholders not tendering Palmer Shares (and not exercising appraisal rights
in respect of the Palmer Merger under Delaware law) will receive $17.50 in
cash per Palmer Share pursuant to the Palmer Merger (the "Merger
Consideration"). Any Palmer Shares not taken up in the Offer as a result of
proration will receive $17.50 in cash pursuant to the Palmer Merger. Palmer
Stockholders will be deemed to have waived all rights to receive the Merger
Consideration and to have forfeited any theretofore perfected appraisal rights
with respect to all Palmer Shares properly tendered in the Offer and accepted
for exchange by Price.
The maximum number of Palmer Shares sought in the Offer is 3,000,000. A
special meeting of the shareholders of Price has been called to consider the
authorization of the issuance of a maximum of 10,000,000 shares of Price
Common Stock in the Offer. In the event the Exchange Ratio based upon the
average closing price per share of Price Common Stock for the five trading
days ending on September 12, 1997 could result in a requirement that Price
issue more than the
<PAGE>
10,000,000 shares of Price Common Stock in exchange for the Palmer Shares
sought in the Offer (i.e., if the Price Communications Average Price were less
than $5.40 per share), Price would amend the Offer by reducing the number of
Palmer Shares sought in the Offer and/or by determining the Exchange Ratio on
a basis different than that described above, or otherwise, so as to permit the
Offer to be consummated without requiring the issuance of more than 10,000,000
shares of Price Common Stock. If the Offer is revised to change the number of
Palmer Shares sought, or to amend the Exchange Ratio, the Offer will be
extended to allow 10 business days to remain in the Offer. To the extent the
aggregate number of Palmer Shares properly tendered by the Expiration Date and
not withdrawn by Palmer Stockholders exceeds 3,000,000, the Palmer Shares so
tendered will be taken up in the Offer pro rata based on the number of Palmer
shares so tendered and not withdrawn by each such Palmer Stockholder.
Price's obligation to exchange the Stock Consideration for Palmer Shares
pursuant to the Offer is conditioned upon, among other things, the
satisfaction or, where applicable, waiver of the following conditions: (I) the
approval by Price's shareholders of the issuance of up to 10,000,000 shares of
Price Common Stock in connection with the Offer and (II) the satisfaction of
all of the conditions (including receipt of Federal Communications Commission
approval) set forth in Article XIII of the Palmer Merger Agreement or waiver
thereof by Price and the Palmer Merger Agreement not having been terminated
pursuant to Article IX thereof and none of the parties to the Palmer Merger
Agreement having asserted a right to terminate such agreement. (Such
conditions and additional conditions described in "The Offer--Conditions of
the Offer" are hereinafter collectively referred to as the "Offer
Conditions"). Price expects to know whether all the conditions to the Palmer
Merger have been satisfied or waived prior to the expiration of the Offer. See
"The Offer--Conditions of the Offer."
Price is unable to predict the amount of time necessary, among other things,
to obtain the shareholder, governmental and regulatory approvals and consents
required to complete the Offer and the transactions contemplated herein.
However, the time necessary to obtain such approvals and consents may extend
beyond the Expiration Date, and Price reserves the right to extend the Offer
from time to time in its sole discretion.
SEE "RISK FACTORS" COMMENCING ON PAGE 19 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PALMER STOCKHOLDERS IN CONNECTION WITH THE OFFER.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
The Dealer Manager for the Offer is:
IMPORTANT
ANY PALMER STOCKHOLDER DESIRING TO TENDER ALL OR ANY PORTION OF HIS OF HER
PALMER SHARES SHOULD EITHER (A) COMPLETE AND SIGN THE LETTER OF TRANSMITTAL
OR A FACSIMILE COPY THEREOF IN ACCORDANCE WITH THE INSTRUCTIONS IN THE
LETTER OF TRANSMITTAL, AND MAIL OR DELIVER THE LETTER OF TRANSMITTAL OR SUCH
FACSIMILE AND ANY OTHER REQUIRED DOCUMENTS TO
(THE "EXCHANGE AGENT") AND EITHER DELIVER THE CERTIFICATES FOR SUCH PALMER
SHARES TO THE EXCHANGE AGENT ALONG WITH THE LETTER OF TRANSMITTAL, DELIVER
SUCH PALMER SHARES PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER SET
FORTH HEREIN OR COMPLY WITH THE GUARANTEED DELIVERY PROCEDURES SET FORTH
BELOW OR (B) REQUEST HIS OR HER BROKER, DEALER, COMMERCIAL BANK, TRUST
COMPANY OR OTHER NOMINEE TO EFFECT THE TRANSACTION FOR SUCH PALMER
STOCKHOLDER. A PALMER STOCKHOLDER HAVING PALMER SHARES REGISTERED IN THE
NAME OF A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE IS
URGED TO CONTACT SUCH BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR
OTHER NOMINEE IF HE OR SHE DESIRES TO TENDER SUCH PALMER SHARES.
A PALMER STOCKHOLDER THAT DESIRES TO TENDER PALMER SHARES AND WHOSE
CERTIFICATES FOR SUCH PALMER SHARES ARE NOT IMMEDIATELY AVAILABLE OR WHO
CANNOT COMPLY WITH THE PROCEDURES FOR BOOK-ENTRY TRANSFER ON A TIMELY BASIS
OR WHO CANNOT DELIVER ALL REQUIRED DOCUMENTS TO THE EXCHANGE AGENT PRIOR TO
THE EXPIRATION DATE, MAY TENDER SUCH PALMER SHARES BY FOLLOWING THE
PROCEDURE FOR GUARANTEED DELIVERY.
QUESTIONS AND REQUESTS FOR ASSISTANCE MAY BE DIRECTED TO
AT THE ADDRESS AND TELEPHONE NUMBER SET FORTH ON THE
BACK COVER OF THIS PROSPECTUS. REQUESTS FOR ADDITIONAL COPIES OF THIS
PROSPECTUS AND THE LETTER OF TRANSMITTAL MAY BE DIRECTED TO
OR TO BROKERS, DEALERS, COMMERCIAL BANKS OR TRUST
COMPANIES.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information; Incorporation
by Reference....................... 3
Prospectus Summary.................. 5
The Acquisition..................... 9
Risk Factors........................ 19
Unaudited Pro Forma Condensed
Consolidated Financial Statements.. 25
The Offer........................... 33
Creation of a Holding Company For
Price.............................. 49
Information Concerning Price........ 55
Principal Shareholders of Price..... 57
Security Ownership of Price's Man-
agement............................ 58
Market for Price Common Stock....... 59
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Price Selected Consolidated Financial Data................................................... 60
Price Management's Discussion and Analysis of Financial Condition and Results of Operations.. 62
Information Concerning Palmer................................................................ 68
Market for Palmer Shares..................................................................... 77
Palmer Selected Consolidated Financial
Data........................................................................................ 78
Palmer Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................... 80
Legal Matters................................................................................ 89
Experts...................................................................................... 89
</TABLE>
AVAILABLE INFORMATION
Price and Palmer are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information
with the Commission. The reports, proxy statements and other information filed
by Price and Palmer with the Commission may be inspected and copied at the
Commission's public reference room located at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the public reference
facilities in the Commission's regional offices located at: 7 World Trade
Center, 13th Floor, New York, New York 10048, and 500 West Madison Street,
Suite 400 Chicago, Illinois 60661. Copies of such material may be obtained at
prescribed rates by writing to the Commission, Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549. Price and Palmer are electronic
filers with the Commission, which maintains a web site containing reports,
proxy and other information statements at the following location:
http://www.sec.gov.
This Prospectus does not contain all of the information set forth in the
Registration Statement on Form S-4 (the "Registration Statement") covering the
Price Common Stock offered hereby which has been filed with the Commission.
Reference is hereby made to the Registration Statement for further information
with respect to Price, Palmer and the securities offered hereby. Statements
contained herein concerning any documents are not necessarily complete and, in
each instance, reference is made to the copies of such documents filed which
in certain cases are filed as exhibits to the Registration Statement. Each
such statement is qualified in its entirety by such reference.
The Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available upon request from
Ashley B. Dixon, Price Communications Corporation, 45 Rockefeller Plaza, New
York, New York 10020, (212) 757-5600. In order to ensure timely delivery of
the documents, any request should be made before September , 1997.
The following documents filed with the Commission by Price (File No. 1-8309)
are incorporated herein by reference: (a) Price's Annual Report on Form 10-K
for the year ended December 31, 1996; and (b) Price's Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 1997 and June 30, 1997.
The following documents filed with the Commission by Palmer (File No. )
are incorporated herein by reference: (a) Palmer's Annual Report on Form 10-K
for the year ended December 31, 1996; and (b) Palmer's Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 1997 and June 30, 1997.
3
<PAGE>
All documents filed by either Price or Palmer pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior
to the date the Offer is terminated or the Palmer Shares are accepted for
exchange shall be deemed to be incorporated herein by reference and to be a
part hereof from the date of such filing. Any statement contained herein or in
a document incorporated or deemed to be incorporated herein by reference shall
be deemed to be modified or superseded for purposes hereof to the extent that
a statement contained herein or in any other subsequently filed document which
also is, or is deemed to be, incorporated herein by reference modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part hereof, except as so modified or
superseded.
Not later than the date of commencement of the Offer, Price will file with
the Commission a statement on Schedule 14D-1 pursuant to Rule 14D-3 under the
Exchange Act furnishing certain information with respect to the Offer. Such
schedule and any amendments thereto should be available for inspection and
copying as set forth above (except that such schedule and any amendments
thereto will not be available at the regional offices of the Commission).
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PRICE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. THE OFFER IS NOT BEING MADE TO,
NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF, HOLDERS OF PALMER SHARES IN
ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE THEREOF WOULD NOT BE IN
COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. HOWEVER PRICE MAY, IN ITS SOLE
DISCRETION, TAKE SUCH ACTION AS IT MAY DEEM NECESSARY TO MAKE THE OFFER IN ANY
SUCH JURISDICTION AND EXTEND THE OFFER TO HOLDERS OF PALMER SHARES IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF PRICE OR PALMER SINCE THE DATE AS OF WHICH
INFORMATION IS FURNISHED OR THE DATE HEREOF.
IN ANY JURISDICTION WHERE THE SECURITIES, BLUE SKY OR OTHER LAWS REQUIRE THE
OFFER TO BE MADE BY A LICENSED BROKER OR DEALER, THE OFFER SHALL BE DEEMED TO
BE MADE ON BEHALF OF PRICE BY , AS DEALER MANAGER, OR ONE OR
MORE OTHER REGISTERED BROKERS OR DEALERS LICENSED UNDER THE LAWS OF SUCH
JURISDICTION.
4
<PAGE>
PROSPECTUS SUMMARY
The information below is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus. As used in this prospectus, the term "Price" refers to Price
Communications Corporation and, unless the context otherwise requires, its
subsidiaries. The shareholders of Price are considering approval of the
creation of a holding company ("Holdings"), which would become the parent of
Price and change its name to Price Communications Corporation. In the event of
the creation of such a holding company, the term "Price" shall be deemed to
refer to Holdings and the term "Price Common Stock" shall be deemed to refer to
Holdings' common stock. See "Creation of a Holding Company for Price." The term
"Palmer" refers to Palmer Wireless, Inc. and, unless the context otherwise
requires, its subsidiaries.
PRICE
Price has historically been a nationwide communications company owning and
then disposing of a number of television, radio, newspaper, cellular telephone
and other communications and related properties. Price's business strategy is
to acquire communications properties at prices it considers attractive, finance
such properties on terms satisfactory to it, manage such properties in
accordance with its operating strategy and dispose of them if and when Price
determines such dispositions to be in its best interest. Price's principal
executive offices are located at 45 Rockefeller Plaza, New York, New York
10020, and its telephone number is (212) 757-5600.
PALMER
Palmer is engaged in the construction, development, management and operation
of cellular telephone systems in the southeastern United States. At June 30,
1997 (after giving effect to the Acquisition (as defined below)), Palmer
provided cellular telephone service to 287,665 subscribers in Georgia, Alabama,
Florida and South Carolina in a total of 17 licensed service areas composed of
eight Metropolitan Statistical Areas ("MSAs") and nine Rural Service Areas
("RSAs"), with an aggregate estimated population of 3.5 million. Palmer sells
its cellular telephone service as well as a full line of cellular products and
accessories principally through its network of retail stores. Palmer markets
all of its products and services under the CELLULAR ONE service mark. Palmer's
principal executive offices are located at 12800 University Drive, Fort Myers,
Florida 33907, and its telephone number is (941) 433-4350.
RISK FACTORS
Palmer Stockholders should carefully consider the factors set forth under the
caption "Risk Factors" prior to tendering their Palmer Shares.
REASONS FOR THE OFFER
On May 23, 1997, Price, PCW, a wholly owned indirect subsidiary of Price, and
Palmer entered into the Palmer Merger Agreement, which provides, among other
things, for the merger of PCW with and into Palmer, with Palmer as the
surviving corporation. Pursuant to the Palmer Merger Agreement, Price has
agreed, among other things, to acquire each issued and outstanding Palmer Share
for the Merger Consideration ($17.50 per share in cash). The purpose of the
Offer is to provide Palmer Stockholders the opportunity to continue to
participate in the ongoing business of Palmer by receiving shares of Price
Common Stock valued at $18.00 per share in lieu of cash for at least a portion
of their Palmer Shares. In addition, to the extent Palmer Shares are exchanged
for shares of Price Common Stock in the Offer, the aggregate cash consideration
to be paid by Price in the Acquisition will be correspondingly reduced. See
"The Acquisition" and "The Offer".
THE OFFER
General
Price hereby offers, upon the terms and subject to the conditions set forth
herein and in the related Letter of Transmittal, to exchange $18.00 in shares
of Price Common Stock for up to 3,000,000 outstanding Palmer Shares
5
<PAGE>
validly tendered on or prior to the Expiration Date and not properly withdrawn.
The Stock Consideration for a Palmer Share consists of that number of shares of
Price Common Stock equal to the Exchange Ratio. The term "Exchange Ratio" means
the quotient (rounded to the nearest 1/100,000) determined by dividing $18.00
by the average of the closing prices of Price Common Stock on the AMEX on each
of the five consecutive trading days ending on September 12, 1997. On August
, 1997, the closing price of Price Common Stock on the AMEX was $ . Based
on such closing price the Exchange Ratio would be . The Exchange
Ratio will change as the market price of Price Common Stock changes. Palmer
Stockholders may call any time on or after the date hereof through the
Expiration Date for the current Exchange Ratio calculated based on the then-
current Price Communications Average Price for the five consecutive trading
days ending with the trading day immediately preceding the date the call is
placed. The actual Price Communications Average Price and Exchange Ratio will
be calculated as of September 12, 1997, as described above, and a press release
will be issued announcing the actual Exchange Ratio prior to the opening of the
trading day on September 15, 1997. The term "Expiration Date" shall mean 5:00
p.m., New York time on , 1997, unless and until Price extends
the period of time for which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which the Offer, as so
extended by Price, shall expire.
It is contemplated that the Offer will be consummated immediately prior to
consummation of the Palmer Merger, so that (subject to proration) Palmer
Stockholders properly tendering and not withdrawing Palmer Shares in the Offer
will receive $18.00 in Price Common Stock per Palmer Share pursuant to the
Offer and Palmer Stockholders not tendering Palmer Shares (and not exercising
appraisal rights in respect of the Palmer Merger under Delaware law) will
receive $17.50 in cash per Palmer Share pursuant to the Palmer Merger. Any
Palmer Shares not taken up in the Offer as a result of proration will receive
$17.50 in cash pursuant to the Palmer Merger. Palmer Stockholders will be
deemed to have waived all rights to receive the Merger Consideration and to
have forfeited any theretofore perfected appraisal rights with respect to all
Palmer Shares properly tendered in the Offer and accepted for exchange by
Price.
The maximum number of Palmer Shares sought in the Offer is 3,000,000. A
special meeting of the shareholders of Price has been called to consider the
authorization of the issuance of a maximum of 10,000,000 shares of Price Common
Stock in the Offer. In the event the Exchange Ratio, based upon the average
closing price per share of Price Common Stock for the five trading days ending
on September 12, 1997, could result in a requirement that Price issue more than
the 10,000,000 shares of Price Common Stock in exchange for the Palmer Shares
sought in the Offer (i.e., if the Price Communications Average Price was less
than $5.40 per share), Price would amend the Offer by reducing the number of
Palmer Shares sought in the Offer and/or by determining the Exchange Ratio on a
basis different than that described above, or otherwise, so as to permit the
Offer to be consummated without requiring the issuance of more than 10,000,000
shares of Price Common Stock. If the Offer is revised to change the number of
Palmer Shares sought, or to amend the Exchange Ratio, the Offer will be
extended to allow 10 business days to remain in the Offer. To the extent the
aggregate number of Palmer Shares properly tendered by the Expiration Date and
not withdrawn by holders of Palmer Stockholders exceeds 3,000,000, the Palmer
Shares so tendered will be taken up in the Offer pro rata based on the number
of Palmer shares so tendered and not withdrawn by each such Palmer Stockholder.
See "The Offer--General."
Conditions of the Offer. Price's obligation to exchange the Stock
Consideration for Palmer Shares pursuant to the Offer is conditioned upon,
among other things, the satisfaction or, where applicable, waiver of each of
the Offer Conditions including (i) the approval by Price's shareholders of the
issuance of up to 10,000,000 shares of Price Common Stock in connection with
the Offer and (ii) the satisfaction of all of the conditions (including receipt
of Federal Communications Commission approval) set forth in Article XIII of the
Palmer Merger Agreement or waiver thereof by Price and the Palmer Merger
Agreement not having been terminated pursuant to Article IX thereof and none of
the parties to the Palmer Merger Agreement having asserted a right to terminate
such agreement. Price expects to know whether all conditions to the Palmer
Merger have been satisfied or waived prior to the expiration of the Offer.
6
<PAGE>
Subject to the applicable rules and regulations of the Commission, Price
expressly reserves the right, in its sole discretion, at any time or from time
to time, to delay acceptance for exchange or, regardless of whether such Palmer
Shares were theretofore accepted for exchange, decline to exchange any Palmer
Shares pursuant to the Offer or to amend or terminate the Offer and not to
accept for exchange or exchange any Palmer Shares not theretofore accepted for
exchange, or exchanged, upon the failure of any of the conditions of the Offer
to be satisfied. Price reserves the absolute right to waive any defect or
irregularity in the tender of any securities. See "The Offer--Conditions of the
Offer." Waiver or amendment of certain conditions of the Offer may require an
extension of the Offer.
TIMING OF THE OFFER
The Offer is scheduled to expire at 12:00 midnight, New York City time, on
, 1997. It is contemplated that the Offer will be consummated
immediately prior to consummation of the Palmer Merger, so that (subject to
proration) Palmer Stockholders properly tendering and not withdrawing Palmer
Shares in the Offer will receive $18.00 in Price Common Stock per Palmer Share
pursuant to the Offer. Palmer Stockholders not tendering Palmer Shares (and not
exercising appraisal rights in respect of the Palmer Merger under Delaware law)
will receive $17.50 in cash per Palmer Share pursuant to the Palmer Merger. Any
Palmer Shares not taken up in the Offer as a result of proration will receive
$17.50 in cash pursuant to the Palmer Merger. Palmer Stockholders will be
deemed to have waived all rights to receive the Merger Consideration and to
have forfeited any theretofore perfected appraisal rights with respect to all
Palmer Shares properly tendered in the Offer and accepted for exchange by
Price. It is Price's current intention to extend the Offer until all conditions
have been either satisfied or waived. See "The Offer--Extension, Termination
and Amendment." Price expects that the condition requiring approval by the
Company's shareholders of the issuance of up to 10,000,000 shares of Price's
Common Stock in connection with the Offer will be satisfied by September 5,
1997, the date on which it has called a special meeting of its shareholders
(the "Price Special Meeting"), to approve, among other things, such issuance.
EXTENSION, TERMINATION AND AMENDMENT
Price expressly reserves the right (but will not be obligated), in its sole
discretion, at any time or from time to time, and regardless of whether any of
the events set forth in the "Offer--Conditions of the Offer" shall have
occurred or shall have been determined by Price to have occurred, (a) to extend
the period of time during which the Offer is to remain open by giving oral or
written notice of such extension to the Exchange Agent, which extension will be
announced no later than 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date, and (b) to amend the Offer in
any respect (including without limitation, by decreasing or increasing the
consideration offered in the Offer to holders of Palmer Shares and/or by
increasing or decreasing the number of Palmer Shares being sought in the Offer)
by giving oral or written notice of such amendment to the Exchange Agent. There
can be no assurance that Price will exercise its right to extend the Offer.
However, it is the Price's current intention to extend the offer until all
conditions have been satisfied or waived. See "The Offer--Extension,
Termination and Amendment." During any such extension, all Palmer Shares
previously tendered and not withdrawn will remain subject to the Offer, subject
to the right of a tendering stockholder to withdraw his Palmer Shares. See "The
Offer--Withdrawal Rights."
EXCHANGE OF PALMER SHARES; DELIVERY OF PRICE COMMON STOCK
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), Price will accept for exchange, and will exchange up to 3,000,000
outstanding Palmer Shares validly tendered and not withdrawn as promptly as
practicable after the Expiration Date. See "The Offer--Exchange of Palmer
Shares; Delivery of Price Common Stock."
WITHDRAWAL RIGHTS
Palmer Shares tendered pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date and, unless theretofore accepted for exchange and
exchanged by Price for the Stock Considerations pursuant to
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the Offer, may also be withdrawn at any time after , 1997. See
"The Offer--Withdrawal Rights."
PROCEDURE FOR TENDERING PALMER SHARES
For a Palmer Stockholder to validly tender Palmer Shares pursuant to the
Offer, (i) a properly completed and duly executed Letter of Transmittal (or
manually executed facsimile thereof), together with any required signature
guarantees, or an Agent's Message (as hereinafter defined) in connection with a
book-entry transfer, and any other required documents, must be transmitted to
and received by the Exchange Agent at its address set forth on the back cover
of this Prospectus and either certificates for tendered Palmer Shares must be
received by the Exchange Agent at such address or such Palmer Shares must be
tendered pursuant to the procedures for book-entry tender set forth under "The
Offer--Procedure for Tendering" (and a confirmation of receipt of such tender
received), in each case prior to the Expiration Date, or (ii) such Palmer
Stockholder must comply with the guaranteed delivery procedures set forth under
"The Offer--Procedure for Tendering."
THE METHOD OF DELIVERY OF PALMER SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING PALMER STOCKHOLDER, AND DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS
BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
If, in accordance with the recommendation of the Board of Directors of Price,
the shareholders of Price approve the creation of a holding company, a Palmer
Stockholder who receives Holdings common stock in the Offer should generally
not recognize gain or loss upon such exchange. If the shareholders of Price do
not approve the creation of a holding company, a Palmer Stockholder who
receives Price Common Stock in the Offer will recognize gain or loss upon such
exchange equal to the difference between the fair market value of the Price
Common Stock received and the Palmer Stockholder's tax basis in the Palmer
Shares exchanged. Palmer Stockholders who receive cash in the Palmer Merger in
exchange for their Palmer Shares will, in general, recognize gain or loss upon
such exchange equal to the difference between the cash received and their tax
basis in the Palmer Shares exchanged. In certain circumstances, some or all of
the cash received pursuant to the Palmer Merger Agreement by a Palmer
Stockholder who also participates in the Offer may be treated as dividend
income (to the extent of applicable earnings and profits) rather than income
from the sale or exchange of a capital asset.
All Palmer Stockholders should carefully read the summary of the federal
income tax consequences of the Offer under "The Offer--Certain Federal Income
Tax Consequences" and are urged to consult with their own tax advisors as to
the federal, state, local and foreign tax consequences in their particular
circumstances.
THE EXCHANGE AGENT
has been appointed Exchange Agent in connection with the Offer. The
Letter of Transmittal (or facsimile copies thereof) and certificates for Palmer
Shares should be sent by each tendering Palmer Stockholder or his broker,
dealer, bank or other nominee to the Exchange Agent at the address set forth on
the back cover of this Prospectus.
REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES
Requests for information or assistance concerning the Offer may be directed
to at the address set forth on the back cover of this
Prospectus. Requests for additional copies of this Prospectus and the Letter of
Transmittal should be directed to .
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THE ACQUISITION
GENERAL
On May 23, 1997, Price, PCW, a wholly-owned indirect subsidiary of Price,
and Palmer entered into the Palmer Merger Agreement which provides, among
other things, for the merger of PCW with and into Palmer, with Palmer as the
surviving corporation. At or subsequent to the Palmer Merger, Palmer will
change its name to "Price Communications Wireless, Inc." Pursuant to the
Palmer Merger Agreement, Price has agreed to acquire each issued and
outstanding Palmer Share for a purchase price of $17.50 per share in cash and
to purchase outstanding options and rights under Palmer's employee and
director stock purchase plans for an aggregate purchase price of $488.9
million. In addition, Price has agreed to repay the outstanding indebtedness
of Palmer estimated to be up to approximately $389 million ("Palmer Existing
Indebtedness"). In connection with this transaction, PCW has entered into an
agreement to sell (subject to the satisfaction of certain conditions) at the
effective time of the Palmer Merger, Palmer's Fort Myers, Florida MSA for $168
million (which will generate proceeds to Price of approximately $166.3
million) (the "Fort Myers Sale" and, together with the Palmer Merger, the
"Acquisition"). The proceeds of the Fort Myers Sale will be used to fund a
portion of the Acquisition. The purchaser of the Fort Myers MSA is Wireless
One Network, L.P. ("Wireless One"), the operator of cellular telephone systems
including three RSA's adjacent to the Fort Myers MSA. Wireless One, which had
unsuccessfully sought to acquire Palmer shortly before Price entered into the
Palmer Merger Agreement, made an unsolicited offer to Price to purchase the
Fort Myers system. Price believes that in part because of the geographic
importance of Fort Myers to Wireless One, it was able to achieve a high sales
price for Fort Myers (approximately $440 per Pop in comparison to an average
acquisition price of $198 per Pop paid by Price in the Acquisition).
The consummation of the Acquisition is subject to the satisfaction of
certain conditions contained in the Palmer Merger Agreement, including, among
other things, Federal Communications Commission ("FCC") and Palmer Stockholder
approval. Price also entered into an agreement with Palmer Communications
Incorporated ("PCI"), which is the majority shareholder of Palmer, pursuant to
which PCI has agreed to vote its Palmer Shares in favor of the Palmer Merger.
Price expects the Acquisition to be consummated in October 1997.
In order to fund the Acquisition and pay related fees and expenses, PCW
issued $175 million aggregate principal amount of 11 3/4% Senior Subordinated
Notes due 2007 (the "PCW Offering") and will enter into a syndicated senior
loan facility providing for term loan borrowings in the aggregate principal
amount of approximately $325 million and revolving loan borrowings of $200
million (the "New Credit Facility"). Although the PCW Offering has been
consummated, the notes issued thereunder are subject to mandatory redemption
if the Acquisition has not occurred by December 31, 1997 or if in the sole
judgment of Price it appears that the Acquisition will not be consummated by
December 31, 1997. At the effective time of the Palmer Merger, PCW is expected
to borrow all term loans available under the New Credit Facility and
approximately $100 million of revolving loans. The remaining revolving loans
will, subject to a borrowing base and certain other conditions, be available
to fund the working capital requirements of PCW. On July 2, 1997, Price
received an executed commitment letter from a financial institution to provide
the New Credit Facility. The commitment is subject to significant conditions,
including the absence of material adverse change in the business of Palmer,
and negotiation, execution and delivery of definitive documentation and
consummation of the Fort Myers Sale (or arrangements satisfactory to the
lenders under the New Credit Facility for short-term financing bridging such
sale).
An additional $47.5 million of the purchase price has been raised through an
offering by Price Communications Cellular Holdings, Inc., a wholly-owned
indirect subsidiary of Price and the direct parent of PCW ("Cellular
Holdings"), of units (the "Cellular Holdings Units") consisting of 13 1/2%
Senior Secured Discount Notes due 2007 and warrants (the "Unit Warrants") to
purchase shares of Common Stock of Price (the "Cellular Holdings Offering").
The Unit Warrants enable the holders thereof to purchase up to 527,696 shares
of the Price's Common Stock, or approximately 9% of the fully diluted common
equity of Price as of August 8, 1997, at an exercise price of $0.01 per share.
Although the Cellular Holdings Offering has been
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consummated, the Cellular Holdings Units issued thereunder are subject to a
special mandatory redemption if the Acquisition has not occurred by December
31, 1997 or if in the sole judgment of Cellular Holdings it appears that the
Acquisition will not be consummated by December 31, 1997.
To the extent Palmer Shares are exchanged for shares of Price Common Stock
in the Offer, the aggregate cash consideration to be paid by Price in the
Acquisition will be correspondingly reduced. Assuming 100% acceptance of the
Offer, the cash consideration to be paid in the Palmer Merger would be reduced
by $54.0 million, and Price's anticipated initial revolving loan borrowings
under the New Credit Facility would be reduced from $97.1 million to $43.1
million. With 50% acceptance of the Offer, the cash savings in the Palmer
Merger would be $27.0 million, and the anticipated initial revolving loan
borrowings under the New Credit Facility would be $70.1 million. The actual
cash savings in the Palmer Merger will vary with the average closing price for
Price Common Stock for the five trading days ending on September 12, 1997
(which will determine the Exchange Ratio used in the Offer) and the acceptance
level in the Offer. See "Unaudited Condensed Consolidated Pro Forma Financial
Statements," and "Company Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The maximum number of Palmer Shares sought in the Offer is 3,000,000. A
special meeting of the shareholders of Price has been called to consider the
authorization of the issuance of a maximum of 10,000,000 shares of Price
Common Stock in the Offer. In the event the Exchange Ratio based upon the
average closing price per share of Price Common Stock for the five trading
days ending on September 12, 1997 could result in a requirement that Price
issue more than the 10,000,000 shares of Price Common Stock in exchange for
the Palmer Shares sought in the Offer (i.e., if the Price Communications
Average Price were less than $5.40 per share), Price would amend the Offer by
reducing the number of Palmer Shares sought in the Offer and/or by determining
the Exchange Ratio on a basis different than that described herein, or
otherwise, so as to permit the Offer to be consummated without requiring the
issuance of more than 10,000,000 shares of Price Common Stock. To the extent
the aggregate number of Palmer Shares properly tendered by the Expiration Date
and not withdrawn by Palmer Stockholders exceeds 3,000,000, the Palmer Shares
so tendered will be taken up in the Offer pro rata based on the number of
Palmer shares so tendered and not withdrawn by each such Palmer Stockholder.
Price has also purchased 1,677,700 shares of Class A Common Stock of Palmer
in the open market through August 8, 1997, or approximately 16% of the
outstanding shares of Class A Common Stock of Palmer. The majority of the
purchases took place in June and July, 1997 and the aggregate purchase price
was approximately $27.1 million. These purchases will reduce the aggregate
amount of consideration paid in the Palmer Merger by approximately $29.4
million.
Price has no plans for significant changes in Palmer or its management or
operations after consummation of the Acquisition, and currently plans to
continue Palmer's business on substantially the same basis as it is currently
conducted.
The Acquisition is being accounted for as a purchase.
REASONS FOR THE ACQUISITION
Price has historically been a nationwide communications company. Prior to
1995 Price owned a number of television, radio, newspaper, cellular telephone
and other communications and related properties all of which were disposed of
pursuant to the Price's long-standing policy of buying and selling
communications properties at times deemed advantageous by Price's Board of
Directors.
On June 30, 1997, Price had no debt and held current assets consisting of
approximately $54.4 million in cash and cash equivalents, and short-term
investments. During the period following the disposition of its operating
properties, Price reviewed numerous potential acquisitions and made various
bids and offers in connection with possible acquisitions, but was unable to
make an acquisition at a price it deemed prudent.
The Board of Directors of Price believes that the Acquisition is in the best
interests of Price and its shareholders. Among the factors taken into account
by the Board in making such determination with respect to the Acquisition were
the significant operating income before depreciation and amortization
("EBITDA") of Palmer; Palmer's strong EBITDA margin on service revenue;
Palmer's record of growth in revenues, subscribers
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and penetration rate (the number of subscribers per population); Palmer's
excellent management team; and the strategic opportunity presented of
permitting Price to re-enter the cellular telephone business. Price's decision
to purchase Palmer was also influenced by the high prices prevailing in the
broadcasting industry (one of its principal areas of past operations) which
made potential broadcasting acquisitions unattractive to Price, Price's desire
not to make investments in industries in which Price lacked expertise, and the
significant experience of Price and its management in the cellular telephone
business. In making a determination to purchase Palmer rather than other
possible acquisition candidates, Price took into account that Palmer
constituted a "pure" cellular business (i.e., it operated traditional cellular
telephone systems only, rather than systems involving other technologies such
as PCS which Price believes to be economically unproven in comparison to
traditional cellular operations), that there are very few "pure" cellular
business potentially available as acquisition candidates, and that Palmer's
common stock was trading at a relatively low level in comparison to its
historic trading prices (the reported closing sale price per share of Palmer
Class A Common Stock on the NASDAQ National Market on May 22, 1997, the last
trading day before the public announcement of the Acquisition, was $12.06;
such stock traded in the range of $14.25 during 1995 and $10.25 to $22.50
during 1996). Among the factors taken into account by the Board of Directors
in making such determination with respect to the Fort Myers Sale was the
significant reduction in the need for financing for the Acquisition resulting
from the anticipated proceeds of the Fort Myers Sale. See "Palmer Selected
Consolidated Financial Data," "Palmer Management Discussion and Analysis of
Financial Condition and Results of Operations," "Unaudited Pro Forma Condensed
Consolidated Financial Statements," "Information Concerning the Company,"
"Risk Factors--Competition" and "Market for Palmer's Common Stock." In
reaching its determinations, Price's Board of Directors did not assign any
relative or specific weights to the factors considered.
BACKGROUND OF THE ACQUISITION
Early in 1997, PriCellular Corporation ("PriCellular"), a publicly traded
corporation with respect to which Robert Price, Price's President then served
as President and a director (and now serves as Chairman of the Board), was
advised that Palmer was exploring means to maximize shareholder value,
including the possible sale of Palmer. During early 1997, PriCellular
expressed various indications of interest and made offers to acquire Palmer
for consideration to consist in part of cash and in part of PriCellular
securities which were rejected by Palmer because Palmer stated that it would
only consider all cash offers.
At a meeting held on May 14, 1997, the PriCellular Board of Directors
determined not to pursue further the possible acquisition of Palmer, because
of such Board's desire to effect any such acquisition with consideration
consisting in part of PriCellular securities which it believed to be
unacceptable to the Palmer Board as well as the PriCellular Board's desire to
continue PriCellular's historic policy of purchasing relatively underdeveloped
properties rather than a comparatively mature system such as Palmer. At the
May 14, 1997 meeting, the PriCellular Board and PriCellular's counsel
acknowledged that PriCellular's determination not to continue to pursue the
possible acquisition of Palmer would leave Price free to pursue such an
acquisition.
In May 1997, Mr. Price wrote to Goldman Sachs & Co. ("Goldman Sachs"),
Palmer's financial advisors, setting forth Price's offer of $17.50 per share
for Palmer Shares.
On May 15, 1997, counsel to Palmer provided the Price's counsel with a draft
of the Palmer Merger Agreement, and negotiations between such respective
counsel followed. During the period commencing May 15, 1997, Price and its
counsel conducted business and legal due diligence with respect to Palmer, and
the Price provided its directors with various information about Palmer and
Price's's potential financing of an acquisition of Palmer and various informal
conversations were held between Price's's management and its directors with
respect to Palmer. On May 21, 1997, Price's Board of Directors held a special
meeting at which the acquisition of Palmer was unanimously approved.
On May 22, 1997, the Palmer Board of Directors unanimously approved the
transaction. The definitive Palmer Merger Agreement was signed on May 23,
1997, providing for an all cash purchase price of $17.50 per share.
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In June 1997, following execution of the Palmer Merger Agreement, certain
institutional and individual holders of Palmer Shares approached Price to
express an interest in receiving consideration consisting of Price's Common
Stock (or in part the Price's Common Stock and in part cash) (the "Stock
Alternative") as an alternative to the all cash consideration provided under
the Palmer Merger Agreement. The holders explained that they were interested
in maintaining an equity interest in the cellular telephone business and that
there were very few other publicly traded companies whose businesses were
focused solely on cellular telephone systems. While it would be possible for
such holders to acquire Price Common Stock in the open market following the
Palmer Merger, the number of outstanding shares of Price Common Stock is
relatively small and the shares are relatively thinly traded. Accordingly, the
holders expressed an interest in receiving shares of Price Common Stock
directly in exchange for their Palmer Shares. Price thereupon informed Goldman
Sachs that it was interested in providing the Stock Alternative to Palmer
Stockholders. Goldman Sachs and certain members of Palmer management stated
that so long as the Stock Alternative did not delay the closing or impair the
Palmer Stockholders' ability to receive $17.50 in cash for their shares if
they so desired, Palmer would have no objection if a Stock Alternative were
presented directly by Price to Palmer Stockholders. Price did not suggest to
Palmer amending the Palmer Merger Agreement to provide for the Stock
Alternative because Price believed it could adequately present the Stock
Alternative directly to Palmer Stockholders through the Offer. On August 8,
1997 the board of Palmer met and determined that it would express no position
and remain neutral toward the Offer.
TERMS OF THE PALMER MERGER AGREEMENT
The following description of certain provisions of the Palmer Merger
Agreement is only a summary and does not purport to be complete. This
discussion is qualified in its entirety by reference to the complete text of
the Palmer Merger Agreement, which is attached to this Prospectus as Annex I
and incorporated by reference herein.
The Palmer Merger
On May 23, 1997, Price, PCW and Palmer executed the Palmer Merger Agreement,
which provides, among other things, for the merger of PCW with and into
Palmer, with Palmer as the surviving corporation (the "Surviving
Corporation"). At or subsequent to the Palmer Merger, Palmer will change its
name to "Price Communications Wireless, Inc." At the effective time of the
Palmer Merger (the "Effective Time") , all of the issued and outstanding
Palmer Shares will be converted into the right to receive $17.50 per share in
cash, without interest. Price has also agreed to repay the Palmer Existing
Indebtedness. In connection with this transaction, PCW has entered into an
agreement to sell (subject to the satisfaction of certain conditions), at the
Effective Time, Palmer's Fort Myers, Florida MSA for $168 million (which will
generate approximately $166.3 million of proceeds to Price). The proceeds of
the Fort Myers Sale will be used to fund a portion of the Acquisition.
Conversion of Palmer Common Stock in the Palmer Merger
At the Effective Time, all of the issued and outstanding Palmer Shares will
be converted into the right to receive $17.50 per share in cash ("Per Share
Amount"). All such Palmer Shares shall cease to be outstanding and shall
automatically be canceled and retired. All shares of capital stock of Palmer
owned, directly or indirectly, by Price, PCW or any subsidiary of Price, and
all shares of capital stock of Palmer held in its treasury shall be canceled
and extinguished without any conversion thereof and no cash shall be delivered
or deliverable in exchange therefor. Each share of common stock, par value
$.01 per share, of PCW issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one duly and validly
issued, fully paid and nonassessable share of common stock of the Surviving
Corporation with the result that the Surviving Corporation will be an indirect
wholly-owned subsidiary of Price.
Certificate of Incorporation and Bylaws
The Palmer Merger Agreement provides that the Certificate of Incorporation
of PCW as in effect immediately prior to the Effective Time and as amended by
the Certificate of Merger, shall be the certificate of
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incorporation of the Surviving Corporation. The Bylaws of PCW, as in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving
Corporation.
Directors and Officers
The directors of PCW shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the certificate of
incorporation and bylaws of the Surviving Corporation. The officers of Palmer
shall continue as the officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
Robert Price is the sole director of PCW.
Regulatory Approval
The consummation of the Acquisition is subject to FCC approval of the
transfer of control of Palmer to Price. All such FCC approvals have been
obtained and as of September 29, 1997, all such approvals are expected to be
final (no longer subject to administrative or court review).
Price has received early termination of the waiting period under the Hart-
Scott-Rodino Antitrust Improvement Act of 1976 (the "HSR Act").
Effective Time
The Effective Time of the Palmer Merger, at which time the closing of the
Palmer Merger will occur and the conversion of the Palmer Shares will become
effective, will be the time of the filing of a Certificate of Merger with the
Secretary of State of the State of Delaware. This filing will occur as soon as
practicable following the satisfaction or waiver of the closing conditions set
forth in the Merger Agreement. The Effective Time is currently expected to
take place in October 1997. See "--Termination Rights" and "--Conditions".
Payment
As of the Effective Time, Price shall, on behalf of PCW, deposit with a bank
designated by Palmer and Price (the "Paying Agent"), for the benefit of the
Palmer Stockholders holders of shares of common stock of Palmer, for payment
through the Paying Agent, cash in an amount equal to the Per Share Amount
multiplied by the number of Palmer Shares outstanding immediately prior to the
Effective Time (excluding any shares owned by Price, PCW, or a subsidiary of
Price, or shares held in the treasury) (such cash being hereinafter referred
to as the "Payment Fund") to Palmer Stockholders. Price shall cause the Paying
Agent to deliver cash out of the Payment Fund.
Representations and Warranties
The Palmer Merger Agreement contains various customary representations and
warranties of Palmer relating to, among other things, organization and
qualification, certificate of incorporation and bylaws, capitalization,
authority to enter into the Palmer Merger Agreement, absence of conflicts
between the Palmer Merger Agreement and other agreements and documents,
receipt of required consents or approvals, documents filed with the SEC and
the accuracy of information contained therein, financial statements, absence
of material adverse changes since December 31, 1996, litigation, governmental
licenses and permits, compliance with laws, taxes, intellectual property,
material contracts, employee benefit plans, title to and condition of
properties and assets, labor relations, environmental matters, insurance, FCC
matters, governmental matters, board approval of the Palmer Merger, the
shareholders' vote required, opinion of the Palmer board's financial advisor,
and broker's or finder's fees.
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PCW and Price each have made various customary representations and
warranties relating to, among other things, organization and qualification,
certificate of incorporation and bylaws, authority to enter into the Palmer
Merger Agreement, absence of conflicts between the Palmer Merger Agreement and
other agreements, receipt of required consents or approvals, and the required
vote of the shareholder of PCW. In addition, Price has made representations
and warranties relating to financing of the Palmer Merger, qualification under
the Communications Act of 1934, as amended, and FCC rules and regulations, the
absence of a requirement of the vote of the shareholders of Price, litigation,
broker's or finder's fees, documents filed with the SEC and the accuracy of
information contained therein, financial statements, and absence of material
adverse changes since March 31, 1997.
Covenants and Obligations
Palmer has agreed, among other things, that during the period from the date
of the Palmer Merger Agreement until the Effective Time, Palmer shall: (i)
operate the business of Palmer only in the ordinary course; (ii) use
reasonable efforts to preserve its business organization, maintain its rights
and franchises, retain the services of its respective principal officers and
key employees and maintain its relationship with its respective principal
customers and suppliers; (iii) use reasonable efforts to maintain its
properties and assets; and (iv) use reasonable efforts to keep in full force
and effect insurance comparable to that currently maintained. Palmer has also
agreed that it will not during such period (i) increase the compensation of
directors, executive officers or employees except for increases in the
ordinary course of business and consistent with past practice, grant any
severance or termination pay, or adopt or amend any employee benefit plan or
arrangement; (ii) make any distributions or dividends; (iii) redeem or
otherwise reacquire any share of its capital stock, effect any reorganization
or recapitalization, or split, combine or reclassify any of its capital stock
or issue or authorize any other securities for shares of its capital stock;
(iv) sell any shares of, or any options, warrants, or other rights to acquire
or convertible into any shares of, its capital stock, except for the issuance
of shares upon the exercise of outstanding options and the issuance of shares
under Palmer's stock purchase plans or amend the terms of such rights,
warrants, or options in a manner inconsistent with the provisions of the
Palmer Merger Agreement or to make such terms more favorable to the holders
thereof; (v) acquire, merge or consolidate with, or purchase any equity
interest in or a portion of the assets of any business corporation,
partnership, association or other business organization or division, or make
or commit any capital expenditures other than in the ordinary course of
business consistent with past practice; (vi) sell, lease or otherwise dispose
of any material assets except for the grant of purchase money security
interests not to exceed $500,000 in the aggregate and dispositions in the
ordinary course of business and consistent with past practice; (vii) amend its
certificate of incorporation, bylaws or other governing documents in such a
manner that would have an adverse impact on the consummation of the Palmer
Merger or would be adverse to Price's interests; (viii) change its methods of
accounting, make or rescind any election relating to taxes, settle or
compromise any claim or suit relating to taxes (except where the amount in
question does not exceed $500,000), or change its tax policies or procedures,
except as may be required by law or to comply with generally accepted
accounting principles; (ix) incur any obligation for borrowed money, other
than purchase money indebtedness not to exceed $500,000, indebtedness incurred
in the ordinary course of business under existing loan agreements, and
capitalized leases not to exceed $1,000,000 in the aggregate; (x) enter into
or modify any material contracts without the written consent of Price; or (xi)
agree in writing or otherwise to do any of the foregoing.
No Solicitation
Palmer has agreed that it will not, and will not permit any of its officers,
directors, employees, representatives, agents, or direct or indirect
stockholders of Palmer, to directly or indirectly encourage or solicit any
proposal that constitutes an Acquisition Proposal (as defined below), engage
in any discussions or negotiations or provide any information to any person
relating thereto or in furtherance thereof or accept any Acquisition Proposal;
provided, however, that Palmer or its board of directors is permitted to make
any disclosure to its stockholders that, in the judgment of its board of
directors in accordance with, and based upon, the advice of outside counsel,
is required under applicable law. For purposes of the Palmer Merger Agreement,
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"Acquisition Proposal" means any offer to acquire (or meaningful indication of
interest in the acquisition of) all or any substantial part of the business
and properties or capital stock of Palmer, whether by merger, consolidation,
sale of assets or stock, tender offer or similar transaction or series of
transactions involving Palmer or its direct or indirect stockholders.
Notwithstanding the foregoing, the board of directors of Palmer, in the
exercise of and as required by its fiduciary duties as determined in good
faith by the board of directors of Palmer in accordance with and based upon
the advice of outside counsel, may (i) furnish information (including, without
limitation, confidential information) concerning Palmer to a third party who
makes an unsolicited request for such information for the purpose of making an
Acquisition Proposal, provided that such third party executes and delivers a
confidentiality agreement in a customary form, and (ii) engage in discussions
or negotiations with a third party who submits in writing an interest in
making an Acquisition Proposal that the board of directors believes, based on
advice of its financial advisors, is reasonably capable of being consummated
and is reasonably likely to be superior to the transactions contemplated by
this Agreement from a financial point of view to all stockholders of Palmer,
provided, however, that in the case of clause (i) or (ii) hereof, Palmer shall
promptly notify Price in writing of such request for information or
Acquisition Proposal, providing reasonable details with respect thereto, and
shall keep Price informed as to the status of any discussions or negotiations
referred to in clause (ii) above.
Conditions
The respective obligations of Price, PCW and Palmer to effect the Palmer
Merger and the other transactions contemplated by the Palmer Merger Agreement
are subject to the satisfaction at or prior to the Effective Time of the
following conditions, any or all of which may be waived, in whole or in part,
to the extent permitted by applicable law: (i) stockholder approval by the
requisite vote of the stockholders of Palmer in accordance with applicable
law; (ii) the absence of any action or proceeding which is then in effect and
has the effect of prohibiting the Palmer Merger or any of the transactions
contemplated thereby; (iii) termination of all applicable waiting periods
under the HSR Act; and (iv) all consents, waivers, approvals and
authorizations required to be obtained from the FCC (the "FCC Transfer
Approvals"), and all filings or notices required to be made with the FCC by
Price, PCW and Palmer prior to consummation of the transactions contemplated
in the Palmer Merger Agreement. Each of the FCC Transfer Approvals shall have
become a Final Order. For purposes of the Palmer Merger Agreement, "Final
Order" shall mean an action by the FCC: (i) that is not reversed, stayed,
enjoined, set aside, annulled or suspended within the deadline, if any,
provided by applicable statute or regulation; (ii) with respect to which no
request for stay, motion or petition for reconsideration or rehearing,
application or request for review, or notice of appeal or other judicial
petition for review that is filed within such period is pending, and (iii) as
to which the deadlines, if any, for filing any such request, motion, petition,
application, appeal or notice, and for the entry of orders staying,
reconsidering, or reviewing on the FCC's own motion have expired. Price may,
at its option, waive on behalf of the parties the requirement that the FCC
Transfer Approvals shall have become a Final Order.
The obligations of Price to effect the Palmer Merger and the other
transactions contemplated in the Palmer Merger Agreement are also subject to
the following conditions, any or all of which may be waived, in whole or in
part, to the extent permitted by applicable law: (i) the representations and
warranties of Palmer made in the Palmer Merger Agreement shall be true and
correct in all material respects; (ii) the agreements and covenants of Palmer
required to be performed on or before the Effective Time shall have been
performed in all material respects; (iii) Price shall have received legal
opinions in form and substance reasonably satisfactory to Price; (iv) the
Dissenting Shares (as defined in "Dissenters and Appraisal Rights" below)
shall constitute not greater than ten percent (10%) of the shares of Class A
common stock outstanding on the Closing Date; and (v) since the date of the
Palmer Merger Agreement, Palmer has experienced no material adverse change to
its business. The legal opinions described in clause (iii) above will be
delivered by Hogan & Hartson L.L.P., counsel to Palmer, and Lukas, McGowan,
Nace & Gutierrez, Chartered, FCC counsel to Palmer, and will cover such
customary matters as due authorization of the Palmer Merger Agreement by all
necessary corporate action of Palmer, the absence of conflicting agreements or
laws, compliance as to form with the Securities Exchange Act of 1934, as
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amended, of the proxy statement to be submitted to Palmer stockholders in
connection with the Palmer Merger Agreement, the absence of litigation, and
compliance with FCC rules.
The obligations of Palmer to effect the Palmer Merger and the other
transactions contemplated in the Palmer Merger Agreement are also subject to
the following conditions, any or all of which may be waived, in whole or in
part, to the extent permitted by applicable law: (i) the representations and
warranties of Price and PCW made in the Palmer Merger Agreement shall be true
and correct in all material respects; (ii) the agreements and covenants of
Price and PCW required to be performed on or before the Effective Time shall
have been performed in all material respects; (iii) Palmer shall have received
a legal opinion in form and substance reasonably satisfactory to Palmer.
Indemnification
The Palmer Merger Agreement provides that:
(a) The certificate of incorporation and bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification
set forth in the certificate of incorporation and bylaws of Palmer on the
date of the Palmer Merger Agreement, which provisions shall not be amended,
repealed or otherwise modified for a period of six (6) years after the
Effective Time in any manner that would adversely affect the right
thereunder or persons who at any time prior to the Effective Time were
identified as prospective indemnities under the certificate of
incorporation or bylaws of Palmer in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation,
the transactions contemplated by the Palmer Merger Agreement), unless such
modification is required by applicable law.
(b) From and after the Effective Time, the Surviving Corporation shall
indemnify, defend and hold harmless the present and former officers,
directors and employees of Palmer (collectively, the "Indemnified Parties")
against all losses, expenses, claims, damages, liabilities or amounts that
are paid in settlement of, with the approval of Price and the Surviving
Corporation (which approval shall not be unreasonably withheld), or
otherwise in connection with, any claim, action, suit, proceeding or
investigation with respect to actions or omissions occurring at or prior to
the Effective Time (including, without limitation, the transactions
contemplated by the Palmer Merger Agreement).
Dissenters and Appraisal Rights
Notwithstanding any other provisions of the Palmer Merger Agreement to the
contrary, Palmer Shares that are issued and outstanding immediately prior to
the Effective Time and that are held by stockholders who shall not have voted
in favor of the Palmer Merger or consented thereto in writing and who shall
have demanded properly in writing appraisal for such shares in accordance with
Section 262 of Delaware Law (collectively, the "Dissenting Shares") shall not
be converted into or represent the right to receive the Per Share Amount. Such
stockholders shall be entitled to receive payment of the appraised value of
such Palmer Shares held by them in accordance with the provisions of such
Section 262, except that all Dissenting Shares held by stockholders who shall
have failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such Palmer Shares under such Section 262 shall
thereupon be deemed to have been converted into and to have become
exchangeable, as of the Effective Time, for the right to receive, without any
interest thereon, the Per Share Amount, upon surrender of the certificate or
certificates that formerly evidenced such shares of common stock. ANY
DISSENTING SHARES EXCHANGED IN THE OFFER WILL BE DEEMED TO HAVE FORFEITED ANY
THERETOFORE PERFECTED APPRAISAL RIGHTS.
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Termination
The Palmer Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the Palmer Merger
Agreement by the stockholders of Palmer. Termination may occur on the
following conditions:
(a) by mutual written consent of each of Price and Palmer; (b) by either
Price or Palmer if there is a material breach of any representation or
warranty in the Palmer Merger Agreement on the part of the other which is
not cured within thirty (30) business days following receipt by the
breaching party of notice of such breach; (c) by either Price or Palmer if
any decree, permanent injunction, judgment, order or other action by any
court of competent jurisdiction or any governmental entity prohibiting
consummation of the Palmer Merger shall have become final and
nonappealable; (d) by either Price or Palmer if the Palmer Merger Agreement
shall fail to receive the requisite vote for approval and adoption by the
Palmer Stockholders at a special meeting of the Palmer Stockholders and the
Palmer Merger shall not have been consummated within forty-five days (45)
days thereafter; and (e) by either Palmer or Price if the Palmer Merger
shall not have been consummated before December 31, 1997 (the "Termination
Date"); provided, however, that the right to terminate the Palmer Merger
Agreement shall not be available to any party whose failure to fulfill any
obligation under the Palmer Merger Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before the
Termination Date.
Voting Agreement
Concurrently with the execution of the Palmer Merger Agreement, Price
entered into a Voting Agreement with Palmer Communications Incorporated
("PCI"), the majority shareholder of Palmer, pursuant to which PCI has agreed
to vote its Palmer Shares in favor of the Palmer Merger. PCI owns beneficially
or of record 17,293,578 Palmer Shares, which represent 75% of the combined
voting power of the Palmer Shares. The approval of the majority of the votes
cast by holders of Palmer Shares is required for the approval of the Palmer
Merger Agreement. The Voting Agreement also provides that PCI shall not
dispose of or encumber any Palmer Shares owned or acquired beneficially or of
record by PCI, nor will PCI convert any shares of Class B common stock of
Palmer into shares of Class A common stock. In addition, PCI granted to Price
an option to purchase all of the Palmer Shares owned by PCI at the cash
exercise price of $17.50 per share, which option is exercisable at any time
prior to termination of the Voting Agreement if PCI fails to vote its shares
as required by the Voting Agreement.
Certain Expenses
The Palmer Merger Agreement provides that each party will pay its own
expenses. All FCC annual regulatory fees which are due and payable prior to
Closing shall be paid by Palmer prior to Closing.
Palmer shall pay Price a fee (the "Fee") of Fifteen Million Dollars
($15,000,000), if the Palmer Merger Agreement is (i) terminated either (A) by
Price as a result of Palmer's material breach of its obligations under the
Palmer Merger Agreement, (B) by Palmer or Price if the requisite stockholder
approval of the Palmer Merger is not obtained and (ii) either (x) an
Alternative Transaction (as defined below) has been publicly announced and has
not been withdrawn at the time of such termination (in which event the Fee
shall be paid simultaneously with such termination) or (y) an Alternative
Transaction is consummated on or prior to the date that is one (1) year after
the date of the Palmer Merger Agreement (in which event the Fee shall be paid
simultaneously with such consummation). As used herein, an "Alternative
Transaction" shall mean any transaction or proposed transaction or related
series of transactions (including without limitation any merger,
consolidation, sale of assets or stock, tender offer or other transaction)
providing for the receipt by Palmer and/or the holders of more than fifty
percent (50%) of its common stock of consideration equivalent to a value in
excess of $17.50 per share of Palmer common stock.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Palmer Stockholders who receive cash in the Palmer Merger in exchange for
their Palmer Shares will, in general, recognize gain or loss upon such
exchange equal to the difference between the cash received and their tax basis
in the Palmer Shares exchanged. If, in accordance with the recommendation of
the Board of Directors of Price, the shareholders of Price approve the
creation of a holding company, a Palmer Stockholder who receives Holdings
common stock in the Offer should generally not recognize gain or loss upon
such exchange. If the shareholders of Price do not approve the creation of a
holding company, a Palmer Stockholder who receives Price Common Stock in the
Offer will recognize gain or loss upon such exchange equal to the difference
between the fair market value of the Price Common Stock received and the
Palmer Stockholder's tax basis in the Palmer Shares exchanged. In certain
circumstances, some or all of the cash received pursuant to the Palmer Merger
by a Palmer Stockholder who also participates in the Offer may be treated as
dividend income (to the extent of applicable earnings and profits) rather than
income from the sale or exchange of a capital asset. See "The Offer--Certain
Federal Income Tax Consequences."
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RISK FACTORS
In addition to the other matters described in this Prospectus, each Palmer
Stockholder prior to determining to accept shares of Price Common Stock in
lieu of (i) a cash payment pursuant to the Palmer Merger Agreement or (ii) a
cash payment resulting from the perfection of appraisal rights, should
consider the specific factors set forth below.
This Prospectus contains statements which constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Those statements appear in a number of places in this Prospectus and
include statements regarding the intent, belief or current expectations of
Price, its directors or its officers primarily with respect to the future
operating performance of Price. Palmer Stockholders are cautioned that any
such forward looking statements are not guarantees of future performance and
may involve risks and uncertainties, and that actual results may differ from
those in the forward looking statements as a result of factors, many of which
are outside the control of Price. The accompanying information contained in
this Prospectus, including without limitation the information set forth below
and the information under the headings "Price Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Palmer
Management's Discussion and Analysis of Financial Condition and Results of
Operations", identifies important factors that could cause such differences.
LEVERAGE AND LIQUIDITY
Price will be highly leveraged upon consummation of the Acquisition. See
"Unaudited Pro Forma Condensed Consolidated Financial Statements". Price'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.
Upon consummation of the Acquisition, Price's only committed source of
liquidity is expected to be the New Credit Facility. While Price expects to
have sufficient availability under the New Credit Facility to meet its
liquidity needs, the terms of the New Credit Facility which determine the
availability thereunder are still under negotiation. Although PCW has received
a commitment to provide the New Credit Facility, the commitment is subject to
significant conditions, including the absence of material adverse change, the
negotiation, execution and delivery of definitive documentation, consummation
of the Fort Myers Sale (or arrangements satisfactory to the lenders under the
New Credit Facility for short-term financing bridging such sale), consummation
of the Palmer Merger, the repayment of the Palmer Existing Indebtedness with
the proceeds of the term loan to be provided under the New Credit Facility or
other financing, the receipt by PCW of an equity contribution in cash or
Palmer common stock from a subsidiary of Price and application to the
Acquisition of the proceeds of the PCW Offering and a portion of proceeds from
the Cellular Holdings Offering. Therefore, there can be no assurances that the
New Credit Facility will be entered into. In addition, borrowings under the
New Credit Facility will be subject to significant conditions, including
compliance with certain financial ratios and the absence of any material
adverse change. If the Fort Myers Sale is not consummated, Price will need to
obtain $166.3 million of additional financing to consummate the acquisition of
Palmer. There can be no assurances Price will be able to obtain such financing
or as to the terms of any such financing, all of which could be additional
indebtedness. Price'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, Price intends to pursue opportunities to
acquire additional cellular telephone systems which, if successful, will
require Price 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 issued pursuant to the PCW
Offering or the Cellular Holdings Offering (together, the "Notes") or the New
Credit Facility will not restrict or prohibit any such debt financing.
Price's ability to borrow is also limited by the terms of the outstanding
Senior Payment-In-Kind Increasing Rate Preferred Stock ("PIK Preferred
Stock"), which limits the ability of Price and its subsidiaries to incur
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additional indebtedness and to make certain restricted payments, including
investments. A portion of the proceeds of the Cellular Holdings Offering will
be used to redeem the PIK Preferred Stock.
Price's ability to meet its debt service requirements, including those
represented by the Notes and the New Credit Facility, will require significant
and sustained growth in Price's cash flow. There can be no assurance that
Price 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 Price to meet its debt service requirements.
LIMITATIONS ON ACCESS TO CASH FLOW OF SUBSIDIARIES
Price does not have, and in the future may not have, any assets other than
the common stock of its subsidiaries. The New Credit Facility, the Notes and
other financing instruments to which Price's subsidiaries are or may in the
future be a party impose, and in the future may impose, substantial
restrictions on the ability of Price's subsidiaries to pay dividends to Price.
Any payment of dividends to Price will be subject to the satisfaction of
certain financial conditions set forth in the New Credit Facility, the Notes
and other financing documents as well as restrictions under applicable state
corporation law. Following the creation of a holding company, there will not
be any contractual restrictions on the ability of Price to pay dividends to
Holdings, although such dividends may be prohibited by the New York Business
Corporation Law. Price has not in the past paid any dividends to its common
shareholders, and does not expect Price to pay any dividends to common
shareholders in the foreseeable future. The ability of Price and its
subsidiaries to comply with the conditions of its financial obligations may be
affected by events that are beyond the control of Price. The breach of any
such conditions could result in a default under the New Credit Facility and/or
other financing agreements, and in the event of any such default, the lenders
under the New Credit Facility or the holders of certain other indebtedness
could elect to accelerate the maturity of the loans under such facility or
such other indebtedness. In the event of such acceleration, all such
outstanding debt would be required to be paid in full before any cash could be
distributed to Price. There can be no assurance that the assets of Price and
its subsidiaries would be sufficient to repay all outstanding indebtedness or
meet other financial obligations.
NET LOSSES
On a pro forma basis after giving effect to the Acquisition and the
financing thereof, Price would have incurred net losses of approximately $26.0
million for the six months ended June 30, 1997 and, excluding the effect of
the sale of Price's television station properties in 1996, Price would have
incurred net losses of approximately $81.1 million for the year ended December
31, 1996. There can be no assurance that Price's future operations will
generate sufficient earnings to pay its obligations. See "Unaudited Pro Forma
Condensed Consolidated Financial Statements."
ACQUISITION MAY NOT BE CONSUMMATED OR MAY NOT BE CONSUMMATED AS DESCRIBED
The consummation of the Acquisition is subject to the satisfaction of
certain conditions, including FCC approval. In addition, the consummation of
the financing related to the Acquisition including the loans under the New
Credit Facility, are subject to significant conditions. The failure of any
such conditions to be met could result in the failure of Price to consummate
the Acquisition. There can be no assurances that Price will be successful in
consummating the Acquisition or in consummating the Acquisition in a timely
manner or on the terms described in this Prospectus. If the Fort Myers Sale is
not consummated, Price will need to obtain $166.3 million of additional
financing to consummate the acquisition of Palmer. There can be no assurances
that Price will be able to obtain such financing or as to the terms of any
such financing, most or all of which could be additional indebtedness. If the
Acquisition is not consummated because of insufficient financing, Price will
be in breach of its obligations under the Palmer Merger Agreement and could be
liable to Palmer for damages in connection with such breach. In addition,
Price would be required to redeem the Notes and warrants issued in the PCW
Offering and the Cellular Holdings Offering out of the amounts currently held
in escrow pending the closing of the Palmer Merger. While the amounts held in
escrow will be sufficient to cover the redemption price for these Notes and
warrants, Price will have incurred substantial financing costs without reaping
any related
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benefits. The combined effect of these and other acquisition expenses and the
potential liability to Palmer would have a material adverse effect on Price.
Price would also be unable to redeem PIK Preferred Stock and the PIK Warrants
out of the proceeds of the Cellular Holdings Offering.
FRAUDULENT CONVEYANCE STATUTES
Various laws enacted for the protection of creditors may apply to the
incurrence of indebtedness and other obligations by Price and certain of its
subsidiaries in connection with the Acquisition. If a court were to find in a
lawsuit by an unpaid creditor or representative of creditors of Price or any
such subsidiary that Price or such subsidiary did not receive fair
consideration or reasonably equivalent value for incurring such indebtedness
or other obligation and, at the time of such incurrence, Price or such
subsidiary (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 Price or such subsidiary 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 Price or such subsidiary.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction which is being applied. Generally, however,
Price or a subsidiary thereof 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 become absolute and matured. On the basis of its
historical financial information, its recent operating history and other
factors, Price's management believes that, after giving effect to indebtedness
incurred in connection with the Acquisition and the other related financings,
Price and its subsidiaries will not be rendered insolvent, they will have
sufficient capital for the businesses in which they will be engaged and they
will be able to pay their debts as they mature; however, management has not
obtained any independent opinion regarding such issues. There can be no
assurances as to what standard a court would apply in making such
determinations.
To the extent that a subsidiary is deemed to have undertaken indebtedness or
other obligations for the benefit of a parent corporation or shareholder, such
indebtedness or other obligation also 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 such
subsidiary. In such case, the analysis set forth above would generally apply,
except that the indebtedness or other obligation could also be subject to the
claim that, since the indebtedness or other obligation was incurred for the
benefit of the parent corporation or shareholder, the obligations of the
subsidiary thereunder were incurred for less than reasonably equivalent value
or fair consideration. A court could, among other things, avoid the
subsidiary's obligation or subordinate the obligation to other indebtedness of
the subsidiary.
DILUTION
The consummation of the Offer may result in substantial dilution of the
Price Common Stock. The initial amount of such dilution will depend on the
number of shares of Price Common Stock issued in the Offer. Assuming the
issuance in the Offer of 10,000,000 shares, the total number of shares of
Price Common Stock outstanding would be increased from 5,011,281 shares
outstanding as of August 8, 1997 to 15,011,281 shares. A total of 1,109,808
and 704,750 shares, of Price Common Stock respectively, have been authorized
for issuance under warrants and outstanding employee stock options. The
issuance of shares of Price Common Stock in the Offer, in subsequent
acquisitions or on the exercise of warrants or options could have a material
adverse effect on market prices for the Price Common Stock. Depending on the
number of Palmer Shares tendered in the Offer and the final exchange ratio in
the Offer, former Palmer Stockholders could hold a substantial majority of the
shares of Price Common Stock outstanding following completion of the Offer,
potentially affecting future control of Price.
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COMPETITION
Although current policies of the FCC authorize only two licensees to operate
cellular telephone systems in each cellular market, there is, and Price
expects there will continue to be, competition from the other licensee
authorized to serve each cellular market in which Palmer 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. Following consummation of the
Acquisition, Price will compete with a wireline licensee in each of its
cellular markets, some of which are larger and have access to more substantial
capital resources than Price.
Upon consummation of the Acquisition, Price will also face competition from
other existing communications technologies such as conventional mobile
telephone service, specialized mobile radio ("SMR") and enhanced specialized
mobile radio ("ESMR") systems and paging services. ESMR is a "cellular-like"
communications service supplied by converting analog SMR services into an
integrated, digital transmission system providing for call hand-off, frequency
reuse and wide call delivery networks. Price will also face 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 Price will be able to provide
nor that it will choose to pursue, depending on the economics thereof, such
services and features. Price 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 Price 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 Palmer in its business will not become obsolete at some time in
the future. See "Information Concerning Palmer--Competition."
After consummation of the Acquisition, Price will also face 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 Price'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 for an additional
term of up to 10 years each. Palmer's cellular licenses expire in the
following years with respect to the following number of service areas: 1997
(four); 1998 (three); 2000 (two); 2001 (four); 2002 (three) and 2006 (one).
While Price 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 Palmer's licenses will be renewed in due
course. See "Information Concerning Palmer--Regulation."
FLUCTUATIONS IN MARKET VALUE OF LICENSES
After consummation of the Acquisition, a substantial portion of Price's
assets will consist 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
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future value of Price's interests in its cellular licenses will depend
significantly upon the success of Price's business. While there is a current
market for such 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 Price's assets, there
can be no assurance that the proceeds would be sufficient to pay Price's
obligations, and a significant reduction in the value of the licenses could
require a charge to Price's results of operations.
RELIANCE ON USE OF THIRD-PARTY SERVICE MARK
Palmer currently uses the registered service mark CELLULAR ONE to market its
services. Palmer's use of this service mark has historically been governed by
five-year contracts between Palmer and Cellular One Group, the owner of the
service mark. Palmer has recently renewed its contracts with Cellular One
Group to use the CELLULAR ONE service mark. If for some reason beyond Price's
or Palmer's control, the name CELLULAR ONE were to suffer diminished marketing
appeal, Price's or Palmer'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
Price's affairs are managed by a small number of key management and
operating personnel, the loss of whom could have an adverse impact on Price.
Robert Price, a Director, the President, Chief Executive Officer and Treasurer
of Price, also serves as a Director and Chairman of PriCellular Corporation
("PriCellular"), another operator of cellular telephone systems. Price
believes that Mr. Price's positions with Price 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 Price. Although Price 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.
Price expects that the executive officers of Palmer will continue as the
executive officers of Price following the consummation of the Palmer Merger
with the exception of Robert G. Engelhardt, Palmer's Executive Vice President,
who is expected to retire prior to the consummation of the Palmer Merger.
Price has entered into an employment contract with William J. Ryan to remain
as an officer following the consummation of the Palmer Merger and expects to
enter into a comparable employment contract with M. Wayne Wisehart and
employment contracts with other key employees prior to the consummation of the
Palmer Merger. The success of Price'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 Palmer, 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 Price'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
23
<PAGE>
such as portable cellular telephones, Price believes that all cellular
telephones currently marketed and in use comply with the new standards.
EQUIPMENT FAILURE; NATURAL DISASTER
Although Palmer carries "business interruption" insurance, a major equipment
failure or a natural disaster affecting any one of Palmer's central switching
offices or certain of its cell sites could have a significant adverse effect
on Price's operations.
POTENTIAL ANTITAKEOVER EFFECT OF CLASS A AND CLASS B PREFERRED STOCK
Although the Board of Directors and Compensation Committee of Price believe
that the provisions of Price's Series A Preferred Stock and Series B Preferred
Stock provide Price's President and Chief Executive Officer with incentive to
maximize shareholder value by providing such officer with significant profit
upon the consummation of various business combination transactions providing
the holders of the Price Common Stock with a payment per share significant in
excess of current trading prices, the Series A Preferred Stock and Series B
Preferred Stock may be viewed as having the potential effect of discouraging a
bidder's proposal to acquire control of or merge with Price in that such
Preferred Stock would increase the cost to a bidder of certain of such
transactions. In addition, the votes cast by such shares of Preferred Stock (a
total of 910,166 votes, or 14.8% of the total votes cast by all outstanding
shares of Price Common Stock and Preferred Stock as of August 8, 1997) would
make it more difficult for a bidder to elect directors or enact shareholder
proposals opposed by management of Price. See "Creation of a Holding Company
for Price--Description of Capital Stock--Preferred Stock and Holdings
Preferred Stock."
WAIVER OF DISSENTERS RIGHTS
Holders of Dissenting Shares that are issued and outstanding immediately
prior to the consummation of the Palmer Merger shall have the right to receive
the appraised value of such shares in accordance with Section 262 of the
Delaware Law. See "The Acquisition--Dissenters and Appraisal Rights." Any
Dissenting Shares accepted for exchange in the Offer will be deemed to have
forfeited any theretofore perfected appraisal rights.
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheets of
Price and Cellular Holdings as of June 30, 1997 give effect to the following
transactions as if they occurred at that date and the related unaudited pro
forma condensed consolidated statements of operations for the year ended
December 31, 1996 and the six month period ended June 30, 1997 give effect to
the following transactions as if they occurred at the beginning of the
relevant period:
(a) the acquisition of Palmer;
(b) the Fort Myers Sale (the proceeds of which will be used to pay Palmer
Existing Indebtedness);
(c) the issuance and sale of the Senior Subordinated Notes in the PCW
Offering;
(d) the financing under the New Credit Facility;
(e) the issuance and sale of the Units in the Cellular Holdings Offering
(f) the equity contribution of Palmer Shares from Price;
(g) the issuance and redemption of the PIK Preferred Stock and the PIK
Warrants; and
(h) the issuance of 5,000,000 shares of Price Common Stock in exchange
for 2,239,541 Palmer Shares in the Offer, immediately prior to the Palmer
Merger.
The Acquisition will be recorded pursuant to the purchase method of
accounting.
The Offer will be limited to no more than 3,000,000 Palmer Shares at an
exchange ratio determined based on the average closing price of the Price
Common Stock for the five trading days ending September 12, 1997. In the event
the Exchange Ratio based upon the average closing price per share of Price
Common Stock for the five trading days ending on September 12, 1997 could
result in a requirement that Price issue more than the 10,000,000 shares of
Price Common Stock in exchange for the Palmer Shares sought in the Offer
(i.e., if the average closing price of the Price Common Stock determined as
aforesaid were less than $5.40 per share). Price would amend the Offer by
reducing the number of Palmer Shares sought in the Offer and/or by determining
the Exchange Ratio on a basis different than that described above, or
otherwise, so as to permit the Offer to be consummated without requiring the
issuance of more than 10,000,000 shares of Price Common Stock. The pro forma
financial information given below assumes that the average closing price
during such period will be $8 1/16, and that a total of 2,239,541 Palmer
Shares will be exchanged for 5,000,000 shares of Price Common Stock in the
Offer. Based on these assumptions, the cash consideration required in the
Palmer Merger would be $448.6 million, rather than the $488.9 million that
would be required if the Offer were not consummated, and the anticipated
initial revolving loan borrowings under the New Credit Facility would be $56.8
million, rather than the $97.1 million anticipated initial revolving loan
borrowings that would be required if the Offer were not consummated. If
3,000,000 Palmer Shares were acquired in the Offer, the cash consideration
required in the Palmer Merger would be $434.9 million, and the anticipated
initial revolving loan borrowings under the New Credit Facility would be $40.3
million. If 1,500,000 Palmer Shares were acquired in the Offer, the cash
consideration required in the Palmer Merger would be $461.9 million, and the
anticipated initial revolving loan borrowings would be $70.1 million.
The unaudited pro forma condensed consolidated financial statements have
been prepared by Price's management. The unaudited pro forma data is not
designed to represent and does not represent what Price's or Cellular
Holdings'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 Price's or Cellular Holdings'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 Price,
included elsewhere in this Prospectus.
25
<PAGE>
The Acquisition is not expected to be consummated prior to October 1997 and
may occur as late as December 31, 1997. Accordingly, for the three to six
month period after the closing of the Cellular Holdings Offering, and prior to
the consummation of the Acquisition, Cellular Holdings will be incurring
interest expense on the Notes but not be entitled to any of the cash flows or
earnings of Palmer. The unaudited pro forma condensed consolidated financial
statements do not reflect this additional interest expense or the accrued
liability related thereto since the unaudited pro forma condensed consolidated
statements of operations assume that such transactions were consummated on
January 1, 1996 and the unaudited pro forma condensed consolidated balance
sheet assumes that such transactions were consummated on June 30, 1997. In
addition, the pro forma condensed consolidated financial statements assume the
repayment of the $383.1 million of Palmer Existing Indebtedness and accrued
interest on Palmer Existing Indebtedness as of June 30, 1997. As a result of
the Palmer Merger, Price will assume all Palmer Existing Indebtedness. Price
intends to refinance all of the Palmer Existing Indebtedness concurrently with
the consummation of the Palmer Merger.
Although the unaudited pro forma condensed balance sheet reflects a $56.2
million current tax payable attributable to the Fort Myers Sale, Price has a
tax planning strategy which it believes will avoid the payment of such tax.
While there can be no assurances that Price's position will prevail if
challenged, Price has received a written opinion from a "big six" accounting
firm other than Arthur Andersen LLP that, under existing laws, it is more
likely than not that Price's position will prevail if challenged. This tax
planning strategy (among others) would be eliminated, however, if certain
proposals by the Joint Committee on Taxation were to be adopted by Congress.
There can be no assurances that Price will be able to implement this tax
planning strategy before any of such proposals are adopted or that Price's tax
position would be "grandfathered" under any of such proposals if adopted. In
addition, in order to effect this tax strategy, the partnership that owns the
Fort Myers system will need to incur approximately $169.0 million on
indebtedness. The partnership has no commitments for such financing and there
can be no assurance it will be successful in obtaining such financing.
In addition, the unaudited pro forma condensed consolidated financial
statements do not reflect $1.4 million which will be immediately payable to
William J. Ryan as a severance payment pursuant to his existing employment
contract upon consummation of the Acquisition and approximately $2.6 million
of severance payments which could become payable over several years pursuant
to existing employment contracts between Palmer and its other executive
officers. Price has entered into an employment contract with William J. Ryan
to continue as an officer after the consummation of the Acquisition and it
expects to enter into a comparable employment contract with M. Wayne Wisehart
and employment contracts with other key employees prior to the consummation of
the Acquisition. Except for $1.4 million payable to William J. Ryan, there can
be no assurances as to the amount of payments that may be made to such
officers, in recognition of such severance rights, whether or not they
continue with Price after the consummation of the Acquisition.
26
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS FOR
FOR THE THE ACQUISITION PRO FORMA
FT. SALE OF PALMER AS CELLULAR AND THE RELATED CELLULAR
PALMER MYERS FT. MYERS ADJUSTED HOLDINGS FINANCINGS HOLDINGS PRICE
-------- ------- ----------- --------- -------- --------------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $ 1,740 $ 45 $166,320(a) $168,015 $ $(161,367)(d) $ 6,648 $35,989
Investments..... 19,378
Accounts
receivable,
net............ 22,718 2,220 20,498 20,498
Inventory....... 3,181 865 2,316 2,316
Prepaid expenses
and other
current
assets......... 2,774 140 2,634 2,634 3,160
-------- ------- -------- -------- --- --------- ---------- -------
Total current
assets........ 30,413 3,270 166,320 193,463 (161,367) 32,096 58,527
Property, plant
and equipment,
net............. 157,596 10,909 146,687 146,687 134
Cellular
licenses, net... 398,845 7,408 391,437 412,444 (k) 803,881
Long-term
investments..... 36,380
Deferred costs,
net............. 8,621 8,621 15,029 (e) 23,650
Other ........... 1,727 84 1,643 1,643 920
-------- ------- -------- -------- --- --------- ---------- -------
Total assets... $597,202 $21,671 $166,320 $741,851 $ $ 266,106 $1,007,957 $95,961
======== ======= ======== ======== === ========= ========== =======
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Accounts payable
and
accrued
expenses ...... $ 9,032 $ 194 $ $ 8,838 $ $ $ 8,838 $ 1,976
Notes payable... 2,321 2,321 (2,321)(d,i)
Current tax
payable........ 56,170(b) 56,170 56,170
Other current
liabilities.... 16,770 1,191 15,579 (2,787)(d,h) 12,792 3,632
-------- ------- -------- -------- --- --------- ---------- -------
Total current liabilities.. 28,123 1,385 56,170 82,908 (5,108) 77,800 5,608
Long-term debt... 378,000 378,000 260,164 (f) 638,164
Deferred tax
liability....... 15,326 15,326 169,102 (g) 184,428
Other long-term
liabilities..... 7,123 (4,978) 12,101 12,101
-------- ------- -------- -------- --- --------- ---------- -------
Total
liabilities... 428,572 (3,593) 56,170 488,335 424,158 912,493 5,608
Putable preferred
stock............ 35
Stockholders'
equity.......... 168,630 25,264 110,150(c) 253,516 (158,052)(j) 95,464 90,318
-------- ------- -------- -------- --- --------- ---------- -------
Total
liabilities and
stockholders' equity.. $597,202 $21,671 $166,320 $741,851 $ $ 266,106 $1,007,957 $95,961
======== ======= ======== ======== === ========= ========== =======
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR ISSUANCE
OF UNITS,
THE ISSUANCE AND
REDEMPTION OF
THE PREFERRED
STOCK AND
WARRANTS TO
PURCHASE THE
PRICE COMMON
STOCK AND
CONTRIBUTION TO PRO FORMA
CELLULAR HOLDINGS PRICE
----------------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $(42,384)(l) $ 253
Investments..... (19,378)(l)
Accounts
receivable,
net............ 20,498
Inventory....... 2,316
Prepaid expenses
and other
current
assets......... 5,794
----------------- ----------
Total current
assets........ (61,762) 28,861
Property, plant
and equipment,
net............. 146,821
Cellular
licenses, net... 803,881
Long-term
investments..... (18,238)(l) 18,142
Deferred costs,
net............. 2,872 (n) 26,522
Other ........... 2,563
----------------- ----------
Total assets... $(77,128) $1,026,790
================= ==========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Current
liabilities:
Accounts payable
and
accrued
expenses ...... $ $ 10,814
Notes payable...
Current tax
payable........ 56,170
Other current
liabilities.... 16,424
----------------- ----------
Total current liabilities.. 83,408
Long-term debt... 638,164
Deferred tax
liability....... 184,428
Other long-term
liabilities..... 12,101
----------------- ----------
Total
liabilities... 918,101
Putable preferred
stock............ 35
Stockholders'
equity.......... (77,128)(m) 108,654
----------------- ----------
Total
liabilities and
stockholders' equity.. $(77,128) $1,026,790
================= ==========
</TABLE>
27
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PRICE COMMUNICATIONS CELLULAR HOLDINGS, 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 Price condensed consolidated balance sheet as of June 30,
1997, the following adjustments have been made:
<TABLE>
<C> <S> <C>
(A) CASH AND CASH EQUIVALENTS
Cash proceeds from the sale of Ft. Myers.................... $ 166,320
=========
(B) CURRENT TAX PAYABLE
Tax payable resulting from gain on sale of Ft. Myers using a
39% effective tax rate (see the discussion on page 25 of
Price's tax planning strategy to avoid the payment of such
tax)........................................................ $ 56,170
=========
(C) STOCKHOLDERS' EQUITY
Represents the proceeds on the sale of Ft. Myers, net of
related tax payable on the gain............................. $ 110,150
=========
(D) CASH AND CASH EQUIVALENTS
Proceeds from New Credit Facility........................... $ 387,815**
Proceeds from issuance of PCW Senior Subordinated Notes..... 175,000
Proceeds from Unit Warrants Contributed to Cellular
Holdings.................................................... 4,651
Proceeds from sale of Cellular Holdings Senior Discount
Notes....................................................... 75,349
Net equity contributed from Price........................... 80,000
Cash used to acquire Palmer outstanding stock and options... (447,924)
Cash used to retire current portion of Palmer notes
payable..................................................... (2,321)
Cash used to pay interest accrued through June 30, 1997 on
Palmer Existing Indebtedness................................ (2,787)
Cash used to retire Palmer Existing Indebtedness............ (378,000)
Cash used to pay estimated transaction fees and expenses.... (23,650)
Cash used to return capital to Price........................ (29,500)
---------
$(161,367)
=========
(E) DEFERRED COSTS, NET
Estimated fees and expenses in connection with the
acquisition of Palmer ...................................... $ 9,650
Estimated fees and expenses in connection with the debt
financings.................................................. 14,000
To write off unamortized deferred financing costs of
Palmer...................................................... (8,621)
---------
$ 15,029
=========
(F) LONG-TERM DEBT
New Credit Facility......................................... $ 387,815
Senior Subordinated Notes................................... 175,000
Cellular Holdings Senior Discount Notes, net amount
allocated to warrant of $4,651.............................. 75,349
Repayment of Palmer Existing Indebtedness................... (378,000)
---------
$ 260,164
=========
(G) DEFERRED TAX LIABILITY
To record the deferred tax liability arising from the
acquisition of FCC license using a 41% effective tax rate... $ 169,102
=========
(H) OTHER CURRENT LIABILITIES
To record the repayment of accrued interest on Palmer
Existing Indebtedness....................................... $ (2,787)
=========
</TABLE>
28
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
(I) NOTES PAYABLE
To record the repayment of Palmer notes payable............................. $ (2,321)
=========
(J) STOCKHOLDERS' EQUITY
To reflect equity contribution from Price................................... $ 80,000
To reflect equity contribution of Palmer common stock from Price............ 40,313**
To reflect equity contribution from Price................................... 4,651
To eliminate the equity of adjusted Palmer in connection with the
acquisition by PCW.......................................................... (253,516)
To return Capital to Price.................................................. (29,500)
---------
$(158,052)
=========
(K) CELLULAR LICENSES, NET
Represents the increase in cellular licenses due to the acquisition of
Palmer...................................................................... $ 412,444
=========
(L) CASH AND CASH EQUIVALENTS
To reflect cash contribution to Cellular Holdings........................... $ (80,000)
To reflect cash contributed to Cellular Holdings............................ (4,651)
To reflect proceeds from the sale of certain Price investments.............. 19,378
To reflect proceeds from the sale of certain Price long-term investments.... 18,238
To reflect proceeds from the sale of Unit Warrants.......................... 4,651
Cash used to redeem the PIK Preferred Stock and Warrants to purchase Price
Common Stock............................................................... (29,500)*
To reflect return of Capital from Cellular Holdings......................... 29,500
---------
$ (42,384)
=========
(M) STOCKHOLDERS' EQUITY
To reflect the elimination of Cellular Holdings' stockholders' equity....... $ (95,464)
To reflect the sale of the Unit Warrants.................................... 4,651
To reflect issuance of PIK Preferred Stock and warrants..................... 29,500
To reflect redemption of PIK Preferred Stock and warrants................... (29,500)
To reflect Company Common Stock purchased and retired....................... (26,628)
To reflect issuance of Company Common Stock in exchange for Palmer common 40,313
stock....................................................................... ---------
$ (77,128)
=========
(N) DEFERRED COSTS, NET
To record deferral of estimated fees and expenses in connection with the
offering of $ 2,872
Cellular Holdings Senior Discount Notes..................................... =========
</TABLE>
- --------
* Assuming the acquisition of Palmer and the redemption of the PIK Preferred
Stock and certain warrants to purchase Price Common Stock occur on October
15, 1997.
** The issuance of 5.0 million shares of Price Common Stock assumes that half
of the total allotted shares are issued in connection with the Offer. If 6.7
million shares are issued, shareholders' equity of Price would increase by
an additional $13,687 and accordingly, the New Credit Facility would
decrease by $13,687. If no Palmer shareholders exchange for Price Common
Stock, then the stockholders' equity would decrease by $40,313 and
conversely, the New Credit Facility would increase by $40,313.
29
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS FOR
FOR THE THE ACQUISITION PRO FORMA
SALE OF PALMER AS CELLULAR AND THE RELATED CELLULAR
PALMER FT. MYERS FT. MYERS ADJUSTED HOLDINGS FINANCINGS HOLDINGS PRICE
-------- --------- ----------- --------- -------- --------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......... $159,743 $24,144 $ $135,599 $ $ $135,599 $ 2,962
Cost and expenses:
Cost of cellular
service/operating
expenses........ 28,717 5,441 23,276 23,276 2,233
Cost of
equipment....... 17,944 2,633 15,311 15,311
Selling, general
and
administrative.. 46,892 6,315 2,440 (o) 43,017 43,017 2,373
Depreciation and
amortization.... 25,013 1,558 23,455 12,241 (p) 35,696 467
-------- ------- ------- -------- ------ -------- -------- -------
Operating income
(loss)........... 41,177 8,197 (2,440) 30,540 (12,241) 18,299 (2,111)
Other income (ex-
pense):
Interest
(expense)....... (31,462) (300) (31,162) (36,032)(q) (67,194) (216)
Other income
(expense)....... (429) (63) (366) (366) 97,578
-------- ------- ------- -------- ------ -------- -------- -------
Total other
income
(expense)...... (31,891) (363) (31,528) (36,032) (67,560) 97,362 (s)
Minority interest
share of income.. 1,880 1,880 1,880
-------- ------- ------- -------- ------ -------- -------- -------
Income (loss)
before income tax
expense.......... 7,406 7,834 (2,440) (2,868) (48,273) (51,141) 95,251
Income tax expense
(benefit)........ 2,724 2,724 (4,228)(r) (1,504) 24,584
-------- ------- ------- -------- ------ -------- -------- -------
Net income
(loss)........... $ 4,682 $ 7,834 $(2,440) $ (5,592) $ $(44,045) $(49,637) $70,667
======== ======= ======= ======== ====== ======== ======== =======
Deficiency of
earnings to fixed
charges.......... $ 51,141
Net income per
share............ $ .18 $ 7.45
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR ISSUANCE
OF UNITS, THE
ISSUANCE AND
REDEMPTION OF
THE PREFERRED
STOCK AND
WARRANTS TO
PURCHASE THE
PRICE COMMON
STOCK AND PRO
CONTRIBUTION TO FORMA
CELLULAR HOLDINGS PRICE
----------------- ---------
<S> <C> <C>
Revenues.......... $ $138,561
Cost and expenses:
Cost of cellular
service/operating
expenses........ 25,509
Cost of
equipment....... 15,311
Selling, general
and
administrative.. 45,390
Depreciation and
amortization.... 36,163
----------------- ---------
Operating income
(loss)........... 16,188
Other income (ex-
pense):
Interest
(expense)....... (67,410)
Other income
(expense)....... (4,583)(t) 92,629
----------------- ---------
Total other
income
(expense)...... (4,583) 25,219
Minority interest
share of income.. 1,880
----------------- ---------
Income (loss)
before income tax
expense.......... (4,583) 39,527
Income tax expense
(benefit)........ 23,080
----------------- ---------
Net income
(loss)........... $(4,583) $ 16,447
================= =========
Deficiency of
earnings to fixed
charges..........
Net income per
share............ $ 1.14
</TABLE>
30
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
FOR ISSUANCE
OF UNITS, THE
ISSUANCE AND
REDEMPTION OF
THE PREFERRED
STOCK AND
WARRANTS TO
PRO FORMA PRO FORMA PURCHASE THE
ADJUSTMENTS ADJUSTMENTS FOR PRICE COMMON
FOR THE THE ACQUISITION PRO FORMA STOCK AND
SALE OF PALMER AS CELLULAR AND THE RELATED CELLULAR CONTRIBUTION TO
PALMER FT. MYERS FT. MYERS ADJUSTED HOLDINGS FINANCINGS HOLDINGS PRICE CELLULAR HOLDINGS
-------- --------- ----------- --------- -------- --------------- --------- ------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......... $ 93,228 $14,266 $ $ 78,962 $ $ $ 78,962 $ $
Cost and expenses:
Cost of cellular
service/operating
expenses........ 15,554 3,455 12,099 12,099
Cost of
equipment....... 11,057 1,640 9,417 9,417
Selling, general
and
administrative.. 27,204 3,385 1,220 (o) 25,039 25,039 1,363
Depreciation and
amortization.... 15,129 872 14,257 6,122 (p) 20,379 25
-------- ------- ------- -------- ------- -------- -------- ------ -------
Operating income
(loss)........... 24,284 4,914 (1,220) 18,150 (6,122) 12,028 (1,388)
Other income
(expense):
Interest
expense......... (16,113) 99 (16,212) (17,523)(q) (33,735) (48)
Other, net....... 162 162 162 2,464 (2,464)(t)
-------- ------- ------- -------- ------- -------- -------- ------ -------
Total other
income
(expense)...... (15,951) 99 (16,050) (17,523) (33,573) 2,416 (2,464)
Minority interest
share of income.. 782 782 782
-------- ------- ------- -------- ------- -------- -------- ------ -------
Income (loss)
before income tax
expense.......... 7,551 5,013 (1,220) 1,318 (23,645) (22,327) 1,028 (2,464)
Income tax expense
(benefit)........ 3,851 3,851 (2,114)(r) 1,737 452
-------- ------- ------- -------- ------- -------- -------- ------ -------
Net income
(loss)........... $ 3,700 $ 5,013 $(1,220) $ (2,533) $ $(21,531) $(24,064) $ 576 $(2,464)
======== ======= ======= ======== ======= ======== ======== ====== =======
Deficiency of
earnings to fixed
charges.......... $ 22,327
Net income (loss)
per share........ $ .13 $ .08
<CAPTION>
PRO
FORMA
PRICE
---------
<S> <C>
Revenues.......... $ 78,962
Cost and expenses:
Cost of cellular
service/operating
expenses........ 12,099
Cost of
equipment....... 9,417
Selling, general
and
administrative.. 26,402
Depreciation and
amortization.... 20,404
---------
Operating income
(loss)........... 10,640
Other income
(expense):
Interest
expense......... (33,783)
Other, net....... 162
---------
Total other
income
(expense)...... (33,621)
Minority interest
share of income.. 782
---------
Income (loss)
before income tax
expense.......... (23,763)
Income tax expense
(benefit)........ (2,189)
---------
Net income
(loss)........... $(25,952)
=========
Deficiency of
earnings to fixed
charges..........
Net income (loss)
per share........ $ (2.13)
</TABLE>
31
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
For purposes of determining the pro forma effect of the transactions
described above on Price condensed consolidated statements of operations for
the six months ended June 30, 1997 and the year ended December 31, 1996, the
following adjustments have been made:
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
(O) SELLING, GENERAL AND ADMINISTRATIVE
Represents a portion of the operating expenses
(including monthly management fees; property and
equipment acquisitions and expenses; central
billing expenses and central accounts payable
expenses) charged to Ft. Myers by Palmer.......... $ 1,220 $ 2,440
======== ========
(P) DEPRECIATION AND AMORTIZATION
Represents amortization of the FCC license over 40
years............................................. $ 5,156 $ 10,311
Represents amortization of the acquisition of
Palmer and costs of the Cellular Holdings Senior
Discount Notes offering over 5 years.............. 966 1,930
-------- --------
$ 6,122 $ 12,241
======== ========
(Q) INTEREST EXPENSE, NET
Interest expense on $387.8 million of New Credit
Facility at an assumed interest rate of 8.5% per
annum*............................................ $ 16,482 $ 32,964
Interest expense on $175 million of the Senior
Subordinated Notes at an assumed interest rate of
11.75% per annum.................................. 10,432 20,563
Interest expense on $80 million of the Holdings
Senior Discount Notes at an assumed interest rate
of 13.50%......................................... 5,491 11,165
Interest expense related to the accretion of
Cellular Holdings Senior Discount Notes due to
Unit Warrants value**............................. 232 465
Represents current amortization expense related to
deferred debt financing costs..................... 876 1,750
Represents current amortization expense related to
deferred Holdings Senior Discount Notes costs..... 144 287
Elimination of previously recorded interest (16,134) (31,162)
expense........................................... -------- --------
$ 17,523 $ 36,032
======== ========
--------
*An 1/8% change in the interest rate will increase
or decrease the interest expense per annum on the
bank debt by $485.
**Represents the accretion over 10 years of the
Cellular Holdings Senior Discount Notes resulting
from the allocation of proceeds of the Cellular
Holdings Offering between notes and warrants.
(R) INCOME TAX EXPENSE (BENEFIT)
To record deferred tax benefit resulting from the
amortization of the acquired FCC license.......... $ (2,114) $ (4,228)
======== ========
(S) OTHER INCOME (EXPENSE)
Primarily includes gain on sale of broadcast
properties.
(T) OTHER INCOME (EXPENSE)
To reduce interest income to reflect liquidation of
investments....................................... $ (2,464) $ (4,583)
======== ========
</TABLE>
32
<PAGE>
THE OFFER
GENERAL
Price hereby offers, upon the terms and subject to the conditions set forth
herein and in the related Letter of Transmittal, to exchange the Stock
Consideration of $18.00 in Price Common Stock per Palmer Share for up to
3,000,000 Palmer Shares validly tendered on or prior to the Expiration Date
and not properly withdrawn. The Stock Consideration for a Palmer Share
consists of that number of shares of Price Common Stock equal to the Exchange
Ratio. To the extent the aggregate number of Palmer Shares desired to be
exchanged by the Palmer Stockholders in the Offer exceeds 3,000,000 shares,
Price will exchange shares of Price Common Stock on a pro rata basis among the
Palmer Stockholders, based on the number of Palmer Shares properly tendered
prior to the Expiration Date and not withdrawn by each such tendering Palmer
Stockholder. The number of shares of Price Common Stock to be issued to any
Palmer Stockholder will be adjusted to avoid issuances of fractional shares of
Price Common Stock. Due to the difficulty of determining the precise number of
Palmer Shares properly tendered and not withdrawn, if proration is required,
Price does not expect to announce the final results of proration or exchange
Palmer Shares for shares of Price Common Stock pursuant to the Offer until at
least seven trading days after the Expiration Date. Preliminary results of
proration will be announced by press release as promptly as practicable.
Holders of Palmer Shares may obtain such preliminary information from
. The term "Exchange Ratio" means the quotient (rounded to
the nearest 1/100,000) determined by dividing $18.00 by the average of the
closing sales prices of Price Common Stock on the AMEX on each of the five
consecutive trading days ending on September 12, 1997. On August , 1997, the
closing price of Price Common Stock on the AMEX was $ . Based on such
closing price, the Exchange Ratio would be . The Exchange
Ratio will change as the market price of Price Common Stock changes. Palmer
Stockholders may call any time on or after the date hereof through
the Expiration Date for the current Exchange Ratio calculated based on the
then-current Price Communications Average Price for the five consecutive
trading days ending with the trading day immediately preceding the date the
call is placed. The actual Price Communications Average Price and Exchange
Ratio will be calculated as of September 12, 1997, as described above, and a
press release will be issued announcing the actual Exchange Ratio prior to the
opening of the trading day on September 15, 1997.
On May 23, 1997, Price, Price Communications Wireless, Inc., a wholly-owned
subsidiary of Price ("PCW") and Palmer entered into the Agreement and Plan of
Merger (the "Palmer Merger Agreement"), which provides, among other things,
for the merger of PCW with and into Palmer, with Palmer as the surviving
corporation (the "Palmer Merger"). It is contemplated that the Offer will be
consummated immediately prior to consummation of the Palmer Merger, so that
(subject to proration as set forth above) Palmer Stockholders properly
tendering and not withdrawing Palmer Shares in the Offer will receive $18 in
Price Common Stock per Palmer Share pursuant to the Offer and Palmer
Stockholders not tendering Palmer Shares (and not exercising appraisal rights
in respect of the Palmer Merger under Delaware law) will receive $17.50 in
cash per Palmer Share pursuant to the Palmer Merger. Any Palmer Shares not
taken up in the Offer as a result of proration will receive $17.50 in cash
pursuant to the Palmer Merger. Palmer Stockholders will be deemed to have
waived all rights to receive the Merger Consideration and to have forfeited
any theretofore perfected appraisal rights with respect to all Palmer Shares
properly tendered in the Offer and accepted for exchange by Price.
The maximum number of Palmer Shares sought in the Offer is 3,000,000. A
special meeting of the shareholders of Price has been called to consider the
authorization of the issuance of a maximum of 10,000,000 shares of Price
Common Stock in the Offer. In the event the Exchange Ratio based upon the
average closing price per share of Price Common Stock for the five trading
days ending on September 12, 1997 could result in a requirement that Price
issue more than the 10,000,000 shares of Price Common Stock in exchange for
the Palmer Shares sought in the Offer (i.e., if the Price Communications
Average Price was less than $5.40 per share), Price would amend the Offer by
reducing the number of Palmer Shares sought in the Offer and/or by determining
the Exchange Ratio on a basis different than that described above, or
otherwise, so as to permit the Offer to be consummated without requiring the
issuance of more than 10,000,000 shares of Price Common Stock.
33
<PAGE>
Tendering stockholders will not be obligated to pay any charges or expenses
of the Exchange Agent or any brokerage commissions. Except as set forth in the
instructions to the Letter of Transmittal, transfer taxes on the exchange of
Palmer Shares pursuant to the Offer will be paid by or on behalf of Price.
The purpose of the Offer is to provide Palmer Stockholders the opportunity
to continue to participate in the ongoing business of Palmer by receiving
shares of Price Common Stock in lieu of cash. In addition, to the extent
Palmer Shares are exchanged for shares of Price Common Stock in the Offer, the
aggregate cash consideration to be paid by Price in the Acquisition will be
correspondingly reduced.
Price's obligation to exchange shares of Price Common Stock for Palmer
Shares pursuant to the Offer is conditioned upon satisfaction of the Offer
Conditions. See "--Conditions of the Offer."
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by Price to record holders of Palmer Shares and will
be furnished by Price to brokers, dealers, commercial banks, trust companies
and similar persons whose names, or the names of whose nominees, appear on the
list of stockholders of Palmer or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of Palmer Shares.
TIMING OF THE OFFER
The Offer is scheduled to expire at 12:00 midnight, New York City time, on
, 1997. It is Price's current intention to extend the Offer until
all conditions have been either satisfied or waived. See "--Extension,
Termination and Amendment."
Price expects the condition requiring approval by Price's shareholders of
the issuance of up to 10,000,000 shares of Price's Common Stock in connection
with the Offer will be satisfied by September 5, 1997, the date of Price's
Special Meeting.
EXTENSION, TERMINATION AND AMENDMENT
Price expressly reserves the right (but will not be obligated), in its sole
discretion, at any time or from time to time, and regardless of whether any of
the events set forth under "Conditions of the Offer" shall have occurred or
shall have been determined by Price to have occurred (a) to extend the period
of time during which the Offer is to remain open by giving oral or written
notice of such extension to the Exchange Agent, which extension must be
announced no later than 9:00 A.M., New York City time, on the next business
day after the previously scheduled Expiration Date, and (b) to amend the Offer
in any respect (including, without limitation, by decreasing or increasing the
consideration offered in the Offer to holders of Palmer Shares and/or by
increasing or decreasing the number of Palmer Shares being sought in the
Offer) by giving oral or written notice of such amendment to the Exchange
Agent. There can be no assurance that Price will exercise its right to extend
the Offer. However, it is Price's current intention to extend the Offer until
all conditions have been satisfied or waived. During any such extension, all
Palmer Shares previously tendered and not withdrawn will remain subject to the
Offer, subject to the right of a tendering stockholder to withdraw his Palmer
Shares. See "--Withdrawal Rights." Price expects to know whether all
conditions to the Palmer Merger have been satisfied or waived prior to the
expiration of the Offer.
Subject to the applicable rules and regulations of the Commission, Price
also reserves the right, in its sole discretion, at any time or from time to
time, (i) to delay acceptance for exchange of or, regardless of whether such
Palmer Shares were theretofore accepted for exchange, exchange of any Palmer
Shares pursuant to the Offer or to terminate the Offer and not accept for
exchange or exchange any Palmer Shares not theretofore accepted for exchange,
or exchanged, upon the failure of any of the conditions of the Offer to be
satisfied and (ii) to waive any condition (other than the condition requiring
approval by Price's shareholders of the issuance of up to 10,000,000 shares of
Price Common Stock in connection with the Offer and the condition relating to
the effectiveness of the Registration Statement) or otherwise amend the Offer
in any respect, by giving oral or written notice of such delay, termination or
amendment to the Exchange Agent and by making a public announcement
34
<PAGE>
thereof. Any such extension, termination, amendment or delay will be followed
as promptly as practicable by public announcement thereof, such announcement
in the case of an extension to be issued no later than 9:00 A.M., New York
City time, on the next business day after the previously scheduled Expiration
Date. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under
the Exchange Act, which require that any material change in the information
published, sent or given to stockholders in connection with the Offer be
promptly disseminated to stockholders in a manner reasonably designed to
inform stockholders of such change) and without limiting the manner in which
Price may choose to make any public announcement, Price shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by making a release to the Dow Jones News Service.
Price confirms that if it makes a material change in the terms of the Offer
or the information concerning the Offer, or if it waives a material condition
of the Offer, Price will extend the Offer to the extent required under the
Exchange Act. If, prior to the Expiration Date, Price shall increase or
decrease the percentage of Palmer Shares being sought or the consideration
offered to holders of Palmer Shares, such increase or decrease shall be
applicable to all holders whose Palmer Shares are accepted for exchange
pursuant to the Offer, and, if at the time notice of any such increase or
decrease is first published, sent or given to holders of Palmer Shares, the
Offer is scheduled to expire at any time earlier than the tenth business day
from and including the date that such notice is first so published, sent or
given, the Offer will be extended until the expiration of such ten business-
day period. For purposes of the Offer, a "business day" means any day other
than a Saturday, Sunday or federal holiday and consists of the time period
from 12:01 A.M. through 12:00 midnight, New York City time.
EXCHANGE OF PALMER SHARES; DELIVERY OF PRICE COMMON STOCK
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), Price will accept for exchange, and will exchange, up to
3,000,000 Palmer Shares validly tendered and not properly withdrawn as
promptly as practicable after the Expiration Date. In addition, subject to
applicable rules of the Commission, Price expressly reserves the right to
delay acceptance for exchange or the exchange of Palmer Shares in order to
comply with any applicable law. In all cases, exchange of Palmer Shares
tendered and accepted for exchange pursuant to the Offer will be made only
after timely receipt by the Exchange Agent of certificates for such Palmer
Shares (or a confirmation of a book-entry transfer of such Palmer Shares in
the Exchange Agent's account at The Depository Trust Company, the Midwest
Securities Trust Company, or the Philadelphia Depository Trust Company (each,
a "Book-Entry Transfer Facility" and collectively, the "Book-Entry Transfer
Facilities"), a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other required documents.
For purposes of the Offer, Price will be deemed to have accepted for
exchange up to 3,000,000 Palmer Shares validly tendered and not withdrawn as,
if and when Price gives oral or written notice to the Exchange Agent of its
acceptance of the tenders of such Palmer Shares pursuant to the Offer.
Delivery of Price Common Stock in exchange for Palmer Shares pursuant to the
Offer and cash in lieu of fractional shares of Price Common Stock will be made
by the Exchange Agent as soon as practicable after receipt of such notice. The
Exchange Agent will act as agent for tendering stockholders for the purpose of
receiving Price Common Stock and cash to be paid in lieu of fractional shares
of Price Common Stock from Price and transmitting such Price Common Stock and
cash to tendering stockholders. Under no circumstances will interest with
respect to fractional shares be paid by Price by reason of any delay in making
such exchange.
If any tendered Palmer Shares are not accepted for exchange pursuant to the
terms and conditions of the Offer for any reason, or if certificates are
submitted for more Palmer Shares than are tendered, certificates for such
unexchanged Palmer Shares will be returned without expense to the tendering
stockholder or, in the case of Palmer Shares tendered by book-entry transfer
of such Palmer Shares into the Exchange Agent's account at a Book-Entry
Transfer Facility pursuant to the procedures set forth below under "--
Procedure for Tendering," such Palmer Shares will be credited to an account
maintained within such Book-Entry Transfer Facility, as soon as practicable
following expiration or termination of the Offer.
35
<PAGE>
CASH IN LIEU OF FRACTIONAL SHARES OF PRICE COMMON STOCK
No certificates representing fractional shares of Price Common Stock will be
issued pursuant to the Offer. In lieu thereof, each tendering stockholder who
would otherwise be entitled to a fractional share of Price Common Stock will
receive cash in an amount equal to such fraction (expressed as a decimal and
rounded to the nearest 0.01 of a share) multiplied by the closing price for
shares of Price Common Stock on the AMEX on the date such stockholder's Palmer
Shares are accepted for exchange by Price.
WITHDRAWAL RIGHTS
Palmer Shares tendered pursuant to the Offer may be withdrawn at any time
prior to the Expiration Date, and, unless theretofore accepted for exchange by
Price pursuant to the Offer, may also be withdrawn at any time after
, 1997.
For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Exchange
Agent at one of its addresses set forth on the back cover of this Prospectus
and must specify the name of the person having tendered the Palmer Shares to
be withdrawn, the number of Palmer Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Palmer Shares.
The signature(s) on the notice of withdrawal must be guaranteed by a
financial institution (including most banks, savings and loan associations and
brokerage houses) which is a participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Program or
the Stock Exchange Medallion Program (an "Eligible Institution") unless such
Palmer Shares have been tendered for the account of any Eligible Institution.
If Palmer Shares have been tendered pursuant to the procedures for book-entry
tender as set forth below under "--Procedure for Tendering," any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Palmer Shares and must
otherwise comply with such Book-Entry Transfer Facility's procedures. If
certificates have been delivered or otherwise identified to the Exchange
Agent, the name of the registered holder and the serial numbers of the
particular certificates evidencing the Palmer Shares withdrawn must also be
furnished to the Exchange Agent as aforesaid prior to the physical release of
such certificates. All questions as to the form and validity (including time
of receipt) of any notice of withdrawal will be determined by Price, in its
sole discretion, which determination shall be final and binding. Neither
Price, the Exchange Agent, nor any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
will incur any liability for failure to give any such notification. Any Palmer
Shares properly withdrawn will be deemed not to have been validly tendered for
purposes of the Offer. However, withdrawn Palmer Shares may be retendered by
following one of the procedures described under "--Procedure for Tendering" at
any time prior to the Expiration Date.
PROCEDURE FOR TENDERING
For a Palmer Stockholder to validly tender Palmer Shares pursuant to the
Offer, (i) a properly completed and duly executed Letter of Transmittal (or
manually executed facsimile thereof), together with any required signature
guarantees, or an Agent's Message (as defined below) in connection with a
book-entry transfer, and any other required documents, must be transmitted to
and received by the Exchange Agent at one of its addresses set forth on the
back cover of this Prospectus, and certificates for tendered Palmer Shares
must be received by the Exchange Agent at such address or such Palmer Shares
must be tendered pursuant to the procedures for book-entry tender set forth
below (and a confirmation of receipt of such tender received (such
confirmation, a "Book-Entry Confirmation"), in each case prior to the
Expiration Date, or (ii) such stockholder must comply with the guaranteed
delivery procedures set forth below.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part
of a Book-Entry Confirmation, which states that such Book-
36
<PAGE>
Entry Transfer Facility has received an express acknowledgment from the
participant in such Book-Entry Transfer Facility tendering the Palmer Shares,
which 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 Price may enforce such agreement against such participant.
The Exchange Agent will establish accounts with respect to the Palmer Shares
at the Book-Entry Transfer Facilities for purposes of the Offer within two
business days after the date of this Prospectus, and any financial institution
that is a participant in any of the Book-Entry Transfer Facilities' systems
may make book-entry delivery of the Palmer Shares by causing such Book-Entry
Transfer Facility to transfer such Palmer Shares into the Exchange Agent's
account in accordance with such Book-Entry Transfer Facility's procedure for
such transfer. However, although delivery of Palmer Shares may be effected
through book-entry at the Book-Entry Transfer Facilities, the Letter of
Transmittal (or facsimile thereof), with any required signature guarantees, or
an Agent's Message in connection with a book-entry transfer, and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at one or more of its addresses set forth on the back cover of
this Prospectus prior to the Expiration Date, or the guaranteed delivery
procedures described below must be complied with.
Signatures on all Letters of Transmittal must be guaranteed by an Eligible
Institution, except in cases in which Palmer Shares are tendered (i) by a
registered holder of Palmer Shares who has not completed either the box
entitled "Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If the certificates for Palmer Shares are registered in the name of a person
other than the signer of the Letter of Transmittal, or if certificates for
unexchanged Palmer Shares are to be issued to a person other than the
registered holder(s), the certificates must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name or names
of the registered owner or owners appear on the certificates, with the
signature(s) on the certificates or stock powers guaranteed as aforesaid.
THE METHOD OF DELIVERY OF PALMER SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING PALMER STOCKHOLDER, AND THE DELIVERY WILL
BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY
IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED,
IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE
TIMELY DELIVERY.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO CASH
RECEIVED IN LIEU OF FRACTIONAL SHARES OF PRICE COMMON STOCK, A STOCKHOLDER
MUST PROVIDE THE EXCHANGE AGENT WITH HIS OR HER CORRECT TAXPAYER
IDENTIFICATION NUMBER AND CERTIFY WHETHER SUCH STOCKHOLDER IS SUBJECT TO
BACKUP WITHHOLDING OF FEDERAL INCOME TAX BY COMPLETING THE SUBSTITUTE FORM W-9
INCLUDED IN THE LETTER OF TRANSMITTAL. CERTAIN STOCKHOLDERS (INCLUDING, AMONG
OTHERS, ALL CORPORATIONS AND CERTAIN FOREIGN INDIVIDUALS) ARE NOT SUBJECT TO
THESE BACKUP WITHHOLDING AND REPORTING REQUIREMENTS. IN ORDER FOR A FOREIGN
INDIVIDUAL TO QUALIFY AS AN EXEMPT RECIPIENT, THE STOCKHOLDER MUST SUBMIT A
FORM W-8, SIGNED UNDER PENALTIES OF PERJURY, ATTESTING TO THAT STOCKHOLDER'S
EXEMPT STATUS.
If a Palmer Stockholder desires to tender Palmer Shares pursuant to the
Offer and such stockholder's certificates are not immediately available or
such stockholder cannot deliver the certificates and all other required
documents to the Exchange Agent prior to the Expiration Date or such
stockholder cannot complete the
37
<PAGE>
procedure for book-entry transfer on a timely basis, such Palmer Shares may
nevertheless be tendered, provided that all of the following conditions are
satisfied:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by Price, is received by
the Exchange Agent as provided below on or prior to the Expiration Date;
and
(iii) the certificates for all tendered Palmer Shares (or a confirmation
of a book-entry transfer of such securities into the Exchange Agent's
account at a Book-Entry Transfer Facility as described above), in proper
form for transfer, together with a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's Message)
and all other documents required by the Letter of Transmittal are received
by the Exchange Agent within three trading days after the date of execution
of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
telegram, telex, facsimile transmission or mail to the Exchange Agent and must
include a guarantee by an Eligible Institution in the form set forth in such
Notice.
In all cases, exchanges of Palmer Shares tendered and accepted for exchange
pursuant to the Offer will be made only after timely receipt by the Exchange
Agent of certificates for Palmer Shares (or timely confirmation of a book-
entry transfer of such securities into the Exchange Agent's account at a Book-
Entry Transfer Facility as described above), properly completed and duly
executed Letter(s) of Transmittal (or facsimile(s) thereof), or an Agent's
Message in connection with a book-entry transfer, and any other required
documents. Accordingly, tendering stockholders may be paid at different times
depending upon when certificates for Palmer Shares or confirmations of book-
entry transfers of such Palmer Shares are actually received by the Exchange
Agent.
By executing a Letter of Transmittal as set forth above, the tendering
Palmer Stockholder irrevocably appoints designees of Price as such
stockholder's attorneys-in-fact and proxies, each with full power of
substitution, to the full extent of such stockholder's rights with respect to
the Palmer Shares tendered by such stockholder and accepted for exchange by
Price and with respect to any and all other Palmer Shares and other securities
issued or issuable in respect of the Palmer Shares on or after ,
1997. Such appointment is effective, and voting rights will be affected, when
and only to the extent that Price deposits the shares of Price Common Stock
for Palmer Shares tendered by such stockholder with the Exchange Agent. All
such proxies shall be considered coupled with an interest in the tendered
Palmer Shares and therefore shall not be revocable. Upon the effectiveness of
such appointment, all prior proxies given by such stockholder will be revoked,
and no subsequent proxies may be given (and, if given, will not be deemed
effective). Price's designees will, with respect to the Palmer Shares for
which the appointment is effective, be empowered, among other things, to
exercise all voting and other rights of such stockholder as they, in their
sole discretion, deem proper at any annual, special or adjourned meeting of
Palmer's stockholders or otherwise. Price reserves the right to require that,
in order for Palmer Shares to be deemed validly tendered, immediately upon
Price's exchange of such Palmer Shares, Price must be able to exercise full
voting rights with respect to such Palmer Shares.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Palmer Shares will be
determined by Price, in its sole discretion, which determination shall be
final and binding. Price reserves the absolute right to reject any and all
tenders of Palmer Shares determined by it not to be in proper form or the
acceptance of or exchange for which may, in the opinion of Price's counsel, be
unlawful. Price also reserves the absolute right to waive any of the
conditions of the Offer (other than the condition requiring approval by
Price's shareholders of the issuance of up to 10,000,000 shares of Price's
Common Stock in connection with the Offer and the condition relating to the
effectiveness of the Registration Statement of which this Prospectus is a
part) or any defect or irregularity in the tender of any Palmer Shares. No
tender of Palmer Shares will be deemed to have been validly made until all
defects and irregularities in tenders of Palmer Shares have been cured or
waived. Neither Price, the Exchange Agent nor any other person will be under
any duty to give notification of any defects or irregularities in the tender
of any Palmer Shares or will
38
<PAGE>
incur any liability for failure to give any such notification. Price's
interpretation of the terms and conditions of the Offer (including the Letter
of Transmittal and instructions thereto) will be final and binding.
The tender of Palmer Shares pursuant to any of the procedures described
above will constitute a binding agreement between the tendering Palmer
Stockholder and Price upon the terms and subject to the conditions of the
Offer.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
applicable to those Palmer Stockholders who participate in the Offer. This
summary is based upon the provisions of the Internal Revenue Code of 1986 (the
"Code"), applicable Treasury Regulations promulgated thereunder, judicial
decisions and administrative rulings all as of the date hereof. There can be
no assurance that changes in applicable law subsequent hereto may not
adversely affect the tax consequences described herein.
Proskauer Rose LLP, counsel to Price, is of the opinion that the following
summary accurately sets forth the material federal income tax consequences of
the Offer to those Palmer Stockholders who participate. Counsel's opinion is
based upon, among other things, a representation letter provided by the Price
containing customary statements relating to certain technical requirements
that must be satisfied for the tax consequences of the Offer to be governed by
Section 351 of the Code.
The following discussion does not address all aspects of federal income
taxation that may be relevant to particular holders in light of their personal
circumstances, or to taxpayers subject to special rules under the federal
income tax laws (such as, for example, certain financial institutions, life
insurance companies, foreign purchasers, tax-exempt entities and holders who
acquired their Palmer Shares pursuant to the exercise of employee stock
options or otherwise as compensation) and does not address any aspect of
state, local or foreign tax laws or consequences. This discussion also assumes
that the Palmer Shares exchanged will be held as capital assets as of the date
of the Exchange Offer.
Price, prior to the consummation of the Palmer Merger and the Offer, intends
to effect the Holding Company Merger. As a result, each Palmer Stockholder who
participates in the Offer will receive Holdings Common Stock. The Holding
Company Merger in which shareholders of Price receive one share of Holdings
Common Stock in exchange for each share of Price Common Stock and the exchange
by those Palmer Stockholders who participate in the Offer of Palmer Shares for
shares of Holdings Common Stock will be treated for federal income tax
purposes as a transfer of property, governed by Section 351 of the Code, to
Holdings by the holders of Price Common Stock and Palmer Shares.
A Palmer Stockholder who receives Holdings Common Stock in the Offer should
not recognize gain or loss upon such exchange. The aggregate tax basis of the
Holdings Common Stock received by such Palmer Stockholder will equal the
aggregate tax basis of the Palmer Shares surrendered therefor, and the holding
period of the Holdings Common Stock will include the holding period of the
Palmer Shares surrendered.
In the event that the Holding Company Merger does not take place, a Palmer
Stockholder who participates in the Offer will receive Price Common Stock. In
those circumstances a Palmer Stockholder will recognize gain or loss upon such
exchange equal to the difference between the fair market value of the Price
Common Stock received and the Palmer Stockholder's tax basis in the Palmer
Shares exchanged therefor. Any gain or loss on the exchange will generally be
long-term gain or loss if the Palmer Stockholder has held the Palmer Shares
for more than one year at the time of the exchange. Pursuant to legislation
recently enacted into law with respect to capital gains, an individual who is
a Palmer Stockholder and who has held the Palmer Shares for more than eighteen
months at the time of the exchange will be entitled to a preferential tax rate
of 20 percent (reduced from 28 percent) on such gain.
A Palmer Stockholder who receives cash in lieu of a fractional share of
stock, will be treated as having received such fractional share and then
having exchanged such share for cash in a redemption by Holdings (on the Price
Common Stock if the Holding Company Merger is not effected). Any gain or loss
attributable to
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fractional shares will generally be capital gain or loss, in an amount equal
to the difference between the cash received and the tax basis of the
fractional share exchanged.
The following discussion could be relevant to a Palmer Stockholder who
participates in the Offer and who also will receive cash pursuant to the
Palmer Merger.
In general, the cash consideration received by a Palmer Stockholder in the
Palmer Merger which is attributable to the Fort Myers sale, the New Credit
Facility and the Senior Subordinated Notes, will be treated as a redemption in
payment of the Palmer Shares surrendered in the exchange, resulting in the
recognition of capital gain or loss, unless such Palmer Stockholder should
own, actually and constructively (applying the attribution rules of Section
318 of the Code), Holdings Common Stock representing 50 percent or more of the
value of Holdings after the Offer. In that event, a portion of the cash
received may be treated as a dividend to the extent of an allocable portion of
Palmer's earnings and profits, unless such holder can satisfy either the
Substantially Disproportionate Redemption Test or Meaningful Reduction Test
described below.
The portion of the cash consideration received by a Palmer Stockholder in
the Palmer Merger which is attributable to capital contributions made by Price
and the proceeds from the Cellular Holdings Offering should be treated, for
tax purposes, as a sale of Palmer Shares by the holder thereof. There is a
risk, however, that as a result of the Holding Company Merger the IRS may
claim that an allocable portion of the cash consideration received by a Palmer
Stockholder in the Palmer Merger which is attributable to (i) cash originating
from Price or (ii) the sales proceeds allocable to the Warrants issued in
conjunction with the Cellular Holdings Notes, should be recharacterized as
cash received by such holder from Holdings in connection with the Section 351
exchange ("cash from Holdings Company sources"). If the IRS were to
successfully assert this position, a Palmer Stockholder would recognize gain,
but not loss, equal to the lesser of (i) the amount of gain realized measured
by the excess of the sum of the cash from Holdings sources and the fair market
value of Holdings Common Stock received in the Offer over the tax basis of the
Palmer Shares exchanged for Holdings Common Stock and the Palmer Shares deemed
to be exchanged for cash from Holdings sources and (ii) the amount of cash
from Holdings sources. In that event, the tax basis of the Holdings Common
Stock received in the exchange will be the same as the Palmer Shares
surrendered, decreased by the amount of cash from Holdings sources received
and increased by the amount of gain recognized. The holding period of the
Holdings Common Stock will include the holding period of the Palmer Shares
surrendered. Price believes, however, that because none of the cash
consideration to be received by Palmer Stockholders will be paid by Holdings,
if asserted by the IRS, this position should not prevail.
The tax consequences of the Offer and the Palmer Merger to Palmer
Stockholders could vary from those described above, in the event that persons
who own 50 percent or more of the vote or value of the outstanding Palmer
Shares immediately before such transactions, own, after applying the
constructive ownership rules of Sections 318 and 304 of the Code, 50 percent
or more of the vote or value of the outstanding Holdings Common Stock
immediately afterward. In that event, as discussed below, a portion of the
cash received by a Palmer Stockholder which is attributable to Price's capital
contributions and the proceeds from the Cellular Holdings Offering might be
treated as a dividend rather than as amounts received from the sale or
exchange of a capital asset. The determining factor in whether sale or
exchange or dividend treatment will be applicable to a particular Palmer
Stockholder in these circumstances, is whether the actual and constructive
ownership interest of such Palmer Stockholder has been reduced, measured by
such Palmer Stockholder's actual and constructive ownership in Palmer prior to
the transactions as compared to such Palmer Stockholder's constructive
ownership of Palmer (computed by reference to such Palmer Stockholder's actual
and constructive ownership of Holdings) after the transactions.
A Palmer Stockholder will realize dividend income rather than receive sale
or exchange treatment for the amount of such cash unless after applying the
constructive ownership rules of Section 318 of the Code, (i) the percentage of
Palmer Shares constructively owned by a Palmer Stockholder is less than 80
percent of the percentage of Palmer Shares actually and constructively owned
by such holder before the transactions (and assuming that such Palmer
Stockholder owns actually and constructively less than 50 percent of the total
combined voting power of Palmer) ("Substantially Disproportionate Redemption
Test"), or (ii) if the
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transactions otherwise result in a "meaningful reduction" in such Palmer
Stockholder's constructive ownership of Palmer (measured after the
transactions by reference to such Palmer Stockholder's actual and constructive
ownership of Holdings) ("Meaningful Reduction Test"). The Internal Revenue
Service has indicated, that in the case of a minority stockholder in a
publicly held corporation whose relative stock interest is minimal and who
exercises no control over the corporation's affairs, a minimal reduction in
the percentage of stock owned by such stockholder would constitute a
"meaningful reduction" and thus will avoid dividend treatment. Accordingly,
cash received by such a Palmer Stockholder whose actual and constructive
percentage interest in Holdings is less than that holder's percentage interest
in Palmer prior to the transactions should not be treated as constituting a
dividend (even if the Substantially Disproportionate Redemption Test was not
satisfied). However, should neither of these tests be met, a Palmer
Stockholder will be treated as having received a distribution that may be
partially or wholly treated as a dividend. Such a distribution will be treated
as a dividend to the extent of Cellular Holdings and Palmer's earnings and
profits. (In the event the IRS successfully claims that a portion of the cash
consideration received should be recharacterized as paid by Holdings, to that
extent, dividend treatment would be measured by the Holdings' and Palmer's
earnings and profits.) Palmer Stockholders should consult their own tax
advisors concerning the application of these tests.
In the event that the Holding Company Merger does not take place and a
Palmer Stockholder instead receives Price Common Stock in the Offer, the tax
consequences relating to the receipt of cash pursuant to the Palmer Merger by
a Palmer Stockholder who also participates in the Offer that are described in
the foregoing discussion will be equally applicable (with the exception of
that portion dealing with the possible characterization of certain cash as
cash received from Holding Company sources). In that event, references in the
foregoing discussion to ownership of Holdings Common Stock should refer to the
ownership of Price Common Stock.
Certain noncorporate Palmer Stockholders may be subject to backup
withholding at a rate of 31% on cash payments made in lieu of issuing
fractional shares. Backup withholding will apply only if a Palmer Stockholder
(i) fails to furnish its Taxpayer Identification Number ("TIN") which, in the
case of an individual, would be his or her Social Security number, (ii)
furnishes an incorrect TIN, (iii) is notified by the IRS that it has failed to
properly report payments of interest and dividends or (iv) under certain
circumstances, fails to certify, under penalty or perjury, that it has
furnished a correct TIN and has not been notified by the IRS that it is
subject to backup withholding. The amounts withheld under the backup
withholding rules are not an additional tax and may be refunded, or credited
against the Palmer Stockholder's United States federal income tax liability
provided that the required information is furnished to the IRS.
Each Palmer Stockholder that receives Holdings Common Stock in the Offer
will be required to retain records and file with such holder's Federal income
tax return a statement setting forth certain facts relating to the Offer.
THIS FEDERAL INCOME TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY, AND MAY
NOT APPLY TO ALL HOLDERS OF PALMER SHARES. PALMER STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
TRANSACTIONS DISCUSSED HEREIN.
PURPOSE OF THE OFFER
The purpose of the Offer is to provide Palmer Stockholders the opportunity
to continue to participate in the ongoing business of Palmer by receiving
shares of Price Common Stock in lieu of cash. In addition, to the extent
Palmer Shares are exchanged for shares of Price Common Stock in the Offer, the
aggregate cash consideration to be paid by Price will be correspondingly
reduced.
CONDITIONS OF THE OFFER
The Offer is subject to a number of conditions which are described below.
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The Offer is conditioned upon the approval by Price's shareholders of the
issuance of up to 10,000,000 shares of Price Common Stock in connection with
the Offer. Price intends to seek such approval at a special meeting of
shareholders to be held on September 5, 1997.
The Offer is conditioned upon the satisfaction of all of the conditions set
forth in Article XIII of the Palmer Merger Agreement, or waiver thereof by
Price. Such conditions include: (i) stockholder approval by the requisite vote
of the Palmer Stockholders in accordance with applicable law; (ii) the absence
of any action or proceeding which is then in effect and has the effect of
prohibiting the Palmer Merger or any of the transactions contemplated thereby;
(iii) termination of all applicable waiting periods under the HSR Act; and
(iv) all consents, waiver, approvals and authorizations required to be
obtained from the FCC (the "FCC Transfer Approvals"), and all filings or
notices required to be made with the FCC by Price, PCW and Palmer prior to the
consummation of the transactions contemplated in the Palmer Merger Agreement.
Each of the FCC Transfer Approvals shall have become a Final Order. For
purposes of the Palmer Merger Agreement, "Final Order" shall mean an action by
the FCC: (i) that is not reversed, stayed, enjoined, set aside, annulled or
suspended within the deadline, if any, provided by applicable statute or
regulation; (ii) with respect to which no request for stay, motion or petition
for reconsideration or rehearing, application or request for review, or notice
of appeal or other judicial petition for review that is filed within such
period is pending, and (iii) as to which the deadlines, if any, for filing any
such request, motion, petition, application, appeal or notice, and for the
entry of orders staying, reconsidering, or reviewing on the FCC's own motion
have expired.
The obligations of Price to effect the Palmer Merger and the other
transactions contemplated in the Palmer Merger Agreement are also subject to
the following conditions, any or all of which may be waived, in whole or in
part, to the extent permitted by applicable law; (i) the representations and
warranties of Palmer made in the Palmer Merger Agreement shall be true and
correct in all material respects; (ii) the agreements and covenants of Palmer
required to be performed on or before the Effective Timer shall have been
performed in all material respects; (iii) Price shall received legal opinions
in form and substance reasonably satisfactory to Price; (iv) the Dissenting
Shares, as defined below, shall constitute not greater than ten percent (10%)
of the shares of Class A common stock outstanding on the Closing Date; and (v)
since the date of the Palmer Merger Agreement, Palmer has experienced no
adverse change to its business. "Dissenting Shares" are the Palmer Shares that
are issued and outstanding immediately prior to the Effective Time and that
are held by stockholders who shall not have voted in favor of the Palmer
Merger or consented thereto in writing and who shall have demanded properly in
writing appraisal for such Palmer Shares in accordance with Section 262 of
Delaware Law.
The obligations of Palmer to effect the Palmer Merger and the other
transactions contemplated in the Palmer Merger Agreement are also subject to
the following conditions, any or all of which may be waived, in whole or in
part, to the extent permitted by applicable law: (i) the representations and
warranties of Price and PCW made in the Palmer Merger Agreement shall be true
and correct in all material respects; (ii) the agreements and covenants of
Price and PCW required to be performed on or before the Effective Time shall
have been performed in all material respects; and (iii) Palmer shall have
received a legal opinion in form and substance reasonably satisfactory to
Palmer.
The Offer is conditioned upon the Palmer Merger Agreement not having been
terminated pursuant to Article IX thereof and that none of the parties to the
Palmer Merger Agreement shall have asserted a right to terminate such
Agreement.
Article IX of the Palmer Merger Agreement provides that the agreement may be
terminated at any time prior to the Effective Time, whether before or after
approval of the Palmer Merger Agreement by the stockholders of Palmer.
Termination may occur on the following conditions: (a) by mutual consent of
each of Price and Palmer; (b) by either Price or Palmer if there is a material
breach of any representation or warranty in the Palmer Merger Agreement on the
part of the other which is not cured within thirty (30) business days
following receipt by the breaching party of notice of such breach; (c) by
either Price or Palmer if any decree, permanent injunction, judgment order or
other action by any court of competent jurisdiction or any governmental entity
prohibiting consummation of the Palmer Merger shall have become final and
nonappealable; (d) by either
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Price or Palmer if the Palmer Merger Agreement shall fail to receive the
requisite vote for approval and adoption by the stockholders of Palmer at a
special meeting of the Palmer Stockholders and the Palmer Merger shall not
have been consummated within forty-five (45) days thereafter; and (e) by
either Palmer or Price if the Palmer Merger shall not have been consummated
before December 31, 1997 (the "Termination Date") provided, however, that the
right to terminate the Palmer Merger Agreement shall not be available to any
party whose failure to fulfill any obligation under the Palmer Merger
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before the Termination Date.
The Offer is also conditioned upon the following:
(a) The shares of Price Common Stock issuable to the Palmer Stockholders
in the Offer shall have been authorized for listing on the AMEX, subject to
official notice of issuance;
(b) The Registration Statement shall have become effective under the
Securities Act, and no stop order suspending the effectiveness of the
Registration Statement shall have been issued or proceedings for that
purpose shall have been initiated or threatened by the Commission and the
Company shall have received all necessary "blue sky" authorizations;
(c) All required material governmental authorizations, permits, consents,
orders or approvals which do not impose terms or conditions that could
reasonably be expected to have a material adverse effect on Price and/or
Palmer shall have been received;
(d) A temporary restraining order, preliminary or permanent injunction or
other order or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the Offer or any of the other transactions contemplated by
this Prospectus shall not be in effect; a statute, rule, regulation, order,
injunction or decree shall not have been enacted, entered, promulgated or
enforced by any court, administrative agency or commission or other
governmental authority or instrumentality which prohibits, restricts or
makes illegal the consummation of the Offer; or there shall not have been a
failure to obtain any required consent or approval under foreign laws or
regulations, the absence of which would prohibit the consummation of the
Offer or would have a material adverse effect on Price or Palmer;
(e) There shall not be pending any suit, action or proceeding by any
governmental entity (i) challenging the Offer, seeking to restrain or
prohibit the consummation of the Offer or seeking to obtain from Palmer or
Price any damages that are material in relation to Palmer and its
subsidiaries taken as a whole, (ii) seeking to prohibit or limit the
ownership or operation by Palmer or Price or any of their subsidiaries of
any material portion of the business or assets of Palmer or Price or any of
their subsidiaries or to compel Palmer or Price or any of their
subsidiaries, to dispose of or hold separate any material portion of the
business or assets of Palmer or Price or any of their subsidiaries, as a
result of the Offer, (iii) seeking to impose limitations on the ability of
Price to acquire or hold, or exercise full rights to acquire or hold, or
exercise full rights of ownership of, any shares of capital stock of
Palmer, (iv) seeking to prohibit Price from effectively controlling in any
material respect the business or operations of Palmer or (v) which
otherwise is reasonably likely to have a material adverse effect on Price
or Palmer;
(f) There shall not have occurred or been threatened (i) any general
suspension of trading in, or limitation on times or prices for, securities
on any national securities exchange or in the over-the-counter market in
the United States, (ii) any significant adverse change in interest rates,
the financial markets or major stock exchange indices in the United States
or abroad or in the market price of Palmer Shares, including, without
limitation, a decline of at least 10% in either the Dow Jones Average of
Industrial Stocks or the Standard & Poor's 500 Index from that existing at
the close of business on , 1997, (iii) any change in the general
political, market, economic, regulatory or financial conditions in the
United States or abroad that could, in the reasonable judgment of Price,
have a material adverse effect upon the business, properties, assets,
liabilities, capitalization, stockholders' equity, condition (financial or
otherwise),
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operations, licenses or franchises, results of operations or prospects of
Palmer or any of its subsidiaries or the trading in, or value of, the
Palmer Shares, (iv) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States, (v) any limitation
(whether or not mandatory) by any government, domestic, foreign or
supranational, or governmental entity on, or other event that, in the sole
judgment of Price, might affect, the extension of credit by banks or other
lending institutions, (vi) a commencement of a war or armed hostilities or
other national or international calamity directly or indirectly involving
the United States or (vii) in the case of any of the foregoing existing at
the time of the commencement of the Offer, a material acceleration or
worsening thereof.
(g) (i) There shall not have occurred any general suspension of trading
in, or limitation on prices for, securities on the AMEX, (ii) the
declaration of a banking moratorium or any suspension of payments in
respect of banks in the U.S., (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or
indirectly involving the U.S., or in the case of any of the foregoing
existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof, or (iv) any decline in either the Dow
Jones Industrial Average or the Standard and Poor's Index of 500 Industrial
Companies by an amount in excess of 10% measured from the close of business
on , 1997;
The foregoing conditions are for the sole benefit of Price and may be
asserted by Price regardless of the circumstances giving rise to any such
conditions (including any action or inaction by Price or may be waived by
Price in whole or in part (other than the condition requiring approval by
Price's shareholders of the issuance of up to 10,000,000 shares of Price
Common Stock in connection with the Offer and the condition relating to
effectiveness of the Registration Statement). The determination as to whether
any condition has been satisfied shall be in the sole judgment of Price and
will be final and binding on all parties. The failure by Price at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed a continuing right which may be
asserted at any time and from time to time. Notwithstanding the fact that
Price reserves the right to assert the failure of a condition following
acceptance for exchange but prior to exchange in order to delay exchange or
cancel its obligation to exchange properly tendered Palmer Shares, Price will
either promptly exchange such Palmer Shares or promptly return such Palmer
Shares.
FEES AND EXPENSES
Price has retained (" ") to act as Information Agent in connection
with the Offer. The Information Agent may contact holders of Palmer Shares by
mail, telephone, telex, telegraph and personal interviews and may request
brokers, dealers and other nominee stockholders to forward the Offer materials
to beneficial owners of Palmer Shares. The Information Agent will be paid a
customary fee of $ for such services, plus reimbursement of out-of-pocket
expenses, and Price will indemnify the Information Agent against certain
liabilities and expenses in connection with the Offer, including liabilities
under federal securities laws.
Price will pay the Exchange Agent reasonable and customary compensation for
its services in connection with the Offer, plus reimbursement for out-of-
pocket expenses, and will indemnify the Exchange Agent against certain
liabilities and expenses in connection therewith, including liabilities under
the federal securities laws. Price will not pay any fees or commissions to any
broker or dealer or other person (other than the Dealer Managers and the
Information Agent) for soliciting tenders of Palmer Shares pursuant to the
Offer. Brokers, dealers, commercial banks and trust companies will be
reimbursed by Price for customary mailing and handling expenses incurred by
them in forwarding material to their customers.
ACCOUNTING TREATMENT
Price will account for the acquisition of Palmer Shares pursuant to the
Offer using the purchase method of accounting. Accordingly, the purchase price
will be allocated to assets acquired and liabilities assumed based on their
estimated fair values at the acquisition date.
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STOCK EXCHANGE LISTINGS
Price Common Stock is listed on the AMEX. Application will be made to list
the Price Common Stock to be issued pursuant to the Offer on the AMEX.
COMPARISON OF STOCKHOLDERS RIGHTS UNDER NEW YORK AND DELAWARE LAW
As a consequence of the Offer, the stockholders of Palmer (a Delaware
corporation) will become shareholders of the Company (a New York corporation).
As a result of differences between the New York Business Corporation Law (the
"NYBCL") and the Delaware General Corporation Law (the "DGCL"), several
changes will be effected in the right of the Palmer Stockholders receiving
shares of Company Common Stock. The provisions of the NYBCL and the DGCL
differ in numerous respects. Summarized below are certain of the principal
differences between the NYBCL and the DGCL affecting the rights of
stockholders. This summary does not purport to be a complete statement of the
differences affecting the stockholders' rights under the NYBCL and the DGCL
and is subject to, and qualified in its entirety by reference to, all the
provisions of these statutes.
DIVIDENDS. Under both the NYBCL and the DGCL a corporation may generally pay
dividends out of surplus. In addition, the DGCL, unlike the NYBCL permits a
corporation, under certain circumstances, to pay dividends, if there is no
surplus, out of its net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year.
RIGHTS AND OPTIONS. The NYBCL requires that holders of a majority of the
outstanding shares approve any incentive plan pursuant to which rights or
options are to be granted to directors, officers or employees. The DGCL does
not require stockholder approval of such incentive plans. Various other
applicable legal and regulatory requirements may make stockholder approval of
rights or option plans of Palmer necessary.
CONSIDERATION FOR SHARES. The NYBCL provides that neither obligations of the
subscriber for future payments nor future services shall constitute payment or
partial payment for shares of a corporation. Furthermore, certificates for
shares may not be issued until the full amount of the consideration for the
shares has been paid. The DGCL provides that shares of stock may be issued,
and deemed to be fully paid, if the corporation receives consideration having
a value not less than the par value of such shares and the corporation
receives a binding obligation of the subscriber to pay the balance of the
subscription price.
DISSENTER'S RIGHT. The NYBCL provides that a dissenting stockholder has the
right to receive the fair value of his shares if he objects to (i) certain
mergers and consolidations, (ii) certain dispositions of assets requiring
stockholder approval, (iii) a share exchange, or (iv) certain amendments to
the certificate of incorporation which adversely affect the rights of such
stockholder. The DGCL provides such appraisal rights only in the case of a
stockholder objecting to certain mergers or consolidations, and such appraisal
rights do not apply (x) to stockholders of the surviving corporation in a
merger if stockholder approval of the merger is not required, or (y) to any
class of stock which is either (a) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., or (b) held of
record by more than 2,000 holders, unless stockholders are required to accept
for their shares in the merger or consolidation anything other than common
stock of the surviving corporation, common stock of another corporation that
is so listed or held, cash in lieu of fractional shares or any combination of
the foregoing.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. The laws of New York and Delaware
regarding indemnification by a corporation of its directors and officers
provide that indemnification may be made in connection with derivative actions
except where the director or officer is adjudged to be liable to the
corporation, unless and only to the extent that, an appropriate court
determines that, in view of all the circumstances, such director or officer is
fairly and reasonably entitled to such indemnification. The NYBCL additionally
provides that indemnification may not be made in connection with derivative
actions where a claim is settled or otherwise disposed of.
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The laws of New York and Delaware regarding indemnification by a corporation
of its directors and officers also provide that the indemnification and
advancements of expenses granted pursuant to, or provided by, such laws is not
exclusive of any other rights to which a director or officer may be entitled.
They NYBCL additionally provides that no indemnification may be made to or on
behalf of any director or officer for liability arising from actions taken in
bad faith, intentional wrongdoing, or where an improper personal benefit was
derived. The DGCL contains no such express limitation.
LIMITATION OF DIRECTOR LIABILITY. The provisions of the DGCL permitting
indemnification and limitation of liability of officers, directors, agents and
employees of a Delaware corporation are somewhat more protective of directors
and officers than the NYBCL. The DGCL permits a corporation to provide in its
certificate of incorporation that directors will have no personal liability to
the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for: (a) any breach of the director's
duty of loyalty, (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) the payment of
illegal dividends or distributions, or (d) any transaction from which the
director derived an improper personal benefit.
LOANS TO DIRECTORS. The NYBCL prohibits loans to corporate directors unless
authorized by stockholder vote. The DGCL permits the Board of Directors,
without stockholder approval, to authorize loans to corporate directors who
are also officers.
VOTE REQUIRED FOR MERGER. The NYBCL requires the affirmative vote of two-
thirds of a corporation's outstanding shares to authorize a merger,
consolidation, dissolution or disposition of substantially all of the assets
of a corporation. The DGCL requires the affirmative vote of a majority of the
outstanding shares to authorize any such action, unless otherwise expressly
provided in the certificate of incorporation. Also, the DGCL permits a merger
without approval of the stockholders of the surviving corporation if, among
other things, no Certificate of Incorporation amendment is involved and the
merger results in nor more than a 20% increase in the number of outstanding
shares of common stock of such corporation. No such provision is contained in
the NYBCL.
STOCKHOLDER CONSENT TO ACTION WITHOUT A MEETING. The NYBCL provides that any
action by stockholders may be taken without a meeting only with the written
consent of all stockholders who would be entitled to vote at a meeting held
for such purpose. Under the DGCL, unless the corporation's certificate of
incorporation provides otherwise, any action that could be taken at an annual
or special meeting of stockholders may be taken without prior notice and
without a vote if a consent in writing setting forth the action to be taken is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
APPROVAL OF TRANSACTIONS WITH INTERESTED DIRECTORS. The NYBCL provides
several methods for establishing the validity of transactions between a
corporation and interested directors. One method requires a vote that would be
sufficient for such purpose without counting the vote of such interested
director, or, if the votes of the disinterested directors are insufficient to
constitute an act of the board, by unanimous vote of the disinterested
directors. The comparable provision of the DGCL requires only the affirmative
vote of a majority of the disinterested directors, without requiring that such
vote be sufficient alone to be the act of the board or committee.
NOTICES AND RECORD DATE. Under the DGCL, the Board of Directors of a
corporation may fix a record date for stockholder meetings and may give
notices for such meetings which shall not be more than sixty nor less than ten
days before the date of a meeting. The NYBCL allows for a period of between
ten and fifty days for notices or determinations of a record date.
CLASSIFICATION OF THE BOARD OF DIRECTORS. The NYBCL permits a classified
board with as many as four classes but forbids fewer than three directors in
any class. The DGCL permits a classified board of directors with
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as many as three classes, but does not specify a minimum number of directors
for each class. Neither the Palmer Certificate of Incorporation not Price's
Certificate of Incorporation provides for a classified board.
NUMBER OF DIRECTORS. Under the DGCL, a corporation may have as few as one
director and there is no statutory upper limit on the number of directors. The
specific number may be fixed in the by-laws or in the certificate of
incorporation, but if fixed in the certificate of incorporation, may be
changed only by amendment of the certificate of incorporation. If the
certificate of incorporation is silent as to the number of directors, the
board of directors may fix or change the authorized number of directors
pursuant to a provision of the by-laws. The Palmer By-laws provide that the
number of directors shall be determined by the Board.
Under the NYBCL, the number of directors may not be less than three, and any
higher number may be fixed by the By-laws or by action of the stockholders or
of the board of directors under the specific provisions of the By-laws adopted
by the stockholders. The number of directors may be increased or decreased by
amendment of the By-laws or by action of the stockholders or of the board of
directors under the specific provisions of a by-law adopted by the
stockholders, subject to certain limitations.
BUSINESS COMBINATION STATUTES. The NYBCL prohibits any "business
combination" (as therein defined) between a domestic corporation and an
"interested stockholder" for five years after the date that the interested
stockholder became an interested stockholder unless prior to that date the
board of directors of the domestic corporation approved the business
combination or the transaction that resulted in the interested stockholder
becoming an interested stockholder. After five years, such a business
combination is permitted only if (a) it is approved by a majority of the
shares not owned by, or by an affiliate of, the interested stockholder or (b)
certain statutory fair price requirements are met. An "interested stockholder"
is any person who beneficially owns, directly or indirectly, 20% or more of
the outstanding voting shares of the corporation.
The DGCL prohibits any "business combination" (as therein defined) between a
Delaware corporation and an "interested stockholder" for three years following
the date that the interested stockholder became an interested stockholder
unless (i) prior to that time the board of directors approved the business
combination or the transaction that resulted in the interested stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
that resulted in the interested stockholder becoming an interested
stockholder,
the interested stockholder held at least 85% of the outstanding voting stock
of the corporation (not counting shares owned by officers and directors and
certain shares in employee stock plans), or (iii) on or subsequent to such
time the business combination is approved by the board of directors and at
least two-thirds of the outstanding shares of voting stock not owned by the
interested stockholder. The DGCL defines "interested stockholder" as any
person who beneficially owns, directly or indirectly, 15% or more of the
outstanding voting stock of the corporation.
INSPECTION OF STOCKHOLDER'S LIST. With respect to the inspection of
stockholder's lists, the NYBCL provides a right of inspection on at least 5
days' written demand to (i) any person who shall have been a stockholder for
at least 6 months immediately preceding the demand or (ii) any person holding,
or authorized in writing by, at least 5% of any class of outstanding shares.
The corporation has certain rights calculated to assure itself that the demand
for inspection is not for a purpose or interest other than that of the
corporation. The DGCL permits any stockholder, upon written request, to
inspect the stockholder's list at any time for a purpose reasonably related to
such person's interest as a stockholder and, during the 10 days preceding the
stockholder's meeting, for any purpose germane to that meeting.
REDEMPTION OF SHARES. The NYBCL generally permits redemption of shares of
common stock only at the option of the corporation. The DGCL permits
redeemable shares to be subject to redemption, in accordance with the terms
thereof, by the corporation at its option or at the option of the holders
thereof, provided that at the time of such redemption the corporation has
outstanding shares of at least one class or series with full voting powers
that is not subject to redemption.
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HOLDING COMPANY REORGANIZATION. While no analogous provision exists under
the NYBCL, Section 251(g) of the DGCL permits a Delaware corporation to
reorganize as a holding company without stockholder approval. The
reorganization contemplated by the statute is accomplished by merging the
subject corporation with or into a direct or indirect wholly owned subsidiary
of the corporation and converting the stock of the corporation into stock of
another direct or indirect wholly owned subsidiary of the corporation, which
would be the new holding company. The statute eliminates the requirement for a
stockholder vote on such a merger but contains several provisions designed to
ensure that the rights of stockholders are not changed by or as a result of
the merger, except and to the extent that such rights could be changed without
such stockholder approval under existing law.
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CREATION OF A HOLDING COMPANY FOR PRICE
GENERAL
At a special meeting of shareholders to be held on September 5, 1997, the
shareholders of Price are being asked to approve, in accordance with the
recommendation of the Board of Directors of Price, the creation of a holding
company by adopting the Agreement and Plan of Merger among Price, Holdings and
PCCSub, Inc. ("Sub") which provides for the merger of Sub into Price (the
"Holding Company Merger").
As a result of the Holding Company Merger, Holdings will be owned by the
shareholders of Price immediately prior to the Holding Company Merger, and
Price will become a wholly-owned subsidiary of Holdings. Holdings, which will
then be a publicly held company, will change its name to Price Communications
Corporation, and Price will change its name to Price, Inc. If the Holding
Company Merger is approved by the shareholders of Price, Palmer Stockholders
will receive shares of Holdings common stock in the Offer. If the Holding
Company Merger is not approved by the shareholders of Price, Palmer
Stockholders will receive shares of Price Common Stock in the Offer.
If the shareholders of Price approve the Holding Company Merger, a Palmer
Stockholder who receives Holdings common stock in the Offer should generally
not recognize gain or loss upon such exchange. If the shareholders of Price do
not approve the Holding Company Merger, a Palmer Stockholder who receives
Price Common Stock in the Offer will recognize gain or loss upon such exchange
equal to the difference between the fair market value of the Price Common
Stock received and the Palmer Stockholder's tax basis in the Palmer Shares
exchanged. See "The Offer--Certain Federal Income Tax Consequences".
The Holding Company Merger is being effected in order to facilitate Price's
access to sources of financing by adding an additional potential borrower in
Price's holding company structure. Although the holding company structure to
be created by the Holding Company Merger is intended to facilitate the Price's
access to sources of financing, the Holding Company Merger is not otherwise
expected to have any effect on Price or those Palmer Stockholders who
participate in the Offer.
It is anticipated that the Holding Company Merger will be accounted for as a
restructuring. The Holding Company Merger will not affect the ultimate
responsibility of corporate management for profitable growth and the creation
of shareholder value.
As a result of the Holding Company Merger:
. There will be no change in the state of incorporation, since both Price and
Holdings are New York corporations.
. The Certificate of Incorporation and Bylaws of Holdings will be identical
in substance to the Price's Certificate of Incorporation and Bylaws
immediately prior to the Holding Company Merger, with a total of 60,000,000
shares Holdings Common Stock authorized. Therefore, Holdings will have the
same authorized capital stock as Price with the same rights and privileges.
Holdings will change its name to Price Communications Corporation.
. Each share of Price Common Stock, and each share of Preferred Stock and
each share of PIK Preferred Stock of Price will be converted automatically
into one share of Holdings Common Stock, one share of Holdings Preferred
Stock and one share of Holdings PIK Preferred Stock, respectively, with the
same rights and privileges. Certificates for shares of Price Common Stock
will automatically represent shares of Holdings Common Stock. No exchange
of stock certificates will be required.
. The shares of Holdings Common Stock are expected to be listed for trading
on the AMEX, as the shares of Price Common Stock are currently. Holdings
will be a reporting company under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
. Immediately after the Holding Company Merger, Holdings will, on a
consolidated basis, have the same assets, liabilities and shareholders
equity as Price. The business of the Price will remain unchanged.
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. Holdings will have the same directors and officers as Price at the time of
the Holding Company Merger.
. The Holding Company Merger will not add "anti-takeover" protections or have
an anti-takeover effect.
. There will be no contractual restrictions or restrictions in Price's
certificate of incorporation on the ability of Price to pay dividends to
Holdings.
PLAN OF MERGER
The Holding Company Merger will become effective upon the filing of a
certificate of merger with the Secretary of State of New York. The filing is
expected to occur prior to consummation of the Offer. The date of such filing
is referred to as the "Holding Company Merger Effective Date."
Conversion. In accordance with the Plan of Merger and subject to shareholder
approval and the fulfillment or waiver of certain other conditions described
herein, on the Holding Company Merger Effective Date each share of Price
Common Stock outstanding immediately prior to the Holding Company Merger, each
share of Preferred Stock of Price outstanding immediately prior to the Holding
Company Merger and each share of PIK Preferred Stock of Price outstanding
immediately prior to the Holding Company Merger will be converted
automatically into one share of Holdings Common Stock, one share of Holdings
Preferred Stock and one share of Holdings PIK Preferred Stock, respectively.
As a result of the Holding Company Merger, Sub will be merged with and into
Price, and Price's shareholders will become shareholders of Holdings. In
addition, the Unit Warrants will, pursuant to their terms, entitle the holders
thereof to purchase shares of Holdings Common Stock upon the exercise thereof
in lieu of shares of Price Common Stock. Under the Plan of Merger, the
approval of the Holding Company Merger will be deemed to be approval of the
assumption by Holdings of Price's 1992 Long-Term Incentive Plan. The 1992 Long
Term Incentive Plan, which was approved by shareholders in 1992, authorizes
the issuance of up to 1,250,000 shares of Common Stock to senior officers,
senior management and other key employees of Price and its subsidiaries in the
form of non-qualified or incentive stock options, stock appreciation rights,
restricted stock, performance shares, performance units and other stock-based
awards. An aggregate of 784,330 shares have been issued or are reserved for
issuance pursuant to outstanding options under the 1992 Long Term Incentive
Plan, while an aggregate of 465,670 shares will remain available for issuance
under the Plan following the assumption of the Plan in the Holding Company
Merger.
Conditions to the Holding Company Merger. The Holding Company Merger is
subject to the following conditions, among others:
(a) approval of the Plan of Merger by the holders of two-third of the
voting power of all outstanding shares of Price Common Stock and Preferred
Stock entitled to vote;
(b) approval for listing the shares of Holdings Common Stock issuable in
the Holding Company Merger for trading on the AMEX; and
(c) absence of an injunction or litigation relating to the Holding
Company Merger.
Amendment, Waiver or Termination of the Plan of Merger. The Plan of Merger
provides that Price, Holdings and Sub may amend any of the terms of, or waive
any of the conditions to, the Plan of Merger before the consummation of the
Holding Company Merger and before or after shareholder approval, provided that
any such amendment will not, in the opinion of the Board of Directors of
Price, have any materially adverse effect on the shareholders of Price. In
addition, the Plan of Merger provides that the Plan of Merger may be
terminated by the Board of Directors of Price at any time prior to the Holding
Company Merger Effective Date notwithstanding shareholder approval.
DESCRIPTION OF CAPITAL STOCK
General. The Certificate of Incorporation of Holdings is identical in
substance to Price's and, after the Holding Company Merger Effective Date,
Holdings will have issued the same number of shares of Holdings Common Stock,
Holdings Preferred Stock and Holdings PIK Preferred Stock as Price has issued
shares of Common Stock, Preferred Stock and PIK Preferred Stock immediately
prior to the Holding Company Effective
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Date. Sub has issued and outstanding 100 shares of common stock, $.01 par
value, of Sub ("Sub Common Stock"), all of which are owned by Holdings.
Price Common Stock and Holdings Common Stock. Holders of Price Common Stock
and Holdings Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Shareholders casting a plurality of votes of the shareholders entitled
to vote in an election of directors may elect all of the directors standing
for election. Holders of Price Common Stock and Holdings Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
applicable Board of Directors out of funds legally available therefor, subject
to any preferential dividend rights of preferred stock that may be issued at
such future time or times. Upon the liquidation, dissolution or winding up of
Price or Holdings, the holders of Price Common Stock and Holdings Common Stock
are entitled to receive ratably the net assets of Price or Holdings, as the
case may be, available after the payment of all debts and other liabilities
and subject to the prior rights of PIK Preferred Stock and Preferred Stock or
Holdings PIK Preferred Stock and Holdings Preferred Stock, as the case may be,
that may be issued at such time. Holders of Price Common Stock and Holdings
Common Stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of Price Common Stock and the shares of
Holdings Common Stock to be outstanding following the Holding Company Merger
are fully paid and nonassessable. The rights, preferences and privileges of
holders of Price Common Stock and Holdings Common Stock are subject to the
rights of the holders of shares of any series of preferred stock or Holdings
preferred stock, as the case may be, which Price may designate and issue in
the future.
Rights Agreements. Each share of Price Common Stock currently includes one
right (a "Price Right") to purchase shares of Company Common Stock under the
circumstances contemplated by Price's shareholders' rights plan (the "Price
Rights Agreement"). Prior to the Holding Company Merger, Holdings will adopt a
substantially identical shareholders' rights plan (the "Holdings Rights
Agreement" and, together with Price Rights Agreement, the "Rights Agreement"),
and upon the Holding Company Merger, each Price Right will be converted into
one right (a "Holdings Right" and, together with Price Rights, the "Rights")
to purchase shares of Holdings Common Stock under the circumstances
contemplated by the Rights Agreements.
Each Right initially represents the right, when exercisable, to purchase a
share of Price Common Stock or Holdings Common Stock, as the case may be, at a
purchase price of $22.50 per share. The Rights are not exercisable, and cannot
be transferred separately from the common stock until the first date (the
"Distribution Date") of a public announcement that a person or group has
acquired beneficial ownership of 20% or more of the outstanding shares of
common stock. A person or group whose acquisition of common stock causes a
Distribution is referred to as an "Acquiring Person." Certain shareholders,
who owned in excess of 20% of the Price Common Stock on the date of adoption
of the Price Rights Agreement and certain of their affiliates and permitted
transferees are not deemed to be Acquiring Persons and their ownership will
not cause a Distribution Date unless they acquire an additional one percent or
more of the common stock. Prior to the consummation of the Offer, the Rights
Agreements will be amended to clarify that Palmer stockholders who acquire
Price Common Stock or Holdings Common Stock, as the case may be, in the Offer
will not be deemed Acquiring Persons as a result of such acquisition.
If any person becomes an Acquiring Person, each holder of Rights (other than
Rights that have become void as described below) will thereafter have the
right (the "Flip-In Right") to receive, upon exercise of the Rights, the
number of shares of Price Common Stock or Holdings Common Stock, as the case
may be (or in certain circumstances, other securities or debt of Price or
Holdings, as the case may be), having a value, immediately prior to such
triggering event, equal to two times the aggregate exercise price of such
Rights. Price's or Holdings' Board of Directors, at its option, may exchange
the Flip-In Rights for shares of common stock or certain other securities of
the corporation, provided that (i) no person is the beneficial owner of 50% or
more of the common stock at the time of such exchange and (ii) such exchange
must be authorized by a majority of the Board and the Disinterested Directors
(as defined in the Rights Agreements). All Rights owned by an Acquiring Person
or an affiliate or associate thereof will be void.
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If, after there is an Acquiring Person, Price or Holdings, as the case may
be, is acquired in a merger or other business combination transaction in which
the holders of all outstanding common stock immediately prior to the
consummation of the transaction are not the holders of all of the surviving
corporation's voting power, or in which more than 50% of the corporation's
assets or earning power is sold or transferred, then each holder of Rights
(except those owned by an Acquiring Person or an affiliate or associate
thereof) will thereafter have the right (the "Flip-Over Right") to receive,
upon exercise of such Rights, common stock of the acquiring company having a
value equal to two times the aggregate exercise price of the Rights. The
holder of a Right will continue to have the Flip-Over Right whether or not
such holder exercised or surrenders the Flip-In Right.
The exercise price per Right is subject to adjustment upon certain dividends
and upon certain subdivisions, combinations and reclassifications of the
shares of common stock. The Rights may also be redeemed, in whole but not in
part, at a price of $.01 per Right, payable in cash or common stock, at any
time prior to the earlier of a person becoming an Acquiring Person, or the
expiration of the Rights, if such redemption is approved by the majority of
the Board and the Disinterested Directors.
Preferred Stock and Holdings Preferred Stock. The Board of Directors of each
of Price and Holdings is authorized, subject to any limitations prescribed by
law, without further stockholder approval, to issue from time to time up to an
aggregate of 20,000,000 shares of Price's or Holdings, as the case may be,
authorized class of undesignated preferred stock, in one or more series. Each
such series of preferred stock or Holdings preferred stock, as the case may
be, shall have the number of shares, designations, preferences, powers,
qualifications and special or relative rights or privileges as shall be
determined by the applicable Board of Directors, which may include, among
others, dividend rights, voting rights, redemption and sinking fund
provisions, liquidation preferences, conversion rights and preemptive rights.
The issuance of preferred stock or Holdings preferred stock, as the case may
be, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Price or
Holdings, as the case may be. The Board of Directors of each of Price and
Holdings has authorized the issuance of 728,133 shares of Series A Preferred
Stock and 364,066 shares of Series B Preferred Stock. All authorized shares of
Price's Series A Preferred Stock and Series B Preferred Stock have been issued
to Mr. Robert Price, the President of Price. Pursuant to the Holding Company
Merger, each such share will be converted into one share of Holdings Series A
Preferred Stock or Holdings Series B Preferred Stock, as the case may be. Each
share of Series A Preferred Stock of Price and Holdings is entitled to one
vote per share, and to receive 1% of the dividends and liquidation
distributions payable with respect to a share of Price Common Stock and
Holdings Common Stock, respectively. Each share of Series B Preferred Stock of
Price and Holdings is entitled to one-half vote per share, and to receive 1%
of the dividends and liquidation distributions payable with respect to a share
of Price Common Stock and Holdings Common Stock, respectively.
In the event of (i) a merger of Price, the sale or exchange of all or
substantially all of Price's assets or the occurrence of any other transaction
or event as a result of which the holders of Price Common Stock receive at
least $22.00 per share in the case of the Series A Preferred Stock (or $15.00
per share in the case of the Series B Preferred Stock) or (ii) the acquisition
of more than 50% of the voting power of the securities of Price then
outstanding by any person, entity or group, provided the market value of Price
Common Stock at such time is at least $22.00 per share in the case of the
Series A Preferred Stock (or $15.00 per share in the case of the Series B
Preferred Stock) (the amount per share received by holders of Common Stock or
the market price per share of Price Common Stock described above being
referred to as the "Transaction Price"), Mr. Price would receive a payment per
share of Series A Preferred Stock equal to the sum of 25% of the excess of the
Transaction Price per share (up to a Transaction Price of $32.00) over $9.125,
50% of the excess of the Transaction Price per share (up to a Transaction
Price of $42.00) over $32.00, 100% of the excess of the Transaction Price per
share (up to a Transaction Price of $52.00) over $42.00, and 125% of the
excess of the Transaction Price per share over $52.00, and Mr. Price would
receive a payment per share of Series B Preferred Stock equal to the excess of
the Transaction Price over $10.00. To illustrate the forgoing, (A) in the
event of a transaction described above resulting in a Transaction Price to the
holders of Price Common Stock equal to $20.00, Mr. Price would receive
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no payment in respect of the Series A Preferred Stock and would receive a
payment per share of Series B Preferred Stock equal to a $10.00; (B) in the
event of a Transaction Price per share of $30.00, Mr. Price would receive a
payment per share of Series A Preferred Stock equal to $5.22 (25% of the
transaction Price over $9.125) and a payment per share of Series B Preferred
Stock equal to $20.00; (C) in the event of a Transaction Price per share of
$40.00, Mr. Price would receive a payment per share of Series A Preferred
Stock equal to $9.72 (25% of the excess of $32.00 over $9.125 plus 50% of the
excess of $40.00 over $32.00) and a payment per share of Series B Preferred
Stock equal to $30.00; and (D) in the event of a Transaction Price share of
$50.00, Mr. Price would receive a payment per share of Series A Preferred
Stock equal to $18.72 (25% of the excess of $32.00 over $9.125 plus 50% of the
excess of $42.00 over $32.00 plus 100% of the excess of $50.00 over $42.00)
and a payment per share of Series A Preferred Stock equal to $40.00. Although
the Board of Directors and Compensation Committee of Price believe that the
provisions of the Series A and Series B Preferred Stock provide the Price's
President and Chief Executive Officer with incentive to maximize shareholder
value by providing such officer with significant profit upon the consummation
of various business combination transactions providing the holders of Price
Common Stock with a payment per share significantly in excess of current
trading prices, the Series A Preferred Stock and Series B Preferred Stock may
be viewed as having the potential effect of discouraging a bidder's proposal
to acquire control of or merge with Price in that such Preferred Stock would
increase the cost to a bidder of certain of such transactions. For example, a
transaction resulting in a Transaction Price of $30.00 per share to holders of
Price Common Stock would result in a total payment in respect of the Series A
Preferred Stock and Series B Preferred Stock equal to $11,082,174. In
addition, the votes cast by such shares of Preferred Stock (a total of 910,166
votes, or 14.8% of the total votes cast by all outstanding shares of the Price
Common Stock and Preferred Stock as of July , 1997) would make it more
difficult for a bidder to elect directors or enact shareholder proposals
opposed by management of Price.
The shares of Series A Preferred Stock will be repurchased by Price in the
event of Mr. Price's death or termination of employment prior to a transaction
resulting in a payment as aforesaid, as follows:
(i) If his employment with Price terminates because of death or
disability or termination by Price not for cause, or his retirement
subsequent to Price Common Stock trading for an average of at least $22.00
per share over a period of 10 consecutive trading days, Price will
repurchase the Series A Preferred Stock at its then fair market value, as
determined by appraisal.
(ii) If his employment terminates for any reason except as aforesaid,
Price will repurchase the Series A Preferred Stock at the lower of the
price paid by him for such stock or its then fair market value, as
determined by appraisal.
The shares of Series B Preferred Stock will be repurchased by Price upon Mr.
Price's request provided that the trading price of Price Common Stock during
any period of 10 consecutive trading days prior to such request was at least
$15.00 per share, for a purchase price equal to its then fair market value, as
determined by appraisal. In addition, the shares of Series B Preferred Stock
will be repurchased by Price in the event of Mr. Price's death or termination
of employment prior to a transaction resulting in a payment as set forth in
the second preceding paragraph, as follows:
(i) If his employment with Price terminates because of death or
disability or termination by Price not for cause, or his retirement
subsequent to the Price Common Stock trading for an average of at least
$15.00 per share over a period of 10 consecutive trading days, Price will
repurchase the Series B Preferred Stock at its then fair market value, as
determined by appraisal.
(ii) If his employment terminates for any reason except as aforesaid,
Price will repurchase the Series B Preferred Stock at the lower of the
price paid by him for such stock or its then fair market value, as
determined by appraisal.
The foregoing provisions with respect to the Series A and Series B Preferred
Stock are subject to appropriate adjustment in the event of a stock split,
stock dividend or similar event affecting Price Common Stock.
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The Holdings Series A and Series B Preferred Stock will contain provisions
identical in substance to the foregoing. Neither the Holding Company Merger,
the Palmer Merger nor Offer will trigger any repurchase or other rights to
payment in respect of the Series A or Series B Preferred Stock.
PIK Preferred Stock and Holdings PIK Preferred Stock. Price has had a long-
standing program of repurchasing shares of Price Common Stock, which Price
believes currently represents a good long term investment for Price and an
appropriate use of its current cash resources. From time to time, Price
engaged in discussions with the Franklin Funds concerning the purchase of
2,291,953 shares of Price Common Stock held by the Franklin Funds but Price
was unable to negotiate a purchase from the Franklin Funds directly. In June
1997, NatWest Capital Markets Limited ("NatWest") approached Price with a
proposal for a transaction, negotiated in June and July, 1997, in which: (i)
NatWest would purchase the shares owned by the Franklin Funds directly from
the Franklin Funds, (ii) NatWest would agree to act as initial purchaser in
the Cellular Holdings Offering, (iii) Price would issue to NatWest 1,129 units
(the "PIK Units") of PIK Preferred Stock and warrants ("PIK Warrants") to
NatWest in exchange for the shares of Price Common Stock acquired from the
Franklin Funds and $3.0 million in fees payable to NatWest in connection with
the Cellular Holdings Offering and (iv) the PIK Units would be redeemed out of
the proceeds of the Cellular Holding Offering following the consummation of
the Palmer Merger. Each PIK Unit consists of 1,000 shares of PIK Preferred
Stock, each with a liquidation value of $25.00 per share, and PIK Warrants to
purchase 515.6 shares of Price Common Stock per Unit (or an aggregate of
582,112 shares of Price Common Stock, representing in the aggregate 10% of the
fully diluted shares of Price Common Stock) at an exercise price of $0.01 per
share. The PIK Preferred Stock is callable at the Company's option, together
with the PIK Warrants at any time in whole or in part on or prior to 90 days
from the issue date and at any time thereafter if NatWest or an affiliate is
the holder of all the PIK Preferred Stock, at a redemption price equal to 100%
of the liquidation preference of the PIK Preferred Stock, plus accrued
dividends. The transaction reflects a significant redemption premium
represented by the redemption price of the PIK Units (approximately $29.5
million) over the per share trading values of the Price Common Stock at the
time of the transaction (approximately $6 5/16 to $9 1/4 per share during June
and July 1997). The Company believes that the redemption premium was
appropriate given the size of the block of Price Common Stock so purchased
(approximately 30% of then outstanding Price Common Stock) and the value
contributed by NatWest in connection with the Cellular Holdings Offering.
The Holdings PIK Preferred Stock will contain provisions comparable to the
foregoing. In addition, from and after the Holding Company Merger Effective
Date, the Warrants will, pursuant to their terms, entitle the holders thereof
to purchase shares of Holdings Common Stock upon the exercise thereof in lieu
of shares of Price Common Stock.
CERTAIN INFORMATION CONCERNING SUB AND HOLDINGS
Business of Sub and Holdings. Sub and Holdings are companies that were
formed in June 1997 at the direction of Price for the purpose of effecting the
Holding Company Merger. Other than entering into the Plan of Merger, they have
undertaken no operations.
Market Price and Dividends on Common Stock of Sub and Holdings. All the
outstanding Sub Common Stock is owned by Holdings. Holdings has issued one
share of Holdings Common Stock to Price which will be cancelled at the Holding
Company Merger Effective Date. The Sub Common Stock and the Holdings Common
Stock are not publicly traded. Holdings intends to apply for listing the
Holdings Common Stock to be issued in connection with the Holding Company
Merger for trading on the AMEX and it is a condition to effectiveness of the
Holding Company Merger that such listing application be approved. Neither Sub
nor Holdings has ever declared a dividend on its capital stock.
Selected Financial Data of Sub and Holdings. Sub and Holdings have no
operations or operating history and, on a consolidated basis, have no assets
and have never generated revenues.
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INFORMATION CONCERNING PRICE
GENERAL
Price has historically been a nationwide communications company. Until
consummation of their sale in March and February 1996, Price owned an ABC
affiliate, WHTM-TV (which was acquired by Price during 1994), serving
Harrisburg/Lancaster/Lebanon/York, Pennsylvania and three NBC affiliated
television stations, KSNF-TV, serving Joplin, Missouri/Pittsburg, Kansas;
KJAC-TV, serving Beaumont/Port Arthur, Texas; and KFDX-TV, serving Wichita
Falls, Texas/Lawton, Oklahoma, respectively. Prior to 1995 the Company owned a
number of television, radio, newspaper, cellular telephone and other
communications and related properties which were disposed of pursuant to
Price's long-standing policy of buying and selling communications properties
at times deemed advantageous by the Price's Board of Directors.
In 1992 Price filed a Consensual Plan of Reorganization pursuant to Chapter
11 of the United States Bankruptcy Code. Such Consensual Plan, as amended, was
confirmed on June 11, 1992, and became effective on December 30, 1992.
Price's business strategy is to acquire communications properties at prices
it considers attractive, finance such properties on terms satisfactory to it,
manage such properties in accordance with its operating strategy, and dispose
of them if and when Price determines such disposition to be in its best
interest. For the foregoing reasons, the results of Price's historical
operations are not comparable to or indicative of results in the future. See
"Price Management's Discussion and Analysis of Financial Condition and Results
of Operations."
Price has historically held interests in cellular telephone properties and
licenses, including through PriCellular Corporation, which currently owns and
operates FCC licensed cellular telephone systems, principally in the Midwest
and Mid-Atlantic Regions. Prior to the sale of such interest by Price in 1993,
Price held a 74% interest in PriCellular, and since 1995 Price has purchased
the warrants and common stock of PriCellular described under "Information
Concerning Price--Developments from 1995 through 1997." Prior to execution of
the Palmer Merger Agreement, Price from time to time unsuccessfully attempted
to acquire telecommunications businesses other than PriCellular. The Company
believes that an acquisition such as Palmer in the telecommunications business
is in the best interests of its shareholders in light of, among other reasons,
the experience of its management in owning and operating businesses regulated
by the FCC and, in particular, cellular telephone systems. Price's specific
decision to make the Palmer acquisition was based, among other factors, on
Palmer's operating income before depreciation and amortization, its record of
growth, and its management team. See "The Acquisition--Reasons for the
Acquisition," "Palmer Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Unaudited Pro Forma Condensed
Consolidated Financial Statements."
Price was organized in New York in 1979 and began active operations in 1981.
Price owns 100% of the issued and outstanding capital stock of Price
Communications Cellular Inc., which owns 100% of the issued and outstanding
capital stock of Cellular Holdings, which owns 100% of the issued and
outstanding capital stock of PCW. Price owns the PriCellular warrants and
shares of common stock described under "Developments from 1995 through 1997"
below (or aggregate beneficial ownership of 3,764,860 shares, or 9.3%, of
PriCellular common stock); Mr. Price has beneficial ownership, excluding such
shares beneficially owned by Price, of an aggregate of 3,485,685 shares, or
8.9%, of PriCellular common stock (including shares owned directly by Mr.
Price, shares issuable pursuant to options held by Mr. Price and shares held
by Mr. Price as joint tenant with his adult children); and members of Mr.
Price's family beneficially own an additional 6,308,995 shares, or 16.3%, of
PriCellular common stock. PriCellular beneficially owns no shares of Price's
capital stock, there are no business relationships between PriCellular and
Price and the Company has no plans, proposals or arrangements for any possible
future transaction or business combination between the Company or PCW and
PriCellular.
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<PAGE>
DEVELOPMENTS FROM 1995 THROUGH 1997
On March 1, 1996, Price sold substantially all of the assets, except cash
but including accounts receivable together with certain liabilities, of its
ABC affiliate serving the Harrisburg-York-Lebanon-Lancaster, Pennsylvania
television market for approximately $115 million in cash to Allbritton
Communications Company. Price recognized a pre-tax gain of approximately $65.6
million from this transaction.
On February 2, 1996, Price sold substantially all of the assets, except cash
and accounts receivable, together with certain liabilities, of its three NBC
affiliates, KJAC-TV, Beaumont/Port Arthur, Texas, KFDX-TV, Wichita Falls,
Texas/Lawton, Oklahoma and KSNF-TV, Joplin, Missouri/Pittsburg, Kansas for
approximately $40.7 million in cash. The stations were sold to US Broadcast
Group, a newly organized acquirer of television properties. Price recognized a
pre-tax gain of approximately $29.4 million from this transaction.
Prior to 1995, Price had written off its investment in Fairmont
Communications Corporation ("Fairmont"), with the result that Price's carrying
value in such investment was zero. During 1994, the Company entered into a
settlement agreement with the various parties to the Fairmont bankruptcy
proceedings, although the exact amount was uncertain until 1995. Price
received during 1995 and 1996 cash payments totaling approximately $7.9
million and $62.5 thousand respectively, as a result of sales of properties by
Fairmont.
During December, 1995, Price invested approximately $8.4 million in warrants
to acquire approximately 1.8 million shares of Class B Common Stock of
PriCellular, a publicly held cellular telephone company of which Mr. Robert
Price, the President of Price, is Chairman. During 1996 and through June 26,
1997, the Company purchased a total of 1,945,250 shares of PriCellular Class A
Common Stock for approximately $15 million.
For developments concerning financing, see "The Acquisition".
EMPLOYEES
As of June 30, 1997, Price employed full time persons at its corporate
headquarters in New York.
PROPERTIES
Price leases office space for its headquarters in New York City. (See Note
15 of the Notes to Price's Consolidated Financial Statements for information
on minimum lease payments of the Company and its subsidiaries for the next
five years.)
LEGAL PROCEEDINGS
Price is not currently involved in any pending legal proceedings likely to
have a material adverse impact on Price.
56
<PAGE>
PRINCIPAL SHAREHOLDERS OF PRICE
The following table reflects the beneficial ownership of the each class of
capital stock of Price as of August 8, 1997 and as adjusted to give effect to
the issuance of 10,000,000 shares of Price Common Stock pursuant to the Offer
by each person known by Price to be the beneficial owner of more than 5% of
each class of such stock.
<TABLE>
<CAPTION>
PERCENT
OF CLASS
NO. OF SHARES FOLLOWING
BENEFICIALLY PERCENT STOCK
NAME AND ADDRESS TITLE OF CLASS OWNED OF CLASS ISSUANCE (3)
<S> <C> <C> <C> <C>
Robert Price............ Common Stock 866,758 17.3% 5.8%
45 Rockefeller Plaza Series A Preferred Stock (1) 728,133 100% 100%
New York, New York Series B Preferred Stock (1) 364,066 100% 100%
10020
NatWest Capital Markets Common Stock (2) 582,112 10.0% 3.4%
Limited................ PIK Preferred Stock (1) 1,129,000 100% 100%
175 Water Street
New York, New York
10038
</TABLE>
- ---------------------
(1) The Series A Preferred Stock and the Series B Preferred Stock vote with
the Price Common Stock on a share for share basis for the Series A
Preferred Stock and on a one-half vote per share basis for the Series B
Preferred Stock. Shares of PIK Preferred Stock have no voting rights
(other than as required by law).
(2) Represents shares of Price Common Stock issuable upon exercise of the
Warrants. See "Creation of a Holding Company for Price--Description of
Capital Stock."
(3) Assumes the issuance of 10,000,000 shares of Price Common Stock pursuant
to the Offer.
57
<PAGE>
SECURITY OWNERSHIP OF PRICE'S MANAGEMENT
The following table reflects the number of shares of each class of capital
stock of Price beneficially owned as of June 26, 1997 by each director, each
executive officer and all executive officers and directors of Price as a group
as of such date and as adjusted to give effect to the issuance of 10,000,000
shares of Price Common Stock pursuant to the Offer.
<TABLE>
<CAPTION>
PERCENT
OF CLASS
NO. OF SHARES FOLLOWING
BENEFICIALLY PERCENT STOCK
NAME TITLE OF CLASS OWNED OF CLASS ISSUANCE(4)
<S> <C> <C> <C> <C>
Robert Price............ Common Stock 866,758 17.3% 5.8%
Series A Preferred Stock(1) 728,133 100% 100%
Series B Preferred Stock(1) 364,066 100% 100%
George H. Cadgene....... Common Stock 2,208(2) * *
Robert F. Ellsworth..... Common Stock 8 * *
Kim I. Pressman......... Common Stock 62,261(3) * *
All executive officers
and directors as a Common Stock 931,235(2)(3) 18.6% 6.2%
group (4 persons)...... Series A Preferred Stock(2) 728,133 100% 100%
Series B Preferred Stock(2) 364,066 100% 100%
</TABLE>
- ---------------------
* Less than 1%
(1) The Series A Preferred Stock and the Series B Preferred Stock vote with
Price Common Stock on a share for share basis for the Series A Preferred
Stock and on a one-half vote per share basis for the Series B Preferred
Stock.
(2) Includes 332 shares held by Mr. Cadgene's wife, as to which Mr. Cadgene
disclaims beneficial ownership.
(3) Includes 11 shares Ms. Pressman owns in a self-directed IRA account.
Includes 62,250 shares subject to stock options exercisable within 60 days
of June 26, 1997.
(4) Assumes the issuance of 10,000,000 shares of Price Common Stock pursuant
to the Offer.
58
<PAGE>
MARKET FOR PRICE COMMON STOCK
Price Common Stock is listed for trading on the AMEX under the symbol "PR".
The following table sets forth information regarding the high and low sales
prices for the periods indicated as adjusted to reflect Price's April, 1995 5
for 4 stock split:
<TABLE>
<CAPTION>
CALENDAR YEAR 1995 HIGH LOW
<S> <C> <C>
First Quarter........................................ $6 1/4 $4 7/8
Second Quarter....................................... $7 11/16 $5 5/16
Third Quarter........................................ $9 $6 7/8
Fourth Quarter....................................... $8 3/4 $7 1/2
<CAPTION>
CALENDAR YEAR 1996
<S> <C> <C>
First Quarter........................................ $8 5/8 $7 15/16
Second Quarter....................................... $9 3/16 $7 7/8
Third Quarter........................................ $8 3/8 $7 1/4
Fourth Quarter....................................... $7 15/16 $6 7/8
<CAPTION>
CALENDAR YEAR 1997
<S> <C> <C>
First Quarter........................................ $10 $8 3/8
Second Quarter....................................... $ 9 5/8 $6 5/16
Third Quarter (through August , 1997)............... $ $
</TABLE>
Price, to date, has paid no cash dividends on Price Common Stock. The Board
of Directors will determine future dividend policy based on Price's earnings,
financial condition, capital requirements and other circumstances. It is not
anticipated that dividends will be paid on Price Common Stock in the
foreseeable future.
59
<PAGE>
PRICE SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data
with respect to Price for the periods presented derived, in the case of the
full-year data, from audited consolidated financial statements of Price and
Notes thereto. On December 30, 1992, Price's consensual Plan of Reorganization
became effective. A vertical black line has been placed to separate pre-
organization consolidated operating statement items from the post-
reorganization consolidated operating statement items since they are not
prepared on a comparable basis.
CONSOLIDATED OPERATING STATEMENT ITEMS
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS
YEAR ENDED DECEMBER 31 (1) ENDED
------------------------------------------------ JUNE 30, (1)
----------------
PREDECESSOR REORGANIZED COMPANY
COMPANY ------------------------------------
1992 1993 1994 (2) 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenue............................................ $ 53,957 $22,790 $ 24,039 $29,155 $ 2,962 $ 2,962 $ --
Operating Expenses..................................... 39,567 16,335 14,962 16,685 2,233 2,132 --
Corporate Expenses..................................... 4,973 3,649 4,475 2,687 2,373 1,211 1,363
Other (Income) Expense -Net............................ (35) 539 (16,245) (7,280) (98,372) (493) (2,464)
Interest Expense....................................... 17,768 1,485 813 2,099 216 212 48
Amortization of Debt Discount and Deferred Debt
Expense............................................... 1,004 766 646 460 -- -- --
Depreciation and Amortization.......................... 4,873 2,343 3,312 3,459 468 442 25
Unrealized Noncash (Recovery)
(Gain) Loss on Marketable Securities (3)............... (146) 146 -- 166 794 -- --
Share of Loss of Partially Owned Companies............. 2,934 1,118 -- -- -- -- --
-------- ------- -------- ------- -------- -------- ------
Income (Loss) Before
Reorganization Items, Income Taxes, and Extraordinary
Items................................................. (16,981) (3,591) 16,076 10,879 95,250 94,909 1,028
Reorganization Items................................... (5,983) -- -- -- -- -- --
-------- ------- -------- ------- -------- -------- ------
Income (Loss) Before Income Taxes and Extraordinary
Items................................................. (22,964) (3,591) 16,076 10,879 95,250 94,909 1,028
Income Tax (Expense) Benefits.......................... (499) (124) (1,652) 247 (24,583) 24,866 452
-------- ------- -------- ------- -------- -------- ------
Income (Loss) Before Extraordinary Items............... (23,463) (3,715) 14,424 11,126 70,667 70,043 609
Extraordinary Items (Net of Income Taxes):
Gain on Early Extinguishments of Debt.................. -- 2,010 -- -- -- -- --
Gain on Forgiveness of Debt and Partial Sale of
Subsidiary............................................ 312,678 -- -- -- -- -- --
-------- ------- -------- ------- -------- -------- ------
Net Income (Loss)...................................... $289,215 $(1,705) $ 14,424 $11,126 $ 70,667 $ 70,043 $ 609
======== ======= ======== ======= ======== ======== ======
Per Share Amounts (4):
Income (Loss) Before Extraordinary Items............... $ (0.25) $ 1.15 $ 1.06 $ 7.45 $ 7.03 $ 0.08
Extraordinary Items.................................... -- 0.14 -- -- -- -- --
-------- ------- -------- ------- -------- -------- ------
Net Income (Loss)...................................... N/A $ (0.11) $ 1.15 $ 1.06 $ 7.45 $ 7.03 $ 0.08
- --------------------------------------------------
======== ======= ======== ======= ======== ======== ======
</TABLE>
- ---------------------
(1) Due to the Acquisition and the acquisition and dispositions during 1994,
the borrowings incurred to effect such acquisition in 1994, the
consummation of the Plan of Reorganization and the adoption of Fresh Start
Reporting, Price's historical results should not be regarded as indicative
of its future results.
(2) Reflects results of operations of WHTM-TV since its acquisition during
September 1994 through December 1994 and the results of the properties
disposed of through their respective dates of sale. See notes 3 and 4 to
Consolidated Financial Statements.
(3) See Note 2 of Notes to Price's Consolidated Financial Statements.
(4) Per share amounts for the Predecessor Company are neither comparable nor
meaningful due to the forgiveness of debt, partial sale of subsidiary,
issuance of new common stock and adoption of Fresh Start Reporting. All
per share amounts prior to 1995 have been restated to reflect the April,
1995 5 for 4 stock split.
60
<PAGE>
CONSOLIDATED BALANCE SHEET ITEMS
(IN THOUSANDS, INCLUDING NOTES)
<TABLE>
<CAPTION>
UNAUDITED
AS OF DECEMBER 31 AS OF JUNE 30
---------------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Total Current Assets.... $28,494 $ 8,925 $ 9,093 $10,047 $ 96,605 $96,605 $58,527
Total Assets............ 74,327 37,272 90,852 95,985 115,888 115,888 95,961
Total Current Liabili-
ties................... 11,373 3,292 9,076 36,309(1) 7,109 7,109 5,607
Long-Term Debt.......... 22,100(2) 3,200 21,310 -- -- -- --
Shareholders' Equity.... 40,646 30,705 39,079 40,876 108,779 108,779 90,318
</TABLE>
- ---------------------
(1) Includes $28,000 of a note payable to Bank of Montreal which was repaid
upon the sale of three television stations on February 2, 1996. See
"Business--Recent Developments."
(2) Net of unamortized original issue discount of $8,705 as of December 31,
1992.
61
<PAGE>
PRICE MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Price reorganized and emerged from bankruptcy proceedings on December 20,
1992 and adopted Fresh Start Reporting in accordance with the guidelines
established by the American Institute of Certified Public Accountants in
Statement of Position 90-7. Under Fresh Start Reporting, assets and
liabilities were recorded at their estimated fair market value and the
historical deficit was eliminated.
Due to the acquisition and dispositions discussed under "Information
Concerning Price," the borrowings incurred to effect the acquisition, the
retirement of Price's Secured Notes, the consummation of the Plan of
Reorganization and adoption of Fresh Start Accounting, Price's historical
results of operations should not be regarded as indicative of its future
results. The following discussion should be read in conjunction with Price's
Consolidated Financial Statements and the Notes thereto.
RESULTS OF OPERATIONS--GENERAL
The comparability of results for future periods will be affected by
dispositions during 1996 (see Note 4 of Notes to Price's Consolidated
Financial Statements), by the Acquisition and by the nature and timing of any
future acquisitions or dispositions. Price currently has disposed of all of
its operating properties. Consequently, until the completion of the
Acquisition, Price will have no operating revenues and Price's future revenues
will be derived from the investment of its funds. The Acquisition will
substantially increase Price's operating expenses, depreciation and
amortization charges and interest expense, as well as increasing revenues. For
these reasons, the results of Price's historical operations may not be
comparable from period to period or indicative of results in the future.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Price's results of operations are not comparable for the six months ended
June 30, 1997 to the six months ended June 30, 1996 as the six months ended
June 30, 1996 include revenue from television stations which are not included
in the six month period ended June 30, 1997. Other income for the six months
ended June 30, 1997 included recoveries on accounts and notes receivable of
approximately $636,000, interest income of approximately $1,596,000 and gain
on sales of marketable securities of approximately $412,000 partially offset
by an unrealized loss on marketable securities of approximately $327,000.
1996 COMPARED TO 1995
Price's net revenue, operating expenses, depreciation and amortization, and
interest expense for the year ended December 31, 1996 are not comparable to
the year ended December 31, 1995 due to the disposition of all Price's
television properties during the first quarter of 1996 and the subsequent
retirement of all Price's long-term debt. During 1996, revenue decreased to
only $3.5 million from $34.4 million while for the same periods operating
expenses decreased to $2.2 million from approximately $16.7 million. Interest
expense and depreciation and amortization expense decreased to $216,000 and
$468,000 from $2.1 million and $3.5 million, respectively. All of the above-
mentioned items decreased as a result of the sales of all Price's operating
properties. The sale of such properties resulted in approximately a $95.0
million pretax gain which was the primary reason for Price's net income of
$70.7 million for the year ended December 31, 1996 compared to $11.1 million
in 1995.
Price had net income per share of $7.45 as opposed to $1.06 for the year
ended December 31, 1995.
1995 COMPARED TO 1994
Price's net revenue, operating expenses, depreciation and amortization, and
interest expense for the year ended December 31, 1995 are not comparable to
the year ended December 31, 1994 due to the acquisition of
62
<PAGE>
WHTM-TV and the borrowings under the Amended Line of Credit to effect such
acquisition, and the dispositions of Price's radio properties and other assets
(see Notes 3 and 4 of Notes to Price's Consolidated Financial Statements).
During 1995, net revenue increased by approximately 21% to $29.2 million from
$24.0 million. This increase was primarily due to the acquisition of WHTM-TV
the results of which were included in Price's results for a full year as
opposed to only three months in 1994. Operating expenses of Price increased
overall to $16.7 million in 1995 from $15.0 million in 1994 due to the
acquisition of WHTM-TV which was owned for the full year. Depreciation and
amortization expense rose to $3.5 million in 1995 from $3.3 million in 1994
primarily as a result of the amortization of intangibles associated with the
acquisition of WHTM-TV, offset by a reduction in the expense due to properties
sold in 1994.
Price recognized net income of approximately $11.1 million in 1995, as
compared to $14.4 million in 1994 primarily as a result of the recovery on the
Fairmont Notes of approximately $7.9 million in 1995. Net income in 1994 was
$14.4 million primarily due to the net gains on the sale of its radio
properties of $17.2 million. Additionally, interest expense was $2.1 million
in 1995 as opposed to $.8 million in 1994 as a result of the acquisition of
WHTM-TV in September 1994 and the related borrowings under the Amended Line of
Credit.
Price had net income per share of $1.06 in 1995, as opposed to $1.15 in
1994.
LIQUIDITY AND CAPITAL RESOURCES
Price had approximately $35.9 million and $83.4 million in cash and cash
equivalents at June 30, 1997 and December 31, 1996, respectively. Price has
approximately $47.1 million of working capital and no long-term debt
outstanding at June 30, 1997.
In May 1997, Price's Board of Directors and Compensation Committee
authorized the issuance to Robert Price, President of Price, 728,000 shares of
Price's newly authorized Series A Preferred Stock and 364,000 shares of newly
authorized Series B Preferred Stock.
In order to fund the Acquisition and pay related fees and expenses, PCW
issued $175 million aggregate principal amount of 11 3/4% Senior Subordinated
Notes due 2007 (the "PCW Notes"). Interest on the PCW Notes is payable semi-
annually commencing on January 15, 1998. The PCW Notes are unsecured
obligations of PCW and are subordinate in right of payment to senior
indebtedness of PCW, including indebtedness under the New Credit Facility. The
indenture under which the PCW Notes were issued imposes certain limitations on
among other things, the ability of PCW and its subsidiaries to incur
indebtedness and to pay dividends to Price. Upon certain acquisitions of more
than 50% of the ownership of the Price equity and upon a change in the
majority of Price's Board of Directors over any 12 month period that was not
approved by a majority of the directors at the beginning of such 12 month
period, the holders of the PCW Notes will have the right to cause the PCW
Notes to be repurchased at 101% of the principal amount thereof, plus accrued
and unpaid interest thereon. The consummation of the Exchange Offer will not
give rise to such repurchase right. PCW has granted certain registration
rights with respect to the PCW Notes.
In order to fund the Acquisition and provide working capital following the
Acquisition, Price and its subsidiaries will enter into the New Credit
Facility providing for term loan borrowings in the aggregate principal amount
of approximately $325 million and revolving loan borrowings of approximately
$200 million. At the effective time of the Palmer Merger, PCW is expected to
borrow all term loans available under the New Credit Facility and up to
approximately $100 million of revolving loans. The remaining revolving loans
will, subject to a borrowing base and certain other conditions, be available
to fund the working capital requirements of PCW. On July 2, 1997, Price
received an executed commitment letter from a financial institution to provide
the New Credit Facility. The commitment is subject to significant conditions,
including the absence of material adverse change in the business of Palmer,
negotiation, execution and delivery of definitive documentation and
consummation of the Fort Myers Sale (or arrangements satisfactory to the
lenders under the New Credit Facility for short-term financing bridging such
sale). Price believes that the Fort Myers Sale will take place as
63
<PAGE>
contemplated in conjunction with the remainder of the Acquisition with the
result that Price will not require short-term bridge financing. It is
anticipated that loans under the New Credit Facility will bear interest at a
floating rate between .25% and 1.50% above the lenders' prime borrowing rate
or between 1.25% to 2.50% above the lenders' Euro-dollar base rate, depending
on the ratio of the consolidated total debt to consolidated earnings before
interest, taxes, depreciation and amortization of Price and its subsidiaries.
The New Credit Facility will be secured by liens on substantially all of the
real and personal property of Price and its subsidiaries. It is anticipated
that the New Credit Facility will contain limitations on, among other things,
the ability of Price to pay dividends or incur additional indebtedness and
will require Price to maintain compliance with certain financial ratios.
In order to provide financing for the Acquisition and the redemption of the
PIK Preferred Stock and PIK Warrants, Cellular Holdings has issued in the
Cellular Holdings Offering units consisting of $153.4 million in aggregate
principal amount of its 13 1/2% Senior Secured Discount Notes due 2007 (the
"Cellular Holdings Notes") together with warrants to purchase 527,696 shares
of Common Stock at an exercise price of $.01 per share. The issue price of the
Cellular Holdings Notes (approximately $80 million in the aggregate)
represents a yield to maturity of 13 1/2%; cash interest will not begin to
accrue on the Cellular Holdings Notes prior to August 2, 2002 and will be
first payable on February 1, 2003. Approximately $47.5 million of the proceeds
of the Cellular Holdings Offering will be used to fund the Acquisition, while
the remainder will be used to redeem the PIK Preferred Stock and the PIK
Warrants. The Cellular Holdings Notes are guaranteed by a subsidiary of Price
(which in itself does not have any assets or operations) and secured by a
pledge of the stock of Cellular Holdings. The holders of the Cellular Holdings
Notes will have the right to cause Cellular Holdings to repurchase such Notes
at 101% of the accrued value thereof upon certain change of control events
parallel to those applicable to the PCW Notes. The indenture under which the
Cellular Holdings Notes were issued contains restrictions on, among other
things, the payment of dividends and the incurrence of indebtedness. The
holders of the Cellular Holdings Notes have certain registration rights.
The following discussion of the sources and uses of cash in the Acquisition
and the liquidity and capital resources of Price following the Acquisition
should be read in conjunction with "Unaudited Pro Forma Condensed Consolidated
Financial Statements" and assumes that the Acquisition will take place.
64
<PAGE>
The following table sets forth the estimated cash sources and uses of funds
for the Acquisition, the contemplated redemption of the PIK Preferred Stock
and the PIK Warrants and related fees and expenses, assuming that 5,000,000
shares of Price Common Stock are issued in exchange for 2,239,541 Palmer
Shares in the Offer. The alternative consequences of (i) 6,697,674 shares of
Price Common Stock being issued in the Offer for 3,000,000 Palmer Shares, (ii)
3,348,837 shares of Price Common Stock being issued in the Offer for 1,500,000
Palmer Shares or (iii) no shares of Price Common Stock being issued in the
Offer, are disclosed in a footnote to the table. The maximum number of Palmer
Shares that can be purchased with 10,000,000 shares of Price Common Stock will
be determined based on the average closing price per share of Price Common
Stock during the five trading days ending September 12, 1997. The numbers set
forth in the table and footnotes below assume an average closing price of
$8/1///1//6/.
<TABLE>
<CAPTION>
TOTAL SOURCES (IN MILLIONS)
<S> <C>
New Credit Facility
Term Loan.................................................... $325.0
Revolving Loan............................................... 62.8*
11 3/4% Senior Subordinated Notes due 2007..................... 175.0
Units.......................................................... 80.0
Equity contributions by the Company+........................... 80.0
Proceeds from Fort Myers Sale.................................. 166.3
------
Total cash sources........................................... $889.1*
======
TOTAL USES:
Cash consideration for Palmer common stock..................... $447.9*
Palmer Existing Indebtedness (as of June 30, 1997)............. 383.1
Estimated transaction fees and expenses........................ 23.6
Cash for Redemption of PIK Preferred Stock and PIK Warrants.... 29.5**
Cash to fund working capital requirements...................... 5.0
------
Total uses................................................... $889.1
======
</TABLE>
- --------
+ Payable either in cash or by delivery of Palmer Shares.
* If 6,697,674 shares of Price Common Stock are issued in exchange for
3,000,000 Palmer Shares, the cash considerations for the Palmer Shares
would be reduced to $434.9 million, and the amount initially borrowed under
the revolving loan under the New Credit Facility would be reduced to $40.3
million. If 3,348,837 shares of Price Common Stock are issued in the Offer
1,500,000 Palmer Shares, the cash consideration for the Palmer Shares would
be $461.9 million and the amount initially borrowed under the revolving
loan would be $70.1 million. If the Offer is not consummated, then the cash
consideration for the Palmer Shares would be increased to $488.9 million,
and the amount initially borrowed under the revolving loan under the New
Credit Facility will be increased to $100 million.
** Assuming the consummation of the Acquisition and the redemption of the PIK
Preferred Stock and the PIK Warrants occur on October 15, 1997.
The foregoing table does not reflect any provision for any taxes payable in
connection with the Fort Myers Sale. Price has a tax planning strategy which
it believes will avoid the payment of the $56.2 million tax which would
otherwise be payable in connection with the Fort Myers Sale. While there can
be no assurances that Price's position will prevail if challenged, Price has
received a written opinion from a "big six" accounting firm (other then Arthur
Andersen LLP) that, under existing laws, it is more likely than not that
Price's position will prevail if challenged. This tax planning strategy (among
others) would be eliminated, however, if certain proposals by the Joint
Committee on Taxation were to be adopted by Congress. There can be no
assurances that Price will be able to implement this tax planning strategy
before any of such proposals are adopted or that Price's tax position would be
"grandfathered" under any of such proposals, if adopted.
The foregoing table also does not reflect $1.4 million which will be
immediately payable to William J. Ryan as a severance payment pursuant to his
existing employment contract upon consummation of the Acquisition and
approximately $2.6 million of severance payments which could become payable
over several years pursuant
65
<PAGE>
to existing employment contracts between Palmer and its other executive
officers. Price has entered into an employment contract with William J. Ryan
to continue as an officer after the consummation of the Acquisition and
expects to enter into a comparable employment contract with M. Wayne Wisehart
and employment contracts with other key employees prior to the consummation of
the Acquisition. Except for the $1.4 million payable to William J. Ryan, there
can be no assurances as to the amount of payments that may be made to such
officers, in recognition of such severance rights, whether or not they
continue with Price after the consummation of the Acquisition.
If Price were unable to borrow under the New Credit Facility and Price also
failed to find alternative sources of financing, Price would be unable to
consummate the Acquisition and would be in breach of its obligations under the
Palmer Merger Agreement. Although the PCW Offering and Cellular Holdings
Offering have been consummated, the notes issued thereunder are subject to
mandatory redemption of 101% of the principal amount thereof, plus accrued
interest thereon, if the Acquisition has not occurred by December 31, 1997 or
if in the sole judgment of Price it appears that the Acquisition will not be
consummated by December 31, 1997. Pending the consummation of the Acquisition,
the proceeds from these offerings, plus cash sufficient to pay principal,
premium and interest through December 31, 1997, are being held in escrow by
the trustee for the holders of such notes.
Following the Acquisition, Price's principal sources of liquidity are
expected to be cash flow from operations and borrowings under the New Credit
Facility. Price's principal uses of cash will be debt service requirements,
capital expenditures and working capital.
The following table sets forth Price's scheduled estimated payments of
principal and interest on a pro forma basis as if the Acquisition had occurred
on January 1, 1997, assuming (i) 2,239,541 Palmer Shares are exchanged in the
Offer, (ii) the entry into the New Credit Facility with an interest rate of
8.5% and (iii) the redemption of the PIK Preferred Stock with a portion of the
proceeds of the Cellular Holdings Offering.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Principal(1)........................... $ 0 $ 0 $38,782 $43,629 $45,811
Interest (excluding amortization of
original issue discount)(2)........... 53,527 53,527 50,230 46,522 37,228
------- ------- ------- ------- -------
$53,527 $53,527 $89,012 $90,151 $83,039
======= ======= ======= ======= =======
</TABLE>
(1) If 3,000,000 Palmer Shares were purchased in the Offer, the principal
payments in 1997, 1998, 1999, 2000 and 2001 would have been $0, $0, $36.8
million, $41.4 million and $43.5 million, respectively. If 1,500,000 Palmer
Shares were purchased in the Offer, the principal payments in 1997, 1998,
1999, 2000 and 2001 would have been $0, $0, $48.7 million, $45.2 million and
$36.1 million, respectively. If no Palmer Shares were purchased in the
Offer, principal payments in 1997, 1998, 1999, 2000 and 2001 would have been
$0, $0, $42.2 million, $47.5 million and $49.7 million, respectively.
(2) If 3,000,000 Palmer Shares were purchased in the Offer, the interest
payments in 1997, 1998, 1999, 2000 and 2001 would have been $0, $0, $39.5
million, $44.4 million and $46.7 million, respectively. If 1,500,000 Palmer
Shares were purchased in the Offer, the interest payments in 1997, 1998,
1999, 2000 and 2001 would have been $54.1 million, $54.1 million, $50.8
million, $47.0 million and $37.6 million, respectively. If no Palmer Shares
were purchased in the Offer, interest payments in 1997, 1998, 1999, 2000 and
2001 would have been $56.4 million, $56.4 million, $52.4 million, $98.8
million and $39.1 million, respectively.
During the five years ended December 31, 1996, Palmer generated operating
income (loss) of $(4.3 million), $2.16 million, $15.1 million, $26.6 million
and $41.2 million in the years ended 1992, 1993, 1994, 1995 and 1996,
respectively.
66
<PAGE>
Price will be highly leveraged upon consummation of the Acquisition. Price's
ability to meet its debt service requirements, including those represented by
the Notes and the New Credit Facility, will require significant and sustained
growth in Price's cash flow. Based on the historical growth in Palmer's cash
flow from operations and Price's assessment of Palmer's potential ability to
increase market penetration while controlling costs, Price believes that
Palmer's cash flow from operations will be sufficient to enable Price to meet
its debt service requirements. If Palmer's cash flow from operations does not
meet Price's current expectations, Price could seek alternative debt or equity
financing. There can be no assurance, however, that Price 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 Price to meet its
debt service requirements.
Historically, Palmer met its capital requirements primarily through equity
contributions, bank and intercompany debt and, to a lesser extent, through
operating cash flow. Price expects to meet its capital requirements following
the Acquisition from cash from operations and borrowings under the New Credit
Facility. Upon consummation of the Acquisition, Price's only committed source
of liquidity is expected to be the New Credit Facility. While Price expects to
have sufficient availability under the New Credit Facility to meet its
liquidity needs, the terms of the New Credit Facility which determine the
availability thereunder are still under negotiation. Price has availability
under the New Credit Facility for general corporate purposes and, if Price's
tax planning strategy is unsuccessful, to finance the $56.2 million tax
payment due with respect to the Fort Myers Sale. There can be no assurances,
however, that the New Credit Facility will be entered into. In addition,
borrowings under the New Credit Facility will be subject to significant
conditions, including compliance with certain financial ratios and the absence
of any material adverse change.
In 1996, Palmer spent approximately $38.5 million for capital expenditures,
exclusive of the Fort Myers acquisition. Price expects to spend approximately
$35 million and $25 million for capital expenditures for the years ended
December 31, 1997 and 1998, respectively. Price expects to use net cash
provided by operating activities and borrowings available under the New Credit
Facility to fund such capital expenditures.
67
<PAGE>
INFORMATION CONCERNING PALMER
GENERAL
Palmer is engaged in the construction, development, management and operation
of cellular telephone systems in the southeastern United States. At June 30,
1997, after giving effect to the Acquisition, Palmer provided cellular
telephone service to 287,665 subscribers in Georgia, Alabama, Florida and
South Carolina in a total of 17 licensed service areas composed of eight
Metropolitan Statistical Areas ("MSAs") and nine Rural Service Areas ("RSAs"),
with an aggregate estimated population of 3.5 million. Palmer sells its
cellular telephone service as well as a full line of cellular products and
accessories principally through its network of retail stores. Palmer markets
all of its products and services under the service mark CELLULAR ONE.
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 Proxy Statement, 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 Palmer owns in the entity licensed
in such service area. MSAs and RSAs are also referred to as "Markets".
MARKETS AND SYSTEMS
Palmer's cellular telephone systems serve contiguous licensed service areas
in Georgia, Alabama and South Carolina. Palmer also has cellular service areas
in Georgia-1 RSA and 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 Palmer owns a cellular telephone
system, the estimated population, Palmer's beneficial ownership percentage,
the Net Pops and the date of initial operation of such system by Palmer or a
predecessor operator.
<TABLE>
<CAPTION>
ESTIMATED OWNERSHIP DATE SYSTEM
POPULATION(2) PERCENTAGE NET POPS OPERATIONAL
<S> <C> <C> <C> <C>
Albany, GA....................... 118,527 82.7% 98,061 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-1 RSA.................... 223,098 100.0 223,098 10/92
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 82.7 121,942 --
Dothan, AL....................... 136,160 94.4 128,535 2/89
Montgomery, AL................... 318,371 92.8 295,430 8/88
Alabama-8 RSA.................... 171,993 100.0 171,993 7/93
--------- ---------
Subtotal....................... 3,378,622 3,247,800
Panama City, FL.................. 146,018 78.4 114,493 9/88
--------- ---------
Total.......................... 3,524,640 3,362,293
========= =========
</TABLE>
- ---------------------
(1) Does not include Alabama-5 RSA, South Carolina-7 RSA and South Carolina-8
RSA where Palmer has interim operating authority. Palmer has no
subscribers in South Carolina-7 RSA and South Carolina-8 RSA,
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<PAGE>
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 for the Alabama-5 RSA
and South Carolina-8 RSA on May 20, 1997. Such third parties are required
to complete construction of their respective RSA within 18 months. After
completing construction, such third party may give Palmer ten days prior
written notice, at which point Palmer would be required to sell its
subscribers to such third party 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.
OPERATIONS
General
Palmer has concentrated its efforts on creating an integrated network of
cellular telephone systems in the southeastern United States, principally to
date in Georgia, Alabama, Florida and South Carolina. At June 30, 1997, after
giving effect to the Acquisition, Palmer provided cellular telephone service
to 287,665 subscribers in a total of 17 licensed service areas composed of
eight MSAs and nine RSAs.
The following table sets forth information, at the dates indicated after
giving effect to the Acquisition, regarding Palmer's subscribers, penetration
rate, cost to add a net subscriber, average monthly churn rate and average
monthly service revenue per subscriber.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- 1997
1992 1993 1994 1995 1996 ----------
<S> <C> <C> <C> <C> <C> <C>
Subscribers at end of
period (1)............. 29,869 54,382 99,626 187,870 245,396 287,665
Penetration at end of
period (2)............. 2.23% 3.57% 4.54% 6.41% 7.28% 8.12%
Cost to add a net
subscriber (3)......... $ 272 $ 198 $ 247 $ 275 $ 434 $ 477
Average monthly churn
(4).................... 1.58% 1.32% 1.54% 1.51% 1.89% 1.78%
Average monthly service
revenue per subscriber
(5).................... $59.65 $56.70 $56.54 $53.80 $50.37 $46.20
</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 Palmer 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 each 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 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 each period by dividing total subscribers discontinuing
service during such period by the average number of subscribers for such
period, divided by the number of months in the relevant period.
(5) Determined for each 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 the relevant period.
SUBSCRIBERS AND SYSTEM USAGE
Palmer's subscribers, after giving effect to the Acquisition, have increased
from 17,148 at January 1, 1992 to 287,665 at June 30, 1997. Reductions in the
cost of cellular telephone services and equipment at the retail level have led
to an increase in cellular telephone usage by general consumers for non-
business purposes. As a result, the management of Palmer believes that there
is an opportunity for significant growth in each of its existing service
areas. Palmer's intention is to continue to broaden its subscriber base for
basic cellular telephone
69
<PAGE>
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 Palmer's total
revenues, with equipment sales and installation representing the balance.
MARKETING
Palmer'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. Palmer'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. Palmer's
management believes that its internal sales force is more likely than
independent agents to successfully select and screen new subscribers. In
addition, Palmer motivates its direct sales force to sell appropriate rate
plans to subscribers, thereby reducing churn, by linking payment of
commissions to subscriber retention. Palmer 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 six-month period ended June 30, 1997, Palmer's cost to add a net
subscriber was $477, exclusive of the Fort Myers acquisition.
Palmer's sales force works principally out of retail stores in which Palmer
offers its cellular products and services. As of June 30, 1997, Palmer
maintained 33 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 Palmer as "Superstores". Each Superstore has
an authorized warranty repair center and provides cellular telephone
installation and maintenance services. Most of Palmer's larger markets
currently have at least one Superstore. In addition, to enhance convenience
for its customers, Palmer has begun to open smaller stores in locations such
as shopping malls.
Palmer markets all of its products and services under the name CELLULAR ONE.
See "--Service Marks". Palmer believes it obtains substantial marketing
benefits from the name recognition associated with this widely used service
mark, both with existing subscribers traveling outside Palmer's service areas
and with potential new subscribers moving into Palmer's service areas. In
addition, Palmer believes that travelers who subscribe to CELLULAR ONE service
in other markets may be more likely to use Palmer's service when they travel
in Palmer's service areas. See "Risk Factors--Reliance on Use of Third Party
Service Marks."
PRODUCTS AND SERVICES
In addition to providing cellular telephone service in each of its markets,
Palmer 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. Most
rate plans combine a fixed monthly access fee, per minute usage charges and
additional charges for custom-calling features in a package that offers value
to the subscriber while enhancing air time use and revenues for Palmer. 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 Palmer's competitiveness. As
appropriate, revisions to pricing of service plans and equipment are made to
meet the demands of the local marketplace.
70
<PAGE>
The following table sets forth a breakdown of Palmer's revenues from the
sale of its services and equipment for the periods indicated, exclusive of the
Fort Myers acquisition.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30
----------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenue:
Access and usage (1)... $11,821 $20,324 $37,063 $61,607 $ 105,415 $50,424 $59,485
Roaming (2)............ 2,231 3,075 5,884 11,157 13,741 6,458 9,758
Long distance (3)...... 992 1,309 2,218 3,634 6,781 3,142 4,113
Other (4).............. 680 1,230 2,745 2,585 2,600 1,395 1,394
------- ------- ------- ------- --------- ------- -------
Total service revenue.. $15,724 $25,938 $47,870 $78,983 $ 128,537 $61,419 $74,750
Equipment sales and
installation (5)....... 3,558 5,238 6,381 6,830 7,062 3,455 4,200
------- ------- ------- ------- --------- ------- -------
Total.................. $19,282 $31,176 $54,251 $85,813 $ 135,599 $64,874 $78,950
======= ======= ======= ======= ========= ======= =======
</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 Palmer's service areas.
(3) Long distance revenue is derived from long distance telephone calls placed
by Palmer'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 Palmer'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. Roaming revenue is a substantial source of incremental
revenue for Palmer. For 1996, roaming revenues accounted for 10.7% of Palmer's
service revenues and 10.1% of Palmer's total revenue.
Palmer provides retail distribution of cellular telephones and maintains
inventories of cellular telephones. Palmer negotiates volume discounts for the
purchase of cellular telephones and, in many cases, passes such discounts on
to its customers. Palmer 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.
SYSTEM DEVELOPMENT AND EXPANSION
Palmer 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, Palmer 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).
71
<PAGE>
The following table sets forth, by market, at the dates indicated, the
number of Palmer's operational cell sites.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------ AT JUNE 30,
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Georgia/Alabama.................. 28(1) 39(1) 70(2) 121(3) 181(4) 199(5)
Panama City, FL.................. 4 7 7 9 11 11
--- --- --- --- --- ---
Total.......................... 32(1) 46(1) 77(2) 130(3) 192(4) 210(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 than were purchased in the Horizon and USCOC acquisitions.
(5) Includes two existing cell sites in Alabama-5 RSA where Palmer has interim
operating authority.
Palmer estimates that in 1996 the capacity of its existing cellular
telephone systems increased 42.0%. During 1996, Palmer spent approximately
$38.5 million (exclusive of the Fort Myers acquisition) and, based on
projected growth in subscriber demand, expects to spent 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.
Palmer has constructed 20 cell sites to date in 1997 and plans to construct 10
additional cell sites with respect to its existing cellular systems during
1997 to meet projected subscriber demand and improve the quality of service.
Microwave networks enable Palmer 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, Palmer
spent $1.0 million to build additional microwave connections. In addition, in
1996 Palmer 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 the capacity.
DIGITAL CELLULAR TECHNOLOGY
Over the next decade, it is expected that cellular telephones will gradually
convert from analog to digital technology. This conversion is due in part to
capacity constraints in many of the largest cellular markets, such as Los
Angeles, New York and Chicago. As carriers reach limited capacity levels,
certain calls may be unable to be completed, especially during peak hours.
Digital technology increases system capacity and offers other advantages over
analog technology, including improved overall average signal quality, improved
call security, potentially lower incremental costs for additional subscribers
and the ability to provide data transmission services. The 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.
Palmer began offering TDMA (Time Division Multiple Access) standard digital
service during 1997. This digital network allows Palmer to offer advanced
cellular features and services such as caller-ID, short message paging and
extended battery life. Palmer presently plans to roll out TDMA digital
cellular services in the rest of its major markets during 1997. Where cell
sites are not yet at their maximum capacity of radio channels, Palmer 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
72
<PAGE>
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 Palmer'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.
COMPETITION
The cellular telephone service industry in the United States is competitive.
Cellular telephone systems compete principally on the basis of service and
enhancements offered, the technical quality of the cellular system, customer
service, coverage capacity and price of service and equipment. Currently,
Palmer'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 Palmer'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-1 RSA.......................... BellSouth
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.
Palmer also faces competition from broadband personal communications
services ("PCS"). PCS is a digital, wireless communications system supported
by high-density call transmitters. 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.
Palmer also faces competition from other existing communications
technologies such as conventional mobile telephone service, SMR and enhanced
specialized mobile radio ("ESMR") systems and paging services.
73
<PAGE>
Palmer also faces competition from "resellers". The FCC requires all
cellular licensees to provide service to resellers that meet certain terms and
conditions. 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 airtime from a licensed carrier and resells
service through its own distribution network to the public.
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.
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. Palmer 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, Palmer 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
Palmer to provide cellular telephone service to its customers, and to maintain
a certain minimum overall customer satisfaction rating in surveys commissioned
by the Licensor. Palmer's customer satisfaction ratings have consistently far
exceeded this required minimum.
REGULATION
As a provider of cellular telephone services, Palmer 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
(one); 2001 (five); 2002 (three) and 2006 (one). 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
74
<PAGE>
the licensee's performance merits a renewal expectancy. Palmer believes that
the licenses controlled by it will be renewed in a timely manner upon
application.
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 has no material unserved areas in
any of its cellular telephone systems that have been licensed for more than
five years.
Palmer 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 Palmer 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 Palmer will be approved or acted upon in a
timely manner by the FCC, based upon its experience to date, Palmer 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 Palmer'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 Palmer 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 Palmer 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 Palmer, 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. Palmer 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. LEC's and state regulators filed appeals of the FCC Order, which have
been consolidated in the U.S. 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.
Palmer is currently negotiating with the incumbent local exchange carriers
and has already renegotiated certain inter-connection agreements with LECs in
most of Palmer's markets and believes that these negotiations will result in a
substantial decrease in interconnection expenses incurred by Palmer.
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
75
<PAGE>
regulation may require zoning, environmental and building permit approvals or
other state or local certification. The Telecom Act provides that state and
local authority over the placement, construction and modification of personal
wireless services (including cellular and other commercial mobile radio
services and unlicensed wireless services) shall not prohibit or have the
effect of prohibiting personal wireless services or unreasonably 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.
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 in May 1997, which also provides that any
cellular carrier is potentially eligible to receive universal service support.
The Communications Act preempts state and local regulation of the entry of,
or the rates charged by, any provider of cellular service.
EMPLOYEES
At June 30, 1997 Palmer had 577 full-time employees (excluding Fort Myers),
none of whom is represented by a labor organization. Management considers its
relations with employees to be good.
PROPERTIES
For each market served by Palmer's operations, Palmer maintains at least one
sales or administrative office and operates a number of cell transmitter and
antenna sites. As of June 30, 1997, Palmer had approximately 32 leases for
retail stores used in conjunction with its operations and 3 leases for
administrative offices. Palmer also had approximately 130 leases to
accommodate cell transmitters and antennas as of July 8, 1997.
LEGAL PROCEEDINGS
Palmer is not currently involved in any pending legal proceedings likely to
have a material adverse impact on it.
76
<PAGE>
MARKET FOR PALMER SHARES
The Palmer Shares are traded on the NASDAQ Stock Market. The following table
sets forth information regarding the high and low sales prices for the periods
indicated:
<TABLE>
<CAPTION>
CALENDAR YEAR 1995 HIGH LOW
<S> <C> <C>
First Quarter (1)........................................... $15.88 $14.25
Second Quarter.............................................. $18.88 $14.25
Third Quarter............................................... $24.50 $16.50
Fourth Quarter.............................................. $24.25 $19.75
<CAPTION>
CALENDAR YEAR 1996
<S> <C> <C>
First Quarter............................................... $22.50 $16.25
Second Quarter.............................................. $22.81 $18.75
Third Quarter............................................... $20.38 $16.00
Fourth Quarter.............................................. $18.00 $10.25
<CAPTION>
CALENDAR YEAR 1997
<S> <C> <C>
First Quarter............................................... $15.25 $ 9.25
Second Quarter.............................................. $16.75 $10.25
Third Quarter (through August , 1997)...................... $ $
</TABLE>
- --------
(1) Trading commenced March 1995.
Palmer has not paid any dividends on its common stock since its inception.
77
<PAGE>
PALMER SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the periods and dates
indicated set forth below have been derived from the audited consolidated
financial statements and the unaudited condensed consolidated financial
statements of Palmer. The condensed consolidated results of operations of
Palmer for the six months ended June 30, 1996 and 1997 are unaudited and not
necessarily indicative of Palmer's results of operations for the full year.
The unaudited condensed consolidated financial data reflects all adjustments
(consisting of normal, recurring adjustments) which are, in the opinion of
management, necessary for a fair summary of Palmer's financial position,
results of operations and cash flows for and as of the end of the periods
presented.
The following data should be read in conjunction with "Palmer Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Palmer's Consolidated Financial Statements and Notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------- ------------------
1992 1993 1994(1) 1995(2) 1996(3) 1996 1997
(IN THOUSANDS, EXCEPT PERCENTAGE AND PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Service................ $ 23,017 $ 35,173 $ 61,021 $ 96,686 $151,119 $ 72,741 $ 88,140
Equipment sales and
installation........... 4,284 6,285 7,958 8,220 8,624 4,239 5,088
--------- -------- -------- -------- -------- -------- --------
Total revenue...... 27,301 41,458 68,979 104,906 159,743 76,980 93,228
--------- -------- -------- -------- -------- -------- --------
Engineering, technical
and other direct
expenses............... 5,395 7,343 12,776 18,184 28,717 14,939 15,554
Cost of equipment....... 5,071 7,379 11,546 14,146 17,944 8,397 11,057
Selling, general and
administrative
expenses................ 9,458 13,886 19,757 30,990 46,892 21,977 27,204
Depreciation and
amortization............ 11,687 10,689 9,817 15,004 25,013 11,872 15,129
--------- -------- -------- -------- -------- -------- --------
Operating income
(loss).................. (4,310) 2,161 15,083 26,582 41,177 19,795 24,284
--------- -------- -------- -------- -------- -------- --------
Other income (expense):
Interest, net.......... (8,290) (9,006) (12,715) (21,213) (31,462) (16,006) (16,113)
Other, net............. (5) (590) (70) (687) (429) (58) 162
--------- -------- -------- -------- -------- -------- --------
Total other
expense............ (8,295) (9,596) (12,785) (21,900) (31,891) (16,064) (15,951)
--------- -------- -------- -------- -------- -------- --------
Minority interest share
of (income) losses...... 377 83 (636) (1,078) (1,880) (1,023) (782)
Income taxes............ 0 0 0 (2,650) (2,724) (948) (3,851)
--------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ (12,228) $ (7,352) $ 1,662 $ 954 $ 4,682 $ 1,760 $ 3,700
========= ======== ======== ======== ======== ======== ========
OTHER DATA:
Capital expenditures.... $ 3,835 $ 13,304 $ 22,541 $ 36,564 $ 41,445 $ 21,639 $ 31,700
Operating Income before
depreciation and
amortization ("EBITDA")
(4).................... $ 7,377 $ 12,850 $ 24,900 $ 41,586 $ 66,190 $ 31,667 $ 39,413
EBITDA margin on service
revenue................ 32.1% 36.5% 40.8% 43.0% 43.8% 43.5% 44.7%
Penetration(5).......... 2.20% 3.48% 4.58% 6.41% 7.45% 6.85% 8.29%
Subscribers at end of
period (6)............. 37,209 65,761 117,224 211,985 279,816 243,887 325,653
Cost to add a net
subscriber (7).......... $ 283 $ 203 $ 247 $ 276 $ 407 $ 375 $ 480
Average monthly service
revenue per
subscriber(8).......... $ 68.30 $ 62.69 $ 60.02 $ 56.68 $ 52.20 $ 54.05 $ 48.06
Average monthly churn
(9)..................... 1.69% 1.37% 1.55% 1.55% 1.84% 1.63% 1.79%
Ratio of earnings to
fixed charges (10)...... 1.17x 1.21x 1.28x
CONSOLIDATED BALANCE
SHEET DATA:
Cash.................... $ 443 $ 1,670 $ 2,998 $ 3,436 $ 1,698 $ 1,372 $ 1,740
Working capital
(deficit)............... (740) 799 2,490 (1,435) 296 (8,017) 2,290
Property, plant and
equipment, net......... 17,371 23,918 51,884 100,936 132,438 118,746 157,596
Licenses and other
intangibles, net....... 103,901 114,955 199,265 332,850 387,067 357,810 409,193
Total assets............ 127,867 150,054 273,020 462,871 549,942 501,190 597,202
Total debt.............. 106,811 131,361 245,609 350,441 343,662 292,252 380,321
Stockholders' equity.... 10,659 3,244 4,915 74,553 164,930 170,608 168,630
</TABLE>
78
<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 extraordinary items and accounting changes, interest
expense, taxes and a portion of rent expense representative of interest
by the sum of interest expense and a portion of rent expense
representative of interest. The ratio of earnings to fixed charges is not
meaningful for periods that result in a deficit. For the years ended
December 31, 1992 and 1993 the deficit of earnings to fixed charges was
$12,605 and $7,435, respectively.
79
<PAGE>
PALMER MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
Palmer's revenues have grown primarily by increasing the number of its
subscribers, both by improving its penetration rate (determined by dividing
the aggregate number of subscribers by estimated population) in cellular
telephone systems owned by Palmer and by acquiring or constructing new
cellular telephone systems. Palmer's subscribers increased from 22,536 at the
beginning of 1992 to 325,653 as of June 30, 1997. During the same period,
Palmer's penetration rate in its cellular telephone systems increased from
1.45% at the beginning of 1992 to 8.3% as of June 30, 1997. Palmer also made
several acquisitions between 1992 and 1996, as later described.
On average, new subscribers use less air time and generate less revenue per
subscriber than existing subscribers. Therefore, air time usage and service
revenue generally do not increase proportionately with increases in numbers of
subscribers over the same period. As a result, although Palmer's total revenue
has increased each year, its average minutes of usage per subscriber and its
average monthly revenue per subscriber have decreased over time as new
subscribers have been added. Palmer expects these trends to continue in its
existing cellular telephone systems as its penetration rate increases.
Palmer 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 to slowly reverse itself.
Palmer anticipates that its cost to add a net subscriber will continue to
increase 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.
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.
80
<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 the Palmer provided
service at December 31, 1996 and June 30, 1997.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
CELLULAR SERVICE AREA 1996 1997
--------------------- ------------ --------
<S> <C> <C>
Albany, Georgia...................................... 82.7% 82.7%
Augusta, Georgia..................................... 100.0 100.0
Columbus, Georgia.................................... 84.9 85.2
Macon, Georgia....................................... 99.1 99.2
Savannah, Georgia.................................... 98.5 98.5
Dothan, Alabama...................................... 92.3 92.5
Montgomery, Alabama.................................. 91.9 92.8
Georgia 1 - RSA...................................... 100.0 100.0
Georgia 6 - RSA...................................... 94.8 95.1
Georgia 7 - RSA...................................... 100.0 100.0
Georgia 8 - RSA...................................... 100.0 100.0
Georgia 9 - RSA...................................... 100.0 100.0
Georgia 10 - RSA..................................... 100.0 100.0
Georgia 12 - RSA..................................... 100.0 100.0
Georgia 13 - RSA..................................... N/A 82.7
Alabama 8 - RSA...................................... 100.0 100.0
Fort Myers, Florida.................................. 99.0 99.0
Panama City, Florida................................. 77.9 78.4
</TABLE>
On February 1, 1997, one of Palmer's majority-owned subsidiaries acquired the
assets of and the license to operate the non-wireline cellular telephone system
serving Georgia Rural Service Area Market No. 383, otherwise known as Georgia-
13 RSA, for a total purchase price of $31.2 million, subject to certain
adjustments.
81
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for Palmer for the periods indicated, the
percentage which certain amounts bear to total revenue.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
---------------------------------- ------------
1992 1993 1994 1995 1996 1996 1997
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Service.................... 84.3% 84.8% 88.5% 92.2% 94.6% 94.5% 94.5%
Equipment Sales and
Installation.............. 15.7 15.2 11.5 7.8 5.4 5.5 5.5
----- ----- ----- ----- ----- ----- -----
Total Revenue............ 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- -----
Operating Expenses:
Engineering, technical and
other direct:
Engineering and technical
(1)..................... 10.3 8.8 8.1 7.6 7.9 8.2 8.2
Other direct costs of
services (2)............ 9.4 8.9 10.5 9.7 10.1 11.2 8.5
Cost of equipment (3)...... 18.6 17.8 16.7 13.5 11.2 10.9 11.9
Selling, general and
administrative:
Sales and marketing (4).. 10.3 9.4 8.8 8.7 8.6 8.2 8.5
Customer service (5)..... 7.0 7.2 5.6 6.0 5.9 5.6 6.5
General and
administrative (6)...... 17.4 16.9 14.2 14.9 14.9 14.8 14.2
Depreciation and
amortization.............. 42.8 25.8 14.2 14.3 15.7 15.4 16.2
----- ----- ----- ----- ----- ----- -----
Total operating
expenses................ 115.8 94.8 78.1 74.7 74.3 74.3 74.0
----- ----- ----- ----- ----- ----- -----
Operating income............. (15.8)% 5.2% 21.9% 25.3% 25.7% 25.7% 26.0%
===== ===== ===== ===== ===== ===== =====
Operating income before
depreciation and
amortization (7)............ 27.0% 31.0% 36.1% 39.6% 41.4% 41.1% 42.2%
===== ===== ===== ===== ===== ===== =====
</TABLE>
- ---------------------
(1) Consists of costs of cellular telephone network, including inter-trunk
costs, span-line costs, cell site repairs and maintenance, cell site
utilities, cell site rent, engineers' salaries and benefits and other
operational costs.
(2) Consists of net costs of 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
and costs of printing and mailing billings generated in-house in 1994,
1995, and 1996 and for the six months ended June 30, 1996 and 1997, and
fees paid to a third-party vendor of customer service billing prior to
1994.
(6) Consists primarily of 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.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue. Service revenue totaled $151.l million for 1996, an increase of
$54.4 million or 56.3% over $96.7 million for 1995. This increase was due
primarily to a 69.7% increase in the average number of subscribers to 241,255
in 1996 from 142,147 in 1995. The increase in subscribers is the result of
internal growth, which Palmer attributes primarily to its sales and marketing
efforts, and recent acquisitions. The GTE Acquisition (as defined herein)
accounted for 41,163 subscribers at December 31, 1996. Service revenue
attributable to the cellular telephone systems acquired in the GTE Acquisition
totaled $24.6 million for 1996 as compared to $2.0 million for the one month
ended December 31, 1995.
82
<PAGE>
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 air time and generate less revenue per subscriber than
existing subscribers as is customary in the cellular telephone industry.
Therefore, air time 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.
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,
83
<PAGE>
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.
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, and the Georgia Acquisition. During 1995, Palmer added 13,098 net
subscribers in the Georgia Acquisition, bringing the total subscribers served
by those systems to 25,238 at December 31, 1995. Service revenue attributable
to the cellular telephone systems acquired in the Georgia Acquisition totaled
$12.3 million for 1995 as compared to $1.6 million for the two months ended
December 31, 1994. The GTE Acquisition increased Palmer's subscribers by
34,904 at December 31, 1995. Service revenue attributable to the cellular
telephone systems acquired in the GTE Acquisition totaled $2.0 million for the
one month ended December 31, 1995, and is included in Palmer's 1995 results of
operations.
Average monthly service revenue per subscriber decreased to $56.68 for 1995
from $60.02 for 1994. This decrease occurred because, on average, new
subscribers use less air time and generate less revenue per subscriber than
existing subscribers as is customary in the cellular telephone industry.
Therefore, air time 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.
84
<PAGE>
Operating Expenses. Engineering and technical expenses increased by 43.2% to
$8.0 million for 1995 from $5.6 million for 1994, due primarily to the
increase in subscribers. As a percentage of revenue, engineering and technical
expenses decreased to 7.6% for 1995 from 8.1% for 1994. Engineering and
technical expenses attributable to the cellular telephone systems acquired in
the Georgia Acquisition totaled $2.4 million for 1995 as compared to $0.3
million for the two months ended December 31, 1994. Engineering and technical
expenses attributable to the cellular telephone systems acquired in the GTE
Acquisition totaled $0.2 million for the one month ended December 31, 1995 and
are included in Palmer's results of operations for 1995.
Other direct costs of services increased 41.7% to $10.2 million for 1995
from $7.2 million for 1994. As a percentage of revenue, other direct costs of
services decreased to 9.7% for 1995 from 10.5% for 1994. This decrease in
other direct costs of services as a percentage of revenue was due primarily to
Palmer improving its roaming agreements with neighboring cellular service
providers, spreading its fixed charges over a larger revenue base, and
bringing its intramarket roaming settlements in-house. Other direct costs of
service attributable to the cellular telephone systems acquired in the Georgia
Acquisition totaled $1.1 million for 1995 as compared to $0.2 million for the
two months ended December 31, 1994. Other direct costs of service attributable
to the cellular telephone systems acquired in the GTE Acquisition totaled $0.2
million for the one month ended December 31, 1995 and are included in Palmer's
results of operations for 1995.
Cost of equipment increased 22.5% to $14.1 million for 1995 from $11.5
million for 1994, due primarily to the increase in gross subscriber
activations for the same period. The equipment sales margin decreased to
(72.1%) for 1995 from (45.1%) for 1994. In an effort to address market
competition and improve market share, Palmer sold more telephones below cost
in 1995 than in 1994. The cost of equipment attributable to the cellular
telephone systems acquired in the Georgia Acquisition totaled $2.4 million for
1995 as compared to $0.3 million for the two months ended December 31, 1994.
The cost of equipment attributable to the cellular telephone systems acquired
in the GTE Acquisition totaled $0.2 million for the one month ended December
31, 1995 and is included in Palmer's results of operations for 1995.
Sales and marketing costs increased 51.5% to $9.1 million for 1995 from $6.0
million for 1994. This increase is primarily due to the 49.1% increase in
gross subscriber activations and the resulting increase in salaries and
commissions. Sales and marketing costs as a percentage of total revenue
remained relatively flat at 8.7% for 1995 and 8.8% for 1994. Palmer's cost to
add a net subscriber, including losses on cellular telephone sales, increased
to $276 for 1995 from $247 for 1994. This increase in cost to add a net
subscriber was caused primarily by increased losses from Palmer's sales of
cellular telephones. Sales and marketing costs attributable to the cellular
telephone systems acquired in the Georgia Acquisition totaled $1.7 million for
1995 as compared to $0.3 million for the two months ended December 31, 1994.
Sales and marketing costs attributable to the cellular telephone systems
acquired in the GTE Acquisition totaled $0.2 million for the one month ended
December 31, 1995 and are included in Palmer's results of operations for 1995.
Customer service costs increased 62.0% to $6.3 million for 1995 from $3.9
million for 1994 and increased as a percentage of total revenue to 6.0% for
1995 from 5.6% for 1994. This increase is primarily due to an increase in
subscribers, to operating costs associated with the newly established regional
customer service call centers in Montgomery, Alabama and Savannah, Georgia and
to non-recurring expenditures incurred in connection with the implementation
of new area codes in Palmer's Alabama and Fort Myers, Florida service areas.
Customer service costs attributable to the cellular telephone systems acquired
in the Georgia Acquisition totaled $0.9 million for 1995 as compared to $0.2
million for the two months ended December 31, 1994. Customer service costs
attributable to the cellular telephone systems acquired in the GTE Acquisition
totaled $0.2 million for the one month ended December 31, 1995 and are
included in Palmer's results of operations for 1995.
General and administrative expenses increased 58.2% to $15.6 million for
1995 from $9.8 million for 1994 and increased as a percentage of total revenue
to 14.9% for 1995 from 14.2% for 1994 due primarily to the increase in the
number of subscribers, as well as the Georgia and GTE Acquisitions. Fixed
general and
85
<PAGE>
administrative costs attributable to the acquisitions are incurred prior to
the development of the subscriber base and the generation of associated
revenue. As Palmer 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 GTE Acquisition, the amortization of deferred financing fees
related to Palmer's credit facility, and increased interest rates.
Other expense was $0.4 million in 1996, $0.7 million in 1995 and $0.1
million in 1994. Other expense consists primarily of the disposal of certain
assets by Palmer and other non-operating expenses.
Income tax expense was $2.7 million for both 1996 and 1995 compared to none
in 1994. The $2.7 million income tax expense in 1995 was a non-recurring
deferred income tax charge related to the difference between the financial
statement and income tax return bases of certain assets and liabilities of
Palmer Cellular Partnership (the "Partnership"), predecessor of Palmer. In
connection with Palmer's initial public offering of securities in March, 1995,
all of the assets and liabilities of the Partnership were exchanged for stock
in Palmer. Due to the exchange, a deferred tax liability was recorded to
reflect the difference between the financial statement and income tax return
basis 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.
86
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUE. Service revenues totaled $88.1 million for the first half of 1997,
an increase of 21.2% over $72.7 million for the first half of 1996. This
increase was primarily due to a 36.2% increase in the average number of
subscribers to 305,638 for the first half of 1997 versus 224,333 for the first
half of 1996. The increase in subscribers is the result of internal growth,
which the Company attributes primarily to its strong sales and marketing
efforts, and recent acquisitions.
Average monthly revenue per subscriber decreased 11.1% to $48.06 for the
first half of 1997 from $54.04 for the first half of 1996. This is in part due
to the trend, common in the cellular telephone industry, where, on average,
new subscribers are using less airtime than existing subscribers. Therefore,
service revenues generally do not increase proportionately with the increase
in subscribers. In addition, the decline reflects more competitive rate plans
introduced into Palmer's markets.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased by 20.0% to $5.1 million for
the first half of 1997 compared to $4.2 million for the first half of 1996.
The increase is due to the 20.7% increase in gross subscriber activations in
the first half of 1997 compared to 1996. As a percentage of revenue, equipment
sales and installation revenue remained flat at 5.5% for the first half of
1997 and 1996.
OPERATING EXPENSES. Engineering and technical expenses increased by 21.4% to
$7.7 million for the first half of 1997 from $6.3 million in the first half of
1996, due primarily to the increase in subscribers and recent acquisitions. As
a percentage of revenue, engineering and technical expenses remained flat at
8.2% for the first half of 1997 and 1996, respectively. Palmer expects
engineering and technical expenses to decrease as a percentage of revenue due
to its large component of fixed costs. There can be no assurance, however,
that this forward-looking statement will not differ materially from actual
results due to unforeseen engineering and technical expenses.
Other direct costs of services decreased to $7.9 million for the first half
of 1997 from $8.6 million for the first half of 1996 reflecting the decrease
in interconnection costs as a result of Palmer's renegotiation of
interconnection agreements with the local exchange carriers ("LECs") in most
of the markets. As a percentage of revenue, these costs of service declined to
8.5% from 11.2%, reflecting improved interconnection agreements with LECs, as
well as efficiencies gained from the growing subscriber base.
The cost of equipment increased 31.7% to $11.0 million for the first half of
1997 from $8.4 million for the first half of 1996, due primarily to the
increase in gross subscriber activations for the same period. The equipment
sales margin decreased to (117.3%) for the first half of 1997 from (98.1%) for
the first half of 1996. In an effort to address market competition and improve
market share, Palmer sold more telephones below cost in the first half of
1997, on average, than in the same period of 1996.
Sales and marketing costs increased 26.2% to $8.0 million for the first half
of 1997 from $6.3 million for the same period in 1996. This increase is
primarily due to the 20.7% increase in gross subscriber activations and the
resulting increase in commissions. As a percentage of total revenue, sales and
marketing costs increased to 8.5% from 8.2% for the first half of 1997 and
1996, respectively. Palmer's cost to add a net subscriber, including loss on
telephone sales, increased to $480 for the first half of 1997 from $375 for
the first half of 1996. This increase in cost to add a net subscriber was
caused primarily by increased losses from Palmer's sales of cellular
telephones and an increase in commissions and advertising costs.
Customer service costs increased 41.3% to $6.0 million for the first half of
1997 from $4.2 million for the first half of 1996. As a percentage of revenue,
customer service costs increased to 6.5% from 5.6% for the first half of 1997
and 1996, respectively. The increase was due primarily to higher costs for
billing support services.
87
<PAGE>
General and administrative expenditures increased 15.8% to $13.2 million for
the first half of 1997 from $11.4 million for the first half of 1996, due
primarily to the increase in the costs associated with supporting recent
acquisitions. General and administrative expenses decreased as a percentage of
revenue to 14.2% in the first half of 1997 from 14.8% in the first half of
1996. As Palmer continues to add more subscribers, and generates associated
revenue, general and administrative expenses should decrease as a percentage
of total revenues. There can be no assurance, however, that this forward-
looking statement will not differ materially from actual results due to
unforseen general and administrative expenses and other factors.
Depreciation and amortization increased 27.4% to $15.1 million for the first
half of 1997 from $11.9 million for the first half of 1996. This increase was
primarily due to the depreciation and amortization associated with recent
acquisitions and additional capital expenditures. As a percentage of revenue,
depreciation and amortization increased to 16.2% from 15.4% for the first half
of 1997 and 1996, respectively.
Operating income increased 22.7% to $24.3 million in the first half of 1997,
from $19.8 million for the first half of 1996. This improvement in operating
results is attributable primarily to increases in revenue which exceeded
increases in operating expenses.
NET INTEREST EXPENSE, INCOME TAXES AND NET INCOME. Net interest expense
remained relatively flat at $16.1 million and $16.0 million for the first half
of 1997 and 1996.
Income tax expense was $3.9 million in the first half of 1997 and $0.9
million in the first half of 1996. This increase is due primarily to the
increase in income before income taxes in 1997 and the fact that all remaining
net operating loss carry forwards were recognized for financial statement
purposes in 1996.
Net income for the first half of 1997 was $3.7 million, or $0.13 per share,
compared to net income of $1.8 million, or $0.07 per share, for the first half
of 1996. The increase in net income is primarily attributable to increases in
revenue which exceeded increases in operating expenses and income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
Palmer's long-term capital requirements consist of funds for capital
expenditures, acquisitions and debt service. Historically, Palmer has met its
capital requirements primarily through equity contributions, bank and
intercompany debt and, to a lesser extent, through operating cash flow.
In 1996, Palmer spent approximately $41.4 million for capital expenditures.
Palmer expects to spend $50 million and $25 million to $30 million for capital
expenditures for the years ended December 31, 1997 and 1998, respectively.
Palmer expects to use net cash provided by operating activities and borrowings
available under the New Credit Facility to fund such capital expenditures.
For a discussion of the anticipated liquidity and capital resources of
Palmer following the Acquisition, see "Price Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
OTHER
Pursuant to the Palmer Merger Agreement Price intends to acquire all issued
and outstanding shares of common stock of Palmer and outstanding options and
rights under employee and director stock purchase plans for a purchase price
of $17.50 per share in cash.
Following this merger, the common stock of Palmer will cease to be
authorized to be quoted on the NASDAQ Stock Market and will become eligible
for termination of registration pursuant to Section 12(g)(4) of the Securities
Act of 1934.
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
88
<PAGE>
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
Palmer believes that inflation affects its business no more than it
generally affects other similar businesses.
LEGAL MATTERS
The legality of the issuance of the Price Common Stock to be issued in the
Offer will be passed on by Proskauer Rose LLP, New York, New York.
EXPERTS
The Consolidated Financial Statements and Schedule of Price Communications
Corporation as of and for the years ended December 31, 1995 and 1996, 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.
The consolidated statements of operations, cash flows, and shareholders'
equity of Price Communications Corporation and subsidiaries for the year ended
December 31, 1994, have been included in this Proxy Statement/Prospectus in
reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Palmer Wireless, Inc and
subsidiaries as of December 31, 1995 and 1996 and for each of the years in the
three-year period ended December 31, 1996 have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
89
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Auditors' Reports....................................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1995............... F-4
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994.................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994.................................................... F-6
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1996, 1995
and 1994............................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
Consolidated Balance Sheets at December 31, 1996 and June 30, 1997
(Unaudited)............................................................ F-18
Condensed Consolidated Statements of Operations for the Six Months Ended
June 30, 1996 and 1997 (Unaudited)..................................... F-19
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1996 and 1997 (Unaudited)..................................... F-20
Notes to Consolidated Financial Statements.............................. F-21
PALMER WIRELESS, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-24
Consolidated Balance Sheets, December 31, 1995 and 1996 ................ F-25
Consolidated Statements of Operations, Years Ended December 31, 1994,
1995 and 1996 ......................................................... F-26
Consolidated Statements of Stockholders' Equity, Years Ended December
31, 1994, 1995
and 1996 .............................................................. F-27
Consolidated Statements of Cash Flows, Years Ended December 31, 1994,
1995 and 1996 ......................................................... F-28
Notes to Consolidated Financial Statements ............................. F-30
Condensed Consolidated Balance Sheets, December 31, 1996 and June 30,
1997 (Unaudited) ...................................................... F-42
Condensed Consolidated Statements of Operations, for the Six Months
Ended June 30, 1996 and 1997 (Unaudited)............................... F-43
Condensed Consolidated Statements of Stockholders' Equity, Year Ended
December 31, 1996 and Six Months Ended June 30, 1997 (Unaudited)....... F-44
Condensed Consolidated Statements of Cash Flows, Six Months Ended June
30, 1996 and 1997 (Unaudited).......................................... F-45
Notes to Condensed Consolidated Financial Statements (Unaudited) ....... F-46
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Price Communications Corporation:
We have audited the accompanying consolidated balance sheets of Price
Communications Corporation (a New York corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for the years then ended.
These consolidated financial statements are the responsibility of Price's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Price Communications
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York
February 24, 1997
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Price Communications Corporation:
We have audited the accompanying consolidated statements of operations, cash
flows, and shareholders' equity of Price Communications Corporation and
subsidiaries for the year ended December 31, 1994. These consolidated
financial statements are the responsibility of Price's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Price Communications Corporation and subsidiaries for the year ended
December 31, 1994 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
January 20, 1995
F-3
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 83,356,748 $ 1,206,557
Investment securities (Note 2):
Trading securities.................................. 4,045,628 237,975
Available-for-sale securities....................... 8,694,966 --
Accounts receivable, net of allowance for doubtful
accounts of $473,579 in 1996 and $294,554 in 1995... 488,882 6,096,446
Film broadcast rights................................ -- 1,764,468
Prepaid expenses and other current assets............ 18,672 741,307
------------ -----------
Total current assets.............................. 96,604,896 10,046,753
------------ -----------
PROPERTY AND EQUIPMENT, AT COST LESS ACCUMULATED
DEPRECIATION (Note 7)................................ 159,000 11,308,808
BROADCAST LICENSES AND OTHER INTANGIBLES, less
accumulated amortization of $2,559,354 in 1995 (Note
2)................................................... -- 65,434,705
FILM BROADCAST RIGHTS................................. -- 231,225
LONG-TERM INVESTMENTS (Note 6)........................ 18,204,429 8,350,000
DEFERRED TAX ASSET (Note 10).......................... 350,000 --
NOTES RECEIVABLE (Note 5)............................. 540,000 540,000
OTHER ASSETS.......................................... 29,500 73,907
------------ -----------
Total assets...................................... 115,887,825 $95,985,398
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses................ $ 2,755,497 $ 3,197,471
Accrued interest..................................... -- 510,119
Current portion of long-term debt (Note 9)........... -- 28,000,000
Deferred tax liability (Note 10)..................... 1,042,862 --
Other current liabilities (Note 8)................... 3,310,774 4,601,409
------------ -----------
Total current liabilities......................... 7,109,133 36,308,999
------------ -----------
DEFERRED TAX EFFECT OF BASIS DIFFERENCE ARISING ON
ACQUISITION (Note 10)................................ -- 17,971,028
OTHER LIABILITIES (Note 8)............................ -- 829,689
COMMITMENTS AND CONTINGENCIES (Note 15)
SHAREHOLDERS' EQUITY (Notes 13 and 14):
Preferred Stock, par value $.01 per share; authorized
20,000,000, no shares outstanding................... -- --
Common Stock, par value $.01 per share; authorized
40,000,000 shares; outstanding 9,038,808 shares in
1996 and 9,579,842 shares in 1995................... 90,388 95,798
Additional paid-in capital........................... 12,240,133 16,935,009
Unrealized gain on marketable equity securities, net
of tax effect (Note 2).............................. 1,936,743 --
Retained earnings.................................... 94,511,428 23,844,875
------------ -----------
Total shareholders' equity........................ 108,778,692 40,875,682
------------ -----------
Total liabilities and shareholders' equity........ $115,887,825 $95,985,398
============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-4
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenue............................... $ 3,491,441 $34,377,543 $ 28,053,341
Agency and representatives'
commissions.......................... 529,577 5,222,273 4,014,209
------------ ----------- ------------
Net revenue....................... 2,961,864 29,155,270 24,039,132
------------ ----------- ------------
Operating expenses.................... 2,233,347 16,684,608 14,961,399
Corporate expenses.................... 2,373,045 2,687,064 4,474,787
Other income, net (Notes 4, 5 and
11).................................. (98,372,359) (7,280,215) (16,244,568)
Interest expense...................... 216,389 2,099,365 813,493
Amortization of debt discount and
deferred debt expense................ -- 460,000 645,835
Depreciation and amortization......... 467,413 3,459,320 3,312,049
Realized loss on marketable
securities, net...................... 793,641 166,211 --
------------ ----------- ------------
Income before income taxes............ 95,250,388 10,878,917 16,076,137
Income tax (expense) benefit (Note
10).................................. (24,583,835) 247,000 (1,652,588)
------------ ----------- ------------
Net income........................ $ 70,666,553 $11,125,917 $ 14,423,549
============ =========== ============
Net income per share (Note 2)......... $ 7.45 $ 1.06 $ 1.15
============ =========== ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................... $ 70,666,553 $ 11,125,917 $ 14,423,549
------------ ------------ ------------
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Items not affecting cash--
Amortization of debt discount and
deferred debt expense............. -- 100,000 645,835
Depreciation and amortization...... 467,413 3,459,320 3,312,049
Loss on disposition of equipment... -- -- 47,529
Loss on mark-down of long-term
investment, net of tax effect..... 650,000 -- --
Change in assets and liabilities,
net of effects of reorganization--
Decrease (increase) in net
accounts receivable............... 3,191,494 (1,022,996) 307,979
Decrease in prepaid expenses and
other assets...................... 392,243 83,180 1,581,117
Decrease in film broadcast
rights............................ 333,800 1,862,277 536,910
Decrease in goodwill............... -- 295,477 --
(Decrease) increase in accounts
payable and accrued expenses...... (936,802) (405,263) 1,563,455
(Decrease) increase in accrued
interest payable, net of
forgiveness....................... (510,119) 510,119 (1,023,932)
Increase (decrease) in other
liabilities....................... 402,825 (2,267,942) 1,013,375
Reclassification of transactions to
investing and financing
activities--
Gain on sale of properties, net.... (94,998,417) -- (17,219,231)
Loss on purchase of common stock... -- 1,185,662 --
Gain on sale of trading
securities........................ (2,121,897) -- --
Loss on sale of trading
securities........................ 2,915,538 166,211 --
Purchase of trading securities,
net............................... (4,601,295) -- --
(Recovery) reserve on notes
receivable, net................... -- (7,884,884) 737,500
------------ ------------ ------------
Total adjustments................. (94,815,217) (3,918,839) (8,497,414)
------------ ------------ ------------
Net cash (used in) provided by
operating activities............. (24,148,664) 7,207,078 5,926,135
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of businesses and equipment,
net of cash retained............... 155,706,330 -- 32,451,283
Investment in businesses, net of
cash acquired...................... -- -- (50,270,793)
Capital expenditures................ (137,399) (1,469,505) (751,965)
Purchase of available-for-sale
securities and long-term
investments........................ (16,569,790) (10,567,300) --
Proceeds from sale of marketable
securities......................... -- 1,813,115 --
Proceeds from (disbursements of)
notes receivable, net.............. -- 8,202,384 (390,000)
------------ ------------ ------------
Net cash provided by (used in)
investing activities............. 138,999,141 (2,021,306) (18,961,475)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings............... -- 1,000,000 --
Payment of short-term borrowings.... -- (1,000,000) --
Repurchases and payments of long-
term debt.......................... (28,000,000) -- --
Payment of line of credit
origination fee.................... -- (100,000) (475,000)
Borrowings under line of credit
agreements......................... -- 6,360,000 45,000,000
Repayments under line of credit
agreements......................... -- (860,000) (25,700,000)
Repurchase of Company common stock.. (5,102,742) (10,659,200) (6,271,064)
Stock options exercised............. 402,456 143,975 222,312
------------ ------------ ------------
Net cash (used in) provided by
financing activities............. (32,700,286) (5,115,225) 12,776,248
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents............. 82,150,191 70,547 (259,092)
CASH AND CASH EQUIVALENTS, beginning
of year............................. 1,206,557 1,136,010 1,395,102
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
year................................ $ 83,356,748 $ 1,206,557 $ 1,136,010
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
MARKETABLE
COMMON STOCK EQUITY
-------------------- ADDITIONAL SECURITIES,
NUMBER PAID-IN NET OF RETAINED
OF SHARES VALUE CAPITAL TAX EFFECT EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1993................... 12,354,646 $123,546 $32,285,576 $ -- $(1,704,591) $ 30,704,531
Net Income............ -- -- -- -- 14,423,549 14,423,549
Purchase and
retirement of common
stock................ (1,245,115) (12,451) (6,258,613) -- -- (6,271,064)
Stock options
exercised............ 104,079 1,041 221,271 -- -- 222,312
---------- -------- ----------- ---------- ----------- ------------
BALANCE, December 31,
1994................... 11,213,610 112,136 26,248,234 -- 12,718,958 39,079,328
Net income............ -- -- -- -- 11,125,917 11,125,917
Purchase and
retirement of common
stock................ (1,691,028) (16,910) (9,456,628) -- -- (9,473,538)
Stock options
exercised............ 57,260 572 143,403 -- -- 143,975
---------- -------- ----------- ---------- ----------- ------------
BALANCE, December 31,
1995................... 9,579,842 95,798 16,935,009 -- 23,844,875 40,875,682
Net Income............ -- -- -- -- 70,666,553 70,666,553
Unrealized gain on
marketable equity
securities, net of
tax effect........... -- -- -- 1,936,743 -- 1,936,743
Purchase and
retirement of common
stock................ (643,700) (6,437) (5,096,305) -- -- (5,102,742)
Stock options
exercised............ 102,666 1,027 401,429 -- -- 402,456
---------- -------- ----------- ---------- ----------- ------------
BALANCE, December 31,
1996................... 9,038,808 $ 90,388 $12,240,133 $1,936,743 $94,511,428 $108,778,692
========== ======== =========== ========== =========== ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-7
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. OPERATIONS
Price Communications Corporation ("Price") is a nationwide communications
company. Until consummation of their sale in March and February 1996, Price
owned an ABC affiliate, WHTM-TV (which was acquired by Price during 1994) (See
Note 3), serving Harrisburg/Lancaster/Lebanon/York, Pennsylvania; and three
NBC affiliated television stations, KSNF-TV, serving Joplin,
Missouri/Pittsburg, Kansas; KJAC-TV, serving Beaumont/Port Arthur, Texas; and
KFDX-TV, serving Wichita Falls, Texas/Lawton, Oklahoma (see Note 4),
respectively. Prior to 1995 Price owned a number of television, radio,
newspaper and other media and related properties which were disposed of
pursuant to Price's long-standing policy of buying and selling media
properties at times deemed advantageous by Price's Board of Directors. Price
intends to continue to investigate and pursue potential media and other
acquisitions such as television and radio properties and, possibly, outdoor
advertising and newspaper properties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Price and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in the consolidated financial statements.
Certain prior year amounts have been reclassified to conform with current
year presentation.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Cash and Cash Equivalents
Price considers all highly liquid debt instruments, including Treasury
bills, purchased with maturities of three months or less at the time of
purchase to be cash equivalents.
Investment Securities
Price adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No.
115") effective January 1, 1994. At December 31, 1996, Price's Investment
Securities were in marketable equity securities, and classified as "Trading
Securities" as well as "Available-for-Sale Securities" under the provisions of
SFAS No. 115. At December 31, 1995, Price's Investment Securities were in
marketable equity securities and classified as Trading Securities. Unrealized
holding gains and losses for Available-for-Sale Securities are excluded from
earnings and reported, net of taxes, as a separate component of shareholders'
equity. Net unrealized holding gains and losses for Trading Securities are
included in net income.
Trading Securities are carried at fair value which approximates cost.
Available-for-Sale Securities are shown at fair value, which is based on
quoted market prices for these investments.
As of December 31, 1996 and 1995, Price had unrealized gains of $2,979,605
and $0, respectively, on available-for-sale securities, and unrealized gains
of $0 and $0, respectively, on trading securities. Realized gains and losses
are determined principally on a specific indentification basis.
F-8
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line method over estimated useful lives, as
follows:
Buildings--15 to 25 years
Broadcasting equipment--10 to 12 years
Leasehold improvements--the life of the underlying lease
Furniture and fixtures--3 to 10 years
Transportation equipment--3 years
Broadcast Licenses and Other Intangibles
Excess of purchase price over the fair value of net assets acquired includes
FCC licenses, station call letters, and goodwill. These assets are integral
determinants of a communications property's economic value and have long and
productive lives. Price amortized such assets over a 40-year life commencing
from the original date of acquisition.
Deferred expenses associated with debt instruments were amortized under the
straight-line method over the respective life of such debt instruments. Debt
discounts were amortized using the effective interest method.
Film Broadcast Rights
The cost of film broadcast rights is stated at the lower of cost or
estimated net realizable value. The total cost of the rights is recorded as an
asset and a liability when the program becomes available for broadcast. The
cost of film broadcast rights is charged to operations on the basis of the
estimated number of showings or, if unlimited showings are permitted, over the
terms of the broadcast license agreements. The current portion of film
broadcast rights represent those rights that will be amortized in the
succeeding year. Amortization of film broadcast rights included in operating
expenses amounted to approximately $333,800, $1,831,300, and $1,077,000 for
the years ended December 31, 1996, 1995, and 1994, respectively.
Revenue Recognition
Advertising revenue is recognized as income when the advertisements are
broadcast.
Revenue from barter transactions (advertising provided in exchange for goods
and services) is recognized as income when advertisements are broadcast, and
merchandise or services received are charged to expense when received or used.
Credit Risk
Price provides an allowance for doubtful accounts based on reviews of its
customers' accounts. Included in operating expenses is bad debt expense of
approximately $179,000, $84,000, and $319,000 for the years ended December 31,
1996, 1995, and 1994, respectively.
Per Share Data
Net income per share is based on net income for the period divided by the
weighted average number of shares of common stock and common stock equivalents
outstanding, which were approximately 9.5, 10.4, and 12.4 million shares for
1996, 1995, and 1994, respectively. All presentations of shares outstanding
and amounts for 1995 and 1994 have been restated to reflect the five-for-four
common stock split in April, 1995 (Note 13).
F-9
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Fair Market Value of Stock Options
During 1996, Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation" ("SFAS 123") became effective. SFAS 123 requires
all companies to change what they disclose about their employee stock-based
compensation plans. This statement requires that companies either (1) record,
as compensation expense, the fair market value, as defined, of stock options
issued to employees, or (2) if the company elects to not record the fair
market value of stock options granted as compensation expense, to disclose the
pro forma impact on net income and earnings per share as if such compensation
expense was recorded. Price has elected to adopt the disclosure requirements.
The impact of adopting these disclosure requirements was immaterial to Price
in 1995 and 1996.
Income Taxes
Price accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). Under the asset and liability method of SFAS 109,
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. 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.
3. ACQUISITION OF WHTM-TV
On September 16, 1994, Price acquired all of the outstanding shares of the
corporation which owns all of the assets of WHTM-TV, the ABC affiliate serving
the Harrisburg-York-Lancaster-Lebanon, Pennsylvania television market for
approximately $47 million plus a working capital adjustment of approximately
$4 million. The acquisition was accounted for under the purchase method, and
accordingly, the operating results of WHTM-TV have been included in the
consolidated operating results since the date of acquisition. Funds for the
acquisition were provided by cash on hand and a credit facility from the Bank
of Montreal ("BMO") of $45 million (Note 9), which was reduced to $22.5
million upon the sale of Price's radio properties in West Palm Beach during
October of 1994 (Note 4). The acquisition resulted in intangible assets,
primarily broadcast licenses of approximately $44.2 million and goodwill of
approximately $18.6 million, both of which were being amortized over a forty
year period.
4. DISPOSITIONS
In February 1994, Price sold its outdoor advertising business for a total of
$875,000 in cash and notes receivable (Note 5). This disposition resulted in a
pretax loss of $350,000.
In April 1994, Price sold substantially all of the assets of its radio
properties, WWKB-AM and WKSE-FM in Buffalo, New York, for $5 million in cash.
Price realized a pretax gain of approximately $3.2 million on this
transaction.
In May 1994, Price sold all of the stock of Eimar Realty Corporation, its
then wholly owned subsidiary, which held a building in Nashville, Tennessee,
to TLM Corporation, a former subsidiary of Price. The purchase price was
$815,000 including a note from the purchaser of $540,000 (Note 5). Price's
pretax gain on the transaction was deminimis.
In October 1994, Price sold substantially all of the assets, together with
certain liabilities of radio stations WBZT-AM and WIRK-FM, West Palm Beach,
Florida, for approximately $23 million in cash. Price realized a
F-10
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
pretax gain of approximately $13.5 million on this transaction. The net
proceeds were used to retire $22.5 million under the BMO credit facility (Note
9).
In October 1994, Price sold its building in Red Bank, New Jersey for $1.7
million in cash. Price realized a deminimis gain on the sale.
In November 1994, Price sold substantially all of the assets of radio
stations WOWO-AM and WOWO-FM in Fort Wayne and Huntington, Indiana,
respectively, for $2.3 million in cash. Price recognized a pretax gain on the
sale of approximately $.8 million.
On February 2, 1996, Price sold substantially all of the assets, except cash
and accounts receivable, together with certain liabilities, of its three NBC
affiliates, for approximately $40.7 million in cash. Of the sale proceeds,
approximately $28.7 million was used to repay the principal and interest due
under the BMO term loan agreement. Price recognized a pretax gain of
approximately $29.4 million.
On March 1, 1996, Price sold substantially all of the assets except cash and
accounts receivable, together with certain liabilities of WHTM-TV, its ABC
affiliate serving the Harrisburg-Lancaster-Lebanon-York, Pennsylvania,
television market, for $115 million in cash to Allbritton Communications
Company. Price recognized a pretax gain of approximately $65.6 million.
The gains and losses on the dispositions outlined above have been included
in other (income) expense, net on Price's statement of operations.
5. NOTES RECEIVABLE
Investments in notes receivable include the following:
During 1996, Price loaned $1,000,000 to the Hamilton Group LLC ("Hamilton")
in the form of a Promissory Note bearing interest at the rate of 6% and
payable on December 31, 1999. The maturity date is extendible at the Maker's
option until December 31, 2001. A Director of Price is a participant in
Hamilton.
In 1995 Price received a $655,000 payment on a note receivable originating
from the sale of its outdoor advertising business in 1994. During 1994, Price
set up a reserve of $337,500 against this note receivable. Since this note
receivable was collected in full, the previously established reserve was
reversed and treated as income and included in other (income) expense, net on
Price's consolidated statement of operations.
During 1994, in connection with the sale of Eimar Realty Corporation, Price
received a note from the buyer, TLM Corporation (a former subsidiary of Price)
(Note 4), in the amount of $540,000. The note bears interest at the rate of 5%
per annum, payable quarterly, with principal payable on May 20, 1998.
In connection with the sale in 1987 of seven radio stations to Fairmont
Communications Corporation ("Fairmont") for an aggregate sale price of $120
million, Price loaned $50 million to Fairmont (the "Fairmont Notes") and
acquired a 27% equity interest in Fairmont. The Fairmont Notes were issued in
three series of 12 1/2% increasing rate subordinated notes due in 1992,
extendible at Fairmont's option to 1994. Interest on the notes was payable
quarterly in cash or additional notes at Fairmont's election.
F-11
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
During 1992, Fairmont filed for voluntary relief under Chapter 11 of the
U.S. Bankruptcy Code. At that time Price ceased to record additional notes
related to interest paid in kind since it was not entitled to interest after
that date under the Bankruptcy Code.
During 1993, the United States Bankruptcy Court for the Southern District of
New York confirmed the Chapter 11 Plan of Reorganization (the "Fairmont Plan")
for Fairmont and its subsidiaries. Essentially, the Fairmont Plan provided for
the orderly liquidation of the assets of Fairmont and its subsidiaries, and
the distribution of the proceeds derived therefrom according to the relative
priorities of the parties asserting interests therein. In 1996 and 1995, Price
received net cash payments totaling approximately $62.5 thousand and $7.9
million from the proceeds of the liquidation of Fairmont, respectively. This
amount has been treated as income and included in other (income) expense, net
on Price's consolidated statement of operations.
6. INVESTMENT IN PARTIALLY OWNED COMPANIES
On December 21, 1995, Price acquired warrants for $8,350,000 to purchase
1,819,610 shares of PriCellular Corporation's ("PriCellular") Class B Common
Stock. The exercise price at December 31, 1996 was approximately $4.77 per
share of Class B Common Stock, and escalates over the next three years to
$6.29. During 1996, Price purchased 1,726,250 shares of PriCellular Class A
Common Stock for approximately $13.1 million.
The President of PriCellular is the President of Price.
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
<S> <C> <C>
Land.................................................. $ -- $ 685,000
Buildings............................................. -- 2,403,409
Broadcasting equipment................................ -- 10,783,560
Leasehold improvements................................ 257,236 119,836
Furniture and fixtures................................ -- 551,332
Transportation equipment.............................. -- 596,829
-------- -----------
257,236 15,139,966
Less--Accumulated depreciation and amortization....... (98,236) (3,831,158)
-------- -----------
Net property and equipment............................ $159,000 $11,308,808
======== ===========
</TABLE>
8. OTHER LIABILITIES
Other liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1995
<S> <C> <C>
Liability for broadcast rights........................ $ -- $2,722,343
Income and franchise taxes payable.................... 3,310,774 1,461,995
Other................................................. -- 1,246,760
---------- ----------
3,310,774 5,431,098
Less--Amounts due currently........................... 3,310,774 4,601,409
---------- ----------
$ -- $ 829,689
========== ==========
</TABLE>
F-12
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
9. LONG-TERM DEBT
Long-term debt consists of the following notes payable by wholly-owned
subsidiaries of Price at December 31, 1995:
<TABLE>
<CAPTION>
1995
<S> <C>
Atlantic Broadcasting Corporation, Federal Broadcasting
Corporation, Southeast Texas Broadcasting Corporation and
Tri-State Broadcasting Corporation:
Note payable to BMO under term loan agreement............... $28,000,000
-----------
Total debt................................................ 28,000,000
Less--Amount due currently.................................... 28,000,000
-----------
Total long-term debt...................................... $ --
===========
</TABLE>
On December 12, 1995, Price entered into an amended line of credit agreement
("Credit Agreement") with The Bank of Montreal ("BMO"). The Credit Agreement
created a line of credit for $28 million. Borrowings under the Credit
Agreement were subject to base interest at the BMO base rate, as defined, plus
a maximum of .75% and were secured by the assets of the subsidiaries.
Additionally, there was a commitment fee of .5% on the unused portion of the
Credit Agreement. On December 31, 1995, the effective interest rate was 8.5%.
On February 2, 1996, Price sold its three NBC affiliates and used a portion
of the proceeds to pay $28 million plus interest to BMO to terminate the
Credit Agreement.
10. INCOME TAXES
Provision (benefit) for income taxes is approximately:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal................................. $13,673,000 $ -- $ 300,000
State and local......................... 10,219,000 447,000 1,489,000
----------- --------- ----------
23,892,000 447,000 1,789,000
----------- --------- ----------
Deferred:
Federal................................. 692,000 (560,000) (97,000)
State and local......................... -- (134,000) (39,000)
----------- --------- ----------
692,000 (694,000) (136,000)
----------- --------- ----------
Tax provision (benefit)................... $24,584,000 $(247,000) $1,653,000
=========== ========= ==========
</TABLE>
F-13
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
For the years ended December 31, 1996 and 1995, the provision for income
taxes differs from the amount computed by applying the federal income tax rate
(35%) because of the effect of the following items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Tax at federal income tax rate...... $ 33,338,000 $ 3,808,000 $ 5,627,000
State taxes, net of federal income
tax benefit........................ 7,487,000 291,000 942,000
Benefits of utilization of operating
loss carryforwards................. (33,729,000) (4,975,000) (5,120,000)
Amortization of goodwill and other
intangibles........................ 117,000 217,000 309,000
Basis difference and Goodwill on
sold Properties.................... 17,088,000 -- --
Other............................... 283,000 412,000 (105,000)
------------ ----------- -----------
$ 24,584,000 $ (247,000) $ 1,653,000
============ =========== ===========
</TABLE>
Price had, as of December 31, 1996 and 1995, deferred tax assets of $516,000
and $34,295,000 which were subject to a valuation allowance of approximately
$166,000 and $31,925,000, respectively. The allowance has been recognized to
offset the related tax asset due to the uncertainty of the realization of
benefit of such amount. These deferred tax assets and liabilities consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1995
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance
for doubtful accounts............................. $ 166,000 $ 100,000
Notes from and investment in partially owned compa-
nies.............................................. -- --
Minimum tax credit carryforward.................... -- 642,000
Capital loss carryforwards......................... -- 10,681,000
Net operating loss carryforwards................... -- 22,406,000
Investment tax credit carryforwards................ -- 100,000
Notes receivable, principally due to reserves...... -- 136,000
Reserve on long-term investments................... 350,000 --
Other.............................................. -- 230,000
---------- -----------
516,000 34,295,000
---------- -----------
Deferred tax liabilities:
Unrealized gain on available-for-sale securities
times the estimated tax rate of 35%............... 1,043,000 --
Property and equipment, principally due to
differences in depreciation and the effect of
Fresh Start Reporting............................. -- 2,370,000
Intangible asset FCC license....................... -- 17,971,000
---------- -----------
$1,043,000 $20,341,000
========== ===========
</TABLE>
F-14
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
11. OTHER INCOME, NET
Other income, net, consists of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Gains on sales of properties, net.. $(94,998,417) $ -- $(17,219,231)
Interest income.................... (4,583,297) -- (201,896)
Loss on disposition of equipment... -- -- 47,529
(Recovery) reserve for losses on
notes receivable, net (Note 5).... (62,500) (7,884,884) 737,500
Loss on write-down of long-term in-
vestment.......................... 1,000,000 -- --
Loss on purchase of common stock
(Note 13)......................... -- 1,185,662 --
Other, net......................... 271,855 (580,993) 391,530
------------ ----------- ------------
$(98,372,359) $(7,280,215) $(16,244,568)
============ =========== ============
</TABLE>
12. SEGMENT DATA
Price's business operations were previously classified into two segments:
Television and Radio Broadcasting and Other. Price sold its radio stations and
outdoor advertising business during 1994 and accordingly operated in only one
segment in 1996 and 1995. The segment data for 1994 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------------------------
BROADCASTING
----------------------
TELEVISION RADIO OTHER CONSOLIDATED
<S> <C> <C> <C> <C>
Net revenue.................. $16,756,288 $7,233,424 $ 49,420 $24,039,132
Operating expenses........... 9,651,752 5,250,629 59,018 14,961,399
Depreciation and amortiza-
tion........................ 2,464,785 577,430 269,834 3,312,049
----------- ---------- --------- -----------
Operating income (loss)*..... $ 4,639,751 $1,405,365 $(279,432) $ 5,765,684
=========== ========== ========= ===========
</TABLE>
- ---------------------
* Operating income (loss) is before corporate expenses, other income-net,
interest expense, amortization of debt discount and deferred debt expense,
share of loss of partially owned companies, reorganization items, income
taxes and extraordinary items.
13. SHAREHOLDERS' EQUITY
Price currently has outstanding warrants on its common stock exercisable for
approximately 124,000 shares at an exercise price of $4.23 per share during
the five-year period ending September 30, 1998.
In October 1994, Price's Board of Directors enacted a Stockholders' Rights
Plan (the "Plan") designed to protect the interests of Price's shareholders in
the event of a potential takeover for a price which does not reflect Price's
full value or which is conducted in a manner or on terms not approved by the
Board as being in the best interests of Price and its shareholders. The Board
has declared a dividend distribution of One Common Stock Purchase Right on
each outstanding share of Common Stock of Price. The Rights provide, in
substance, that should any person or group acquire 20% or more of Price's
Common Stock, each Right, other than Rights held by the acquiring person or
group, would entitle its holder to purchase a specified number of Price
Communications Corporation common shares for 50% of their then current market
value. In addition, the Rights may be exercised at the holders option, at a
purchase price of $22.50 per share at any time prior to the termination
F-15
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
of the Plan. Unless a 20% acquisition has occurred, the Rights may be redeemed
by Price at any time prior to the termination date of the Plan.
On February 10, 1994, Price's Board of Directors authorized the repurchase
by Price of up to 2,500,000 shares of its Common Stock. Price is authorized to
make such purchases from time to time in the market or in privately negotiated
transactions when it is legally permissible to do so or believed to be in the
best interests of its shareholders. During the year ended December 31, 1994,
Price repurchased and retired approximately 1,245,000 shares pursuant to that
authorization.
On February 1, 1995, Price purchased 1,077,875 shares of its common stock
from S.A.C. Capital Management, L.P. for approximately $6.6 million. This
transaction was approved by Price's Board of Directors. Price paid a premium
over the daily quoted market price of approximately $1.2 million that is
recorded as other (income) expense on Price's consolidated statement of
operations.
In March 1995, at Price's Annual Meeting, the shareholders authorized the
creation of 20 million shares of undesignated Preferred Stock for acquisitions
and other purposes. No preferred stock had been issued as of December 31,
1996.
On April 8, 1995, Price's Board of Directors approved a five-for-four stock
split of Price's Common Stock to shareholders of record as of the close of
business on March 27, 1995. Price issued approximately 2 million shares of
Common Stock. The stated par value of each share was not changed from $.01.
All presentations of shares outstanding and amounts per share in years prior
to 1995 have been restated to reflect the 1995 stock split.
In March 1995, Price's Board of Directors authorized the purchase of up to
1.3 million shares of its Common Stock in the open market or in privately
negotiated transactions when it is legally permissible to do so or believed to
be in the best interest of Price's shareholders, in addition to previous
authorizations. Approximately 644,000 and 1.7 million shares were purchased
and retired in 1996 and 1995, respectively, under this new authorization and
previous authorizations.
14. STOCK OPTION PLAN
Price has a long-term incentive plan, (the "1992 Long Term Incentive Plan")
which provides for granting incentive stock options, as defined under current
tax law, and other stock-based incentives to key employees and officers. The
maximum number of shares of Price that are subject to awards granted under the
1992 Long Term Incentive Plan is 1,250,000. The exercise of such options,
other than those granted on December 10, 1992, will be exercisable at a price
not less than the fair market value on the date of the grant, for a period up
to ten years.
The following table sets forth information with respect to Price's stock
options for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDER OPTION
-----------------------------
OPTION
1996 1995 PRICE RANGE
<S> <C> <C> <C>
Exercised..................................... 102,666 57,260 $2.15
Canceled...................................... 39,094 -- 2.15-3.00
Granted....................................... 22,000 145,750 3.00-7.88
Outstanding................................... 704,750 824,510 2.15-7.88
Reserved for issuance......................... 240,759 262,759
</TABLE>
The above has been restated to reflect the April, 1995 five-for-four common
stock split.
F-16
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
15. COMMITMENTS AND CONTINGENCIES
Price is involved in various claims and litigation in the ordinary course of
business. In the opinion of legal counsel and management, the ultimate
disposition of these matters will not have a material adverse effect on
Price's financial condition.
Price has an employment agreement with Robert Price covering base salary and
incentive compensation. The agreement is for a term of three years commencing
October 1994, at a base salary of $300,000 and is extendible for periods of
three years at Price's option. Cash performance bonuses and stock option
awards are determined solely at the discretion of the Board of Directors or
the Stock Option Committee, respectively.
Price and its subsidiaries lease a variety of assets used in their
operations, including office space. Renewal options are available in the
majority of leases. The following is a schedule of Price's minimum rental
commitment for operating leases of real and personal property for each of the
five years subsequent to 1996 and in the aggregate:
<TABLE>
<CAPTION>
OPERATING LEASES
<S> <C>
Year:
1997...................................................... $268,009
1998...................................................... 268,009
1999...................................................... 268,009
2000...................................................... 281,905
2001...................................................... 281,905
Thereafter................................................ 536,810
</TABLE>
Rental expense, net of sublease income, for operating leases was
approximately $158,000, $187,250 and $312,000 for the years ended December 31,
1996, 1995, and 1994, respectively.
16. SUBSEQUENT EVENTS
In January and February 1997, Price purchased 50,000 shares of PriCellular's
Class A Common Stock for approximately $478,000.
In January and February 1997, Price repurchased 1.9 million shares of its
Common Stock in the open market and in privately negotiated transactions for
approximately $18.1 million.
17. SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental disclosure cash flow information for the years
ended December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash paid for:
Income taxes paid, net of refunds...... $23,275,000 $ 339,862 $ 240,102
Interest paid.......................... 712,855 1,534,245 813,493
Non-cash operating activities:
Trade/barter revenue................... -- 1,439,760 1,117,218
Trade/barter expense................... -- 1,439,760 962,356
</TABLE>
F-17
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- ------------
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $35,989,185 $ 83,356,748
Investment securities:
Trading securities............................... -- 4,045,628
Available-for-sale securities.................... 18,332,809 8,694,966
Securities fair value adjustment................. 1,045,317 --
Accounts receivable, net of allowance for doubtful
accounts of $0 in 1997 and $473,579 in 1996....... -- 488,882
Prepaid expenses and other current assets.......... 159,861 18,672
Deferred Costs..................................... 3,000,000 --
----------- ------------
Total current assets........................... 58,527,172 96,604,896
----------- ------------
PROPERTY AND EQUIPMENT, AT COST LESS ACCUMULATED
DEPRECIATION........................................ 133,944 159,000
LONG-TERM INVESTMENTS................................ 36,379,938 18,204,429
DEFERRED TAX ASSET................................... 350,000 350,000
NOTES RECEIVABLE..................................... 540,000 540,000
OTHER ASSETS......................................... 29,500 29,500
----------- ------------
Total assets................................... $95,960,554 $115,887,825
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.............. $ 1,975,883 $ 2,755,497
Deferred tax liability............................. 365,861 1,042,862
Other current liabilities.......................... 3,265,793 3,310,774
----------- ------------
Total current liabilities...................... 5,607,537 7,109,133
Preferred Stock, Series A, no par value;
728,133 shares authorized, issued and
outstanding................................... 25,000 --
Preferred Stock, Series B, no par value;
364,066 shares authorized, issued and
outstanding................................... 10,000 --
SHAREHOLDERS' EQUITY:
Preferred Stock, par value $.01 per share;
authorized 20,000,000, no shares outstanding...... 10,900
Common Stock, par value $.01 per share; authorized
40,000,000 shares, outstanding 6,861,814 shares in
1997 and 9,038,808 shares in 1996................. 72,938 90,388
Additional paid-in capital......................... 19,855,352 12,240,133
Unrealized gain (loss) on marketable equity
securities, net of tax effect..................... 679,456 1,936,743
Retained earnings.................................. 95,120,817 94,511,428
Treasury Stock, 2,291,953 shares of common stock at
cost.............................................. (25,421,446) --
----------- ------------
Total shareholders' equity..................... 85,709,227 108,778,692
----------- ------------
Total liabilities and shareholders' equity..... $95,960,554 $115,887,825
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
F-18
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
-------------------------
1997 1996
----------- ------------
<S> <C> <C>
Revenue.............................................. $ -- $ 3,491,441
Agency and representatives' commissions.............. -- 529,577
----------- ------------
Net revenue.......................................... -- 2,961,864
----------- ------------
Operating expenses................................... -- 2,131,801
Corporate expenses................................... 1,362,736 1,210,919
Other income, net.................................... (2,464,005) (492,500)
Gain on sale of media properties..................... -- (95,451,878)
Interest expense..................................... 48,302 212,376
Depreciation and amortization........................ 25,056 442,357
----------- ------------
(1,027,911) (91,946,923)
----------- ------------
Income (loss) before income taxes.................... 1,027,911 94,908,787
Income tax expense (benefit)......................... 451,964 24,866,075
----------- ------------
Net income (loss).................................... $ 609,389 $ 70,042,712
=========== ============
Income per share..................................... $ .08 $ 7.03
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements
F-19
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net cash provided by (used in) operating
activities........................................ $ (269,391) $ 7,323,542
Cash flows provided by (used in) investing
activities:
Purchase of marketable securities................ (9,539,996) --
Sale of marketable securities.................... 10,138,379 --
Proceeds from sale of media properties........... -- 156,007,011
Gain on sale of media properties................. -- (71,662,104)
Purchase of available-for-sale securities and
long-term investments........................... (32,496,562) --
Sale of available-for-sale securities and long-
term investments................................ 5,577,308 --
Long-term investment in equity securities ....... -- (2,010,000)
Capital expenditures............................. -- (100,619)
------------ ------------
Net cash provided by (used in) investing (26,320,871) 82,234,288
activities........................................ ------------ ------------
Cash flows used in financing activities:
Repayment of long-term debt...................... -- (28,000,000)
Proceeds from Issuance of Preferred Stock, Series
A............................................... 25,000 --
Proceeds from Issuance of Preferred Stock, Series
B............................................... 10,000 --
Purchase of Company common stock................. (20,877,152) (2,097,200)
Proceeds from stock options exercised............ 64,851 293,059
------------ ------------
Net cash used in financing activities.............. (20,777,301) (29,804,141)
------------ ------------
Net increase (decrease) in cash and cash
equivalents....................................... (47,367,563) 45,106,141
Cash and cash equivalents at beginning of quarter.. 83,356,748 1,206,557
------------ ------------
Cash and cash equivalents at end of quarter........ $ 35,989,185 $ 46,313,162
============ ============
Supplemental information:
Income taxes paid, net of refunds................ $ 53,289 $ 11,789,500
============ ============
Interest paid.................................... $ 36,604 $ 712,855
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-20
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Price
Communications Corporation ("Price") and its subsidiaries. All significant
intercompany items and transactions have been eliminated.
The consolidated financial statements have been prepared by Price without
audit, in accordance with rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the statements reflect all
adjustments necessary for a fair presentation of the results for the interim
periods. All such adjustments are of a normal, recurring nature. The results
of operations for any interim period are not necessarily indicative of the
results for a full year.
2. REDEEMABLE PREFERRED STOCK
In May 1997, Price's Board of Directors and Compensation Committee
authorized the issuance to Mr. Price of approximately 728,000 shares of
Price's newly authorized Series A Preferred Stock ("Preferred Stock"), in
respect of which, in the event of (i) a merger of Price, the sale or exchange
of all or substantially all of Price's assets or the occurrence of any other
transaction or event as a result of which the holders of Common Stock receive
at least $22.00 per share or (ii) the acquisition of more than 50% of the
voting power of the securities of Price then outstanding by any person, entity
or group, provided the market value of the Common Stock of Price at such time
is at least $22.00 per share (the amount per share received by holders of
Common Stock or the market price per share of Common Stock described above
being referred to as the "Transaction Price"), Mr. Price would receive a
payment per each share of the Preferred Stock equal to the sum of 25% of the
excess of the Transaction Price per share (up to $32.00) over $9.125, 50% of
the excess of the Transaction Price per share (up to $42.00) over $32.00, 100%
of the excess of the Transaction Price per share (up to $52.00) over $42.00,
and 125% of the excess of the Transaction Price per share over $52.00. Each
share of Preferred Stock is entitled to one vote per share, and to receive
dividends and liquidation distributions (other than in a transaction resulting
in a payment as described above) at the rate of 1% of the dividends and
liquidation distributions payable with respect to a share of Common Stock.
The shares of Preferred Stock will be repurchased by Price in the event of
Mr. Price's death or termination of employment prior to a transaction
resulting in a payment as aforesaid, as follows:
(i) If his employment with the company terminates because of death or
disability or termination by Price not for cause, or his retirement
subsequent to the Price's Common Stock trading for an average of at least
$22.00 per share over a period of 10 consecutive trading days, Price will
repurchase the Preferred Stock at its then fair market value, as determined
by appraisal.
(ii) If his employment terminates for any reason except as aforesaid,
Price will repurchase the Preferred Stock at the lower of the price paid by
him for such stock or its then fair market value, as determined by
appraisal.
The foregoing provisions with respect to the Preferred Stock are subject to
appropriate adjustment in the event of a stock split, stock dividend or
similar event affecting the Price Common Stock.
In May 1997, Price's Board of Directors and Compensation Committee
authorized the issuance to Mr. Price of approximately 364,000 shares of
Price's newly authorized Series B Preferred Stock, in respect of which, in the
event of (i) a merger of Price, the sale or exchange of all or substantially
all of Price's assets of the occurrence of any other transaction or event as a
result of which the holders of Common Stock receive at least $15.00 per share
or (ii) the acquisition of more than 50% of the voting power of the securities
of Price then outstanding by any person, entity or group, provided that the
market value of the Common Stock of Price at such time is at least $15.00 per
share (the amount per share received by holders of Common Stock or the market
price per share of Common Stock described above being referred to as "Series B
Transaction Price"), Mr. Price would receive a
F-21
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. REDEEMABLE PREFERRED STOCK (CONTINUED)
payment per each share of Series B Preferred Stock equal to the Series B
Transaction Price per share over $10.00. Each share of the Series B Preferred
Stock is entitled to one vote per share, and to receive dividends and
liquidation distributions (other than in a transaction resulting in the
payment as described above) at a rate of 1% of the dividends and liquidation
distributions payable with respect to a share of the common stock.
The shares of the Series B Preferred Stock will be repurchased by Price upon
Mr. Price's request, provided that the trading price of the Price Common Stock
during any period of 10 consecutive trading days prior to such request was at
least $15.00 per share, for a purchase price equal to its then fair market
value, as determined by appraisal. In addition, the shares of Series B
Preferred Stock will be repurchased by Price in the event Mr. Price's death or
termination of employment prior to the transaction resulting in the payment as
set forth in the preceding paragraph, as follows:
(i) If his employment with Price terminated because of death or
disability or termination by Price not for cause, or his retirement
subsequent to the Price Common Stock trading for an average of at least
$15.00 per share over a period of 10 consecutive trading days, Price will
repurchase the series B Preferred Stock at its then fair market value, as
determined by appraisal.
(ii) If his employment terminates for any reason as aforesaid, Price will
repurchase the Series B Preferred Stock at the lower of the price paid by
him for such stock or its then fair market value, as determined by
appraisal.
3. THE ACQUISITION
On May 23, 1997, Price, Price Communications Wireless, Inc., a wholly-owned
indirect subsidiary of Price ("PCW") and Palmer Wireless, Inc. ("Palmer")
entered into an Agreement and Plan of Merger (the "Palmer Merger Agreement")
which provides, among other things, for the merger of PCW with and into
Palmer, with Palmer as the surviving corporation (the "Palmer Merger"). At or
subsequent to the Palmer Merger, Palmer will change its name to "Price
Communications Wireless, Inc." Pursuant to the Palmer Merger Agreement, Price
has agreed to acquire each issued and outstanding share of common stock of
Palmer for a purchase price of $17.50 per share in cash and to purchase
outstanding options and rights under Palmer's employee and director stock
purchase plans for an aggregate purchase price of $488.9 million. In addition,
Price has agreed to repay the outstanding indebtedness of Palmer estimated to
be up to approximately $389 million. In connection with this transaction, PCW
has entered into an agreement to sell (subject to the satisfaction of certain
conditions) at the effective time of the Palmer Merger, Palmer's Fort Myers,
Florida MSA for $168 million (which will generate proceeds to the Company of
approximately $166.3 million) (the "Fort Myers Sale" and, together with the
Palmer Merger, the "Acquisition"). The proceeds of the Fort Myers Sale will be
used to fund a portion of the Acquisition.
The consummation of the Acquisition is subject to the satisfaction of
certain conditions contained in the Palmer Merger Agreement, including, among
other things, Federal Communications Commission and Palmer shareholder
approval. Price also entered into an agreement with Palmer Communications
Incorporated ("PCI"), which is the majority shareholder of Palmer, pursuant to
which PCI has agreed to vote its share of common stock of Palmer in favor of
the Palmer Merger. Price expects the Acquisition to be consummated in October
1997.
In order to fund the Acquisition and pay related fees and expenses, on July
2, 1997 PCW issued $175 million aggregate principal amount of 11 3/4% Senior
Subordinated Notes due 2007 (the "PCW Offering") and will enter into a
syndicated senior loan facility providing for term loan borrowings in the
aggregate principal amount of approximately $325 million and revolving loan
borrowings of $200 million (the "New Credit Facility"). Although the PCW
Offering has been consummated, the notes issued thereunder are subject to
F-22
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. THE ACQUISITION (CONTINUED)
mandatory redemption if the Acquisition has not occurred by December 31, 1997
or if in the sole judgement of Price it appears that the Acquisition will not
be consummated by December 31, 1997. At the effective time of the Palmer
Merger, PCW is expected to borrow all term loans available under the New
Credit Facility and approximately $100 million of revolving loans. The
remaining revolving loans will, subject to a borrowing base and certain other
conditions, be available to fund the working capital requirements of PCW. On
July 2, 1997, Price received an executed commitment letter from a financial
institution to provide the New Credit Facility. The commitment is subject to
significant conditions, including the absence of material adverse change in
the business of Palmer, and negotiation, execution and delivery of definitive
documentation and consummation of the Fort Myers Sale (or arrangements
satisfactory to the lenders under the New Credit Facility for short-term
financing bridging such sale).
An additional $47.5 million of the purchase price has been raised through an
offering by Price Communications Cellular Holdings, Inc., a wholly-owned
indirect subsidiary of Price and the direct parent of PCW, of units consisting
of Senior Secured Discount Notes due 2007 and warrants to purchase shares of
Common Stock Price.
4. SHAREHOLDER'S EQUITY
On April 21, 1997, Mr. Price, exercised 625,000 employee stock options. The
options were issued at fair market value.
During the quarter ended June 30, 1997, Price repurchased approximately
2,177,000 shares of its common stock at an average price of $9.59 per share.
In June 1997, Price entered into a transaction with NatWest Capital Markets
Limited ("NatWest"), whereby Price issued to NatWest 1,129 units (the "PIK
Units") of PIK Preferred Stock and warrants ("PIK Warrants"), in part, in
exchange for 2,291,953 shares of Common Stock held by NatWest and, in part, in
payment of $3 million of NatWest's fee in connection with its acting as
initial purchaser in connection with the Cellular Holdings Offering. Each PIK
Unit consists of 1,000 shares of PIK Preferred Stock, each with a liquidation
value of $25.00 per share, and PIK Warrants to purchase an aggregate of
582,112 shares of Price Common Stock, representing in the aggregate 10% of the
fully diluted shares of Common Stock of Price at an exercise price of $0.01
per share. The PIK Preferred Stock is callable, together with the PIK
Warrants, by Price, at any time in whole or in part on or prior to 90 days
from issue date and at any time thereafter if NatWest or an affiliate is the
holder of all the PIK Preferred Stock, at a redemption price equal to 100% of
the liquidation preference of the PIK Preferred Stock plus accrued dividends.
5. LONG-TERM INVESTMENTS
Long-term investments include shares of Palmer common stock that Price
acquired on the open market for approximately $13,991,000 in connection with
the Acquisition (see Note 3).
6. PER SHARE DATA
Primary income per common share is based on income for the period divided by
the weighted average number of shares of common stock and common stock
equivalents outstanding, which was approximately 7,148,832 and 7,505,616 for
the three and six months ended June 30, 1997, respectively, and 9,896,000 and
9,962,000 for the three and six months ended June 30, 1996, respectively.
F-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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 TOTAL
<S> <C> <C> <C> <C> <C>
Total Revenue........... $36,950 $40,031 $41,171 $41,591 $159,743
======= ======= ======= ======= ========
Operating Income........ $ 8,514 $11,281 $11,977 $ 9,405 $ 41,177
======= ======= ======= ======= ========
Net Income (Loss)....... $ 76 $ 1,684 $ 2,976 $ (54) $ 4,682
======= ======= ======= ======= ========
Net Income (Loss) Per
Share*................. $ .00 $ .07 $ .10 $ (.00) $ .18
======= ======= ======= ======= ========
</TABLE>
- ---------------------
(a) First quarter loss was increased by $2,650 due to the recognition of
deferred income taxes relating to the difference between financial
statement and income tax return bases of certain assets and liabilities
in connection with the Exchange.
(b) Certain reclassifications have been made to conform to the fourth quarter
presentation.
* Weighted average shares outstanding for the quarters are calculated
independent of the weighted average shares outstanding for the year;
therefore, quarterly net income (loss) per share may not total to annual
net income per share.
(10) SUBSEQUENT EVENT
On February 1, 1997, one of the Company's majority-owned subsidiaries
acquired the assets of and license to operate the non-wireline cellular
telephone system serving the Georgia Rural Service Area Market No. 383,
otherwise known as Georgia-13 RSA for a total purchase price of $30,000,
subject to certain adjustments.
F-41
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents............................ $ 1,698 $ 1,740
Trade Accounts Receivable, Net of Allowance for
Doubtful Accounts................................... 18,784 19,049
Receivable from Other Cellular Carriers.............. 1,706 3,669
Deferred Income Taxes................................ 830 980
Prepaid Expenses and Deposits........................ 2,313 1,794
Inventory............................................ 5,106 3,181
-------- --------
Total Current Assets............................... $ 30,437 $ 30,413
Net Property, Plant and Equipment...................... 132,438 157,596
Licenses, Net of Amortization.......................... 375,808 398,845
Other Intangible Assets and Other Assets, at Cost Less
Accumulated Amortization.............................. 11,259 10,348
-------- --------
$549,942 $597,202
======== ========
LIABILITIES AND EQUITY
Current Liabilities:
Notes Payable........................................ $ 1,366 $ 2,321
Current Installments of Long-Term Debt............... 5,296 --
Accounts Payable..................................... 10,394 9,032
Accrued Expenses..................................... 8,399 11,896
Other Liabilities.................................... 4,686 4,874
-------- --------
Total Current Liabilities.......................... $ 30,141 $ 28,123
Long-Term Debt, Excluding Current Installments......... 337,000 378,000
Deferred Income Taxes.................................. 11,500 15,326
Minority Interests..................................... 6,371 7,123
-------- --------
Total Liabilities.................................. $385,012 $428,572
-------- --------
Stockholders' Equity................................... 164,930 168,630
-------- --------
$549,942 $597,202
======== ========
</TABLE>
- ---------------------
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
F-42
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Revenue:
Service.............................................. $ 72,741 $ 88,140
Equipment sales and installation..................... 4,239 5,088
---------- ----------
Total revenue...................................... $ 76,980 $ 93,228
---------- ----------
Operating expenses:
Engineering, technical and other direct.............. 14,939 15,554
Cost of equipment.................................... 8,397 11,057
Selling, general and administrative.................. 21,977 27,204
Depreciation and amortization........................ 11,872 15,129
---------- ----------
Total operating expenses........................... $ 57,185 $ 68,944
---------- ----------
Operating income................................... $ 19,795 $ 24,284
---------- ----------
Other income (expense):
Interest expense, net................................ (16,006) (16,113)
Other (expense) income, net.......................... (58) 162
---------- ----------
Total other expense................................ $ (16,064) $ (15,951)
---------- ----------
Income before minority interest share of
income and income taxes........................... $ 3,731 $ 8,333
Minority interest share of income ..................... (1,023) (782)
---------- ----------
Income before income taxes........................... $ 2,708 $ 7,551
Income taxes........................................... (948) (3,851)
---------- ----------
Net income........................................... $ 1,760 $ 3,700
========== ==========
Net income per share of common stock................... $ 0.07 $ 0.13
========== ==========
Average shares outstanding............................. 23,940,039 27,813,259
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-43
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
CLASS A CLASS B ADDITIONAL TREASURY STOCK TOTAL
------------------ ----------------- PAID-IN RETAINED --------------- STOCKHOLDERS'
SHARES AMOUNTS SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
---------- ------- ---------- ------ ---------- -------- ------- ------- -------------
<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 op-
tions.................. 6,666 -- -- -- 95 -- -- -- 95
Employee and non-em-
ployee director stock
purchase plans......... 17,243 -- -- -- 290 -- -- -- 290
Treasury shares pur-
chased................. 600,000 (8,864) (8,864)
Net income.............. -- -- -- -- -- 4,682 -- -- 4,682
---------- ---- ---------- ---- ------- ------- ------- ------- --------
Balances at December 31,
1996................... 11,119,681 $111 17,293,578 $173 166,975 $ 6,535 600,000 $(8,864) $164,930
Net income.............. -- -- -- -- -- 3,700 -- -- 3,700
---------- ---- ---------- ---- ------- ------- ------- ------- --------
Balances at June 30,
1997................... 11,119,681 $111 17,293,578 $173 166,975 $10,235 600,000 $(8,864) $168,630
========== ==== ========== ==== ======= ======= ======= ======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-44
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------
1996 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 1,760 $ 3,700
--------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 11,872 15,129
Minority interest share of income..................... 1,023 782
Deferred income taxes................................. 498 3,676
Loss (gain) on disposal of property................... 59 (9)
Interest deferred and added to long-term debt......... 326 --
Payment of deferred interest.......................... -- (1,514)
(Increase) decrease in trade accounts receivable...... (809) 500
Decrease in inventory................................. 358 2,085
(Decrease) increase in accounts payable and accrued
expenses............................................. (1,629) 1,799
Change in other accounts.............................. 2,345 (576)
--------- --------
Total adjustments..................................... $ 14,043 $ 21,872
--------- --------
Net cash provided by operating activities........... $ 15,803 $ 25,572
--------- --------
Cash flows from investing activities:
Capital expenditures.................................... (21,639) (31,700)
Proceeds from sales of property and equipment........... 4 201
Purchase of cellular systems............................ (31,500) (31,260)
Collection of purchase price adjustment................. 2,452 --
Purchases of minority interests......................... (1,254) (794)
Increase in other intangible assets and other assets.... (1,710) (1 50)
--------- --------
Net cash used in investing activities................. $ (53,647) $(63,703)
--------- --------
Cash flows from financing activities:
Increase in short term notes payable.................... 2,535 955
Repayment of long-term debt............................. (100,050) (3,782)
Proceeds from long-term debt............................ 39,000 41,000
Public offering proceeds, net........................... 94,295 --
--------- --------
Net cash provided by financing activities............. $ 35,780 $ 38,173
--------- --------
Net (decrease) increase in cash and cash equivalents.. $ (2,064) $ 42
Cash and cash equivalents at the beginning of period...... 3,436 1,698
--------- --------
Cash and cash equivalents at the end of period............ $ 1,372 $ 1,740
========= ========
Supplemental disclosure of cash flow information:
Income taxes paid (received), net....................... $ 1,172 $ (617)
========= ========
Interest paid........................................... $ 14,460 $ 16,328
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-45
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Palmer
Wireless, Inc. and subsidiaries (the "Company") have been prepared without
audit pursuant to Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financials. In the opinion of management, all adjustments (none of which were
other than normal recurring items) considered necessary for a fair
presentation have been included. The results of operations for the interim
periods reported are not necessarily indicative of results to be expected for
the year.
The computation of net income per share is based on the weighted average
number of common and, as appropriate, dilutive common equivalent shares
(common stock options using the treasury stock method) outstanding during the
periods presented.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 Statement of Operations
to conform to the 1997 presentation.
(2) ACQUISITION AND PURCHASE OF LICENSE
On February 1, 1997, one of the Company's majority-owned subsidiaries
acquired the assets of and license to operate the non-wireline cellular
telephone system serving the Georgia Rural Service Area Market No. 383,
otherwise known as Georgia-13 RSA, for a total purchase price of $31,260.
(3) PROPOSED SALE
On May 23, 1997, the Company entered into an agreement to sell its
outstanding shares of common stock to Price Communications Corporation for a
purchase price of $17.50 per share, for an aggregate purchase price of
approximately $489,000. In addition, Price Communications Corporation has also
agreed to repay up to $389,000 of outstanding indebtedness of the Company.
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ANNEX I
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into this
23rd day of May, 1997, by and among PALMER WIRELESS, INC., a Delaware
corporation (the "Company"), PRICE COMMUNICATIONS CORPORATION, a New York
corporation ("Acquiror"), and PRICE COMMUNICATIONS CELLULAR MERGER CORP., a
Delaware corporation ("Merger Sub").
WHEREAS, the Boards of Directors of the Company, Acquiror and Merger Sub
have each determined that it is fair to, and in the best interests of their
respective stockholders that Merger Sub, a wholly-owned subsidiary of
Acquiror, merge with and into the Company, pursuant to and subject to the
terms and conditions of this Agreement and the Delaware General Corporation
Law ("Delaware Law"); and
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Acquiror to enter into this Agreement, Palmer Communications
Incorporated, a Delaware corporation ("PCI"), has entered into a voting
agreement with Acquiror (the "Voting Agreement") pursuant to which, among
other things, PCI has agreed to vote its shares of common stock of the Company
in favor of this Agreement, the Merger (as defined below) and the other
transactions contemplated by this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agrees as follows:
ARTICLE I
The Merger
Section 1.1. The Merger.
Upon the terms and subject to the conditions set forth in this Agreement
(including approval of the Federal Communications Commission (the "FCC")), and
in accordance with Delaware Law, at the Effective Time (as defined in Section
1.2) Merger Sub shall be merged with and into the Company (the "Merger"). As a
result of the Merger, the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the surviving corporation of the
Merger (sometimes referred to herein as the "Surviving Corporation") and a
wholly-owned subsidiary of Acquiror. The name of the Company shall continue as
the name of the Surviving Corporation.
Section 1.2. Effective Time.
At the Closing, the parties hereto shall cause the Merger to be consummated
by filing a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware, in such form as required by, and
executed in accordance with the relevant provisions of, Delaware Law and in
such form as approved by the Company and Acquiror prior to such filing (the
date and time of the filing of the Certificate of Merger or the time specified
therein being the "Effective Time").
Section 1.3. Effect of the Merger.
At the Effective Time, the effect of the Merger shall be as provided in the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, except as otherwise
provided herein, all the rights, privileges, powers and franchises of Merger
Sub and the Company, shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Merger Sub and the Company shall become the debts,
liabilities and duties of the Surviving Corporation.
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Section 1.4. Certificate of Incorporation; Bylaws.
At the Effective Time, subject to the terms and conditions of Section 7.8
hereof, (a) the certificate of incorporation of Merger Sub, as in effect
immediately prior to the Effective Time and as amended by the Certificate of
Merger, shall be the certificate of incorporation of the Surviving
Corporation, and (b) the bylaws of Merger Sub, as in effect immediately prior
to the Effective Time, shall be the bylaws of the Surviving Corporation.
Section 1.5. Directors and Officers.
The directors of Merger Sub (or such other or additional individuals as
Acquiror may designate prior to Closing) shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the certificate
of incorporation and bylaws of the Surviving Corporation; and the officers of
the Company shall continue as the officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified.
Section 1.6. Closing.
Subject to the terms and conditions of this Agreement, the closing of the
Merger (the "Closing") will take place as promptly as practicable after
satisfaction of the latest to occur or, if permissible, waiver of the
conditions set forth in Article VIII hereof (the "Closing Date"), at the
offices of Hogan & Hartson L.L.P., Columbia Square, 555 13th Street, N.W.,
Washington, D.C. 20004, unless another date or place is agreed to in writing
by the parties hereto.
Section 1.7. Subsequent Actions.
If, at any time after the Effective Time, the Surviving Corporation shall
consider or be advised that any deeds, bills of sale, assignments, assurances
or any other actions or things are necessary or desirable to continue in,
vest, perfect or confirm of record or otherwise in the Surviving Corporation
its right, title or interest in, to or under any of the rights, properties,
privileges, franchises or assets of either of its constituent corporations
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be directed and
authorized to execute and deliver, in the name and on behalf of either of such
constituent corporations, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of such
corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title
and interest in, to and under such rights, properties, privileges, franchises
or assets in the Surviving Corporation or otherwise to carry out this
Agreement.
ARTICLE II
Conversion of Securities; Exchange of Certificates
Section 2.1. Conversion of Securities.
At the Effective Time, by virtue of the Merger and without any action on the
part of Acquiror, Merger Sub, the Company or the holders of any of the
following securities:
(a) Company Common Stock. Subject to the other provisions of this Section
2.1, each share of (i) Class A common stock, par value $.01 per share, of
the Company ("Class A Common Stock"), issued and outstanding immediately
prior to the Effective Time (excluding any shares described in Sections
2.1(b) and (c) and any Dissenting Shares (as hereinafter defined)), and
(ii) Class B common stock, par value $.01 per share, of the Company ("Class
B Common Stock"; together with the Class A Common Stock, the "Common
Stock"), shall be converted into the right to receive Seventeen Dollars and
Fifty Cents ($17.50) in cash, without interest (the "Per Share Amount").
All such shares of Common Stock shall cease to be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
certificate previously evidencing any such shares shall thereafter
represent only the right to receive the Merger
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Consideration as described below. The holders of certificates previously
evidencing such shares of Common Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares
of Common Stock, except as otherwise provided herein or by law. Each such
certificate previously evidencing such shares of Common Stock shall be
exchanged for the Per Share Amount multiplied by the number of shares
previously evidenced by the canceled certificate upon the surrender of such
certificate in accordance with the provisions of Section 2.2, without
interest;
(b) Acquiror-Owned Shares. All shares of capital stock of the Company
owned, directly or indirectly, by Acquiror, Merger Sub or any Acquiror
Subsidiary (as defined in Section 5.1) shall be canceled and extinguished
without any conversion thereof and no cash shall be delivered or
deliverable in exchange therefor;
(c) Treasury Stock. All shares of capital stock of the Company held in
the treasury of the Company immediately prior to the Effective Time shall
be canceled and extinguished without any conversion thereof and no cash
shall be delivered or deliverable in exchange therefor; and
(d) Merger Sub Stock. Each share of common stock, par value $.01 per
share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one (1) duly and
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
Section 2.2. Payment.
(a) Paying Agent. As of the Effective Time, Acquiror shall, on behalf of
Merger Sub, deposit with a bank theretofore designated by the Company and
Acquiror (the "Paying Agent"), for the benefit of the holders of shares of
Common Stock (excluding any shares described in Sections 2.1(b) and (c) and
any Dissenting Shares), for payment in accordance with this Article II,
through the Paying Agent, cash in an amount equal to the Per Share Amount
multiplied by the number of shares of Common Stock outstanding immediately
prior to the Effective Time (excluding any shares described in Sections 2.1(b)
and (c) and any Dissenting Shares) (such cash being hereinafter referred to as
the "Payment Fund"). Acquiror shall cause the Paying Agent, pursuant to
irrevocable instructions, to deliver the cash contemplated to be paid pursuant
to Section 2.1(a) out of the Payment Fund. The Payment Fund shall not be used
for any other purpose.
(b) Payment Procedures. Promptly after the Effective Time, Acquiror shall
cause the Paying Agent to mail to each record holder, as of the Effective
Time, of an outstanding certificate (each a "Certificate" and collectively,
the "Certificates") that immediately prior to the Effective Time evidenced
outstanding shares of Common Stock (excluding any shares described in Sections
2.1(b) and (c) and any Dissenting Shares), a form letter of transmittal and
instructions for use in effecting the surrender of the Certificates for
payment therefor. Upon surrender to the Paying Agent of a Certificate,
together with such letter of transmittal duly executed, and any other required
documents, the holder of such Certificate shall be entitled to receive in
exchange therefor the consideration set forth in Section 2.1(a) (the "Merger
Consideration"), and such Certificate shall forthwith be canceled. No interest
will be paid or accrued on the cash payable upon the surrender of the
Certificates. Until surrendered in accordance with the provisions of this
Section 2.2, each Certificate shall represent for all purposes only the right
to receive the consideration set forth in Section 2.1(a), without any interest
thereon.
(c) No Further Rights in Common Stock. All cash paid upon conversion of the
shares of Common Stock in accordance with the terms of this Article II, and
all cash paid pursuant to Section 2.5, shall be deemed to have been paid in
full satisfaction of all rights pertaining to such shares of Common Stock.
(d) Termination of Payment Fund. Any portion of the Payment Fund that
remains undistributed to the holders of Common Stock for one hundred eighty
(180) days after the Effective Time shall be delivered to Acquiror, upon
demand, and any holders of Common Stock that have not theretofore complied
with this Article II shall thereafter look only to the Surviving Corporation
and Acquiror for the Merger Consideration to which they are entitled.
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(e) No Liability. Neither Acquiror nor the Surviving Corporation shall be
liable to any holder of shares of Common Stock for any cash delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(f) Lost, Stolen or Destroyed Certificates. In the event any Certificate
evidencing shares of Common Stock shall have been lost, stolen or destroyed,
upon the making of an affidavit setting forth that fact by the person claiming
such lost, stolen or destroyed Certificate(s) and granting a reasonable
indemnity against any claim that may be made against Acquiror or the Paying
Agent with respect to such Certificate(s), Acquiror shall cause the Paying
Agent to pay to such person the Merger Consideration with respect to such
lost, stolen or destroyed Certificate(s).
Section 2.3. Company Options; Stock Purchase Plan.
(a) Company Options. Immediately prior to the Effective Time, (i) each
outstanding stock option to purchase shares of Class A Common Stock (a "Plan
Option") granted under the Company's 1995 Stock Option Plan and 1995
Directors' Stock Option Plan, each as amended to the date of this Agreement
(collectively, the "Company Stock Option Plans"), and (ii) each phantom option
to purchase shares of Class A Common Stock described on Schedule 3.3 hereto (a
"Phantom Option"; together with the Plan Options, the "Options"), whether or
not any such Options are exercisable, shall be terminated by the Company, and
Acquiror shall, on behalf of Merger Sub, pay to the holder thereof at the
Effective Time, in consideration for such termination, an amount in cash equal
to the excess, if any, of the Per Share Amount over the per share exercise
price of such Option, multiplied by the number of shares of Class A Common
Stock into which the Option remains unexercised. Any such payment shall be
subject to all applicable federal, state and local tax withholding
requirements. The Company shall terminate the Company Stock Option Plans as of
the Effective Time, and take all such action as is necessary to terminate the
Options as of the Effective Time, so that on and after the Effective Time no
holder of an Option shall have any option to purchase shares of Class A Common
Stock or any other equity interest in the Company under the Company Stock
Option Plans or the Phantom Option agreements.
(b) Employee Stock Purchase Plan. Effective as of the Effective Time, the
Company's 1995 Employee Stock Purchase Plan (the "Employee Stock Purchase
Plan") shall be terminated and the then applicable Payroll Deduction Period
(as defined in the Employee Stock Purchase Plan) shall be deemed to have ended
on the last trading day of the Class A Common Stock immediately prior to the
Effective Time. At the Effective Time, Acquiror shall, on behalf of Merger
Sub, pay to each Company employee who is a participant in the Employee Stock
Purchase Plan as of the Effective Time, an amount in cash equal to the Per
Share Amount multiplied by the number of shares of Class A Common Stock which
the accumulated funds in such employee's account would have been entitled to
purchase under the terms of the Employee Stock Purchase Plan as of the end of
such Payroll Deduction Period. Such payments shall be deemed to satisfy all
obligations of the Company and the Surviving Corporation to the participants
in the Employee Stock Purchase Plan. Such payments shall be subject to all
applicable federal, state and local tax withholding requirements. All funds in
the accounts of the participants as of the Effective Time after such payments,
shall belong to and be disbursed in accordance with the instructions of
Acquiror. The Company shall terminate the Employee Stock Purchase Plan as of
the Effective Time so that on and after the Effective Time no former
participant in the Employee Stock Purchase Plan shall have any right to
purchase shares of Class A Common Stock or any other equity interest in the
Company under the Employee Stock Purchase Plan.
(c) Non-Employee Director Stock Purchase Plan. Effective as of the Effective
Time, the Company's 1995 Non-Employee Director Stock Purchase Plan (the
"Director Stock Purchase Plan"; together with the Employee Stock Purchase
Plan, the "Company Stock Purchase Plans"), shall be terminated and the then
applicable Accumulation Period (as defined in the Director Stock Purchase
Plan) shall be deemed to have ended on the last trading day of the Class A
Common Stock immediately prior to the Effective Time. At the Effective Time,
Acquiror shall, on behalf of Merger Sub, pay to each member of the Company's
Board of Directors who is a participant in the Director Stock Purchase Plan as
of the Effective Time, an amount in cash equal to the Per Share Amount
multiplied by the number of shares of Class A Common Stock which the
accumulated funds in
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such director's account would have been entitled to purchase under the terms
of the Director Stock Purchase Plan as of the end of such Accumulation Period.
Such payments shall be deemed to satisfy all obligations of the Company and
the Surviving Corporation to the participants in the Director Stock Purchase
Plan. Such payments shall be subject to all applicable federal, state and
local tax withholding requirements. All funds in the accounts of the
participants as of the Effective Time after such payments, shall belong to and
be disbursed in accordance with the instructions of Acquiror. The Company
shall terminate the Director Stock Purchase Plan as of the Effective Time so
that on and after the Effective Time no former participant in the Director
Stock Purchase Plan shall have any right to purchase shares of Class A Common
Stock or any other equity interest in the Company under the Director Stock
Purchase Plan.
Section 2.4. Stock Transfer Books.
At the Effective Time, the stock transfer books of the Company with respect
to all shares of capital stock of the Company shall be closed and no further
registration of transfers of such shares of capital stock shall thereafter be
made on the records of the Company. On or after the Effective Time, any
Certificates for shares of Common Stock (excluding any shares described in
Sections 2.1(b) and (c) and Dissenting Shares) presented to the Paying Agent,
the Surviving Corporation or Acquiror for any reason shall be converted into
the Merger Consideration.
Section 2.5. Dissenting Shares.
Notwithstanding any other provisions of this Agreement to the contrary,
shares of Class A Common Stock that are issued and outstanding immediately
prior to the Effective Time and that are held by stockholders who shall not
have voted in favor of the Merger or consented thereto in writing and who
shall have demanded properly in writing appraisal for such shares in
accordance with Section 262 of Delaware Law (collectively, the "Dissenting
Shares") shall not be converted into or represent the right to receive the
Merger Consideration. Such stockholders shall be entitled to receive payment
of the appraised value of such shares of Class A Common Stock held by them in
accordance with the provisions of such Section 262, except that all Dissenting
Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
shares of Class A Common Stock under such Section 262 shall thereupon be
deemed to have been converted into and to have become exchangeable, as of the
Effective Time, for the right to receive, without any interest thereon, the
Merger Consideration, upon surrender, in the manner provided in Section 2.2,
of the certificate or certificates that formerly evidenced such shares of
Class A Common Stock.
ARTICLE III
Representations and Warranties of the Company
The Company hereby represents and warrants to Acquiror and Merger Sub as
follows:
Section 3.1. Organization and Qualification; Subsidiaries.
(a) The Company and each Subsidiary (as defined below) of the Company (each
a "Company Subsidiary" and collectively, the "Company Subsidiaries") is a
corporation or partnership duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization. The Company
and each Company Subsidiary is duly qualified to conduct its business, and is
in good standing, in each jurisdiction where the character of its properties
owned, operated or leased or the nature of its activities makes such
qualification necessary, except for such failure which would not have a
Company Material Adverse Effect (as defined below). The Company and each
Company Subsidiary has the requisite power and authority and any necessary
governmental authority, franchise, license or permit to own, operate, lease
and otherwise to hold and operate its assets and properties and to carry on
the businesses as now being conducted, except for such failures which would
not in the aggregate have a Company Material Adverse Effect. The Company has
no Subsidiaries (as defined below) or any equity or similar interest in any
entity other than those listed in Schedule 3.1. As used herein, the term
"Company Material Adverse Effect" means any material adverse effect on the
business, assets, financial condition or results of operations of the Company
and the Company Subsidiaries taken as a whole.
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(b) For purposes of this Agreement, a "Subsidiary" of any person means any
corporation, partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other Subsidiary) (i)
owns, directly or indirectly, fifty percent (50%) or more of the stock,
partnership interests or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporation, partnership, joint venture or other legal
entity; or (ii) possesses, directly or indirectly, control over the direction
of management or policies of such corporation, partnership, joint venture or
other legal entity (whether through ownership of voting securities, by
agreement or otherwise).
Section 3.2. Certificate of Incorporation and Bylaws.
The Company has heretofore made available to Acquiror a complete and correct
copy of the certificate or articles of incorporation and the bylaws of the
Company and each Company Subsidiary that is a corporation, and a correct copy
of the partnership agreement for each Company Subsidiary that is a
partnership, each as amended to date. Each such certificate or articles of
incorporation, bylaws and partnership agreement is in full force and effect.
Neither the Company nor any Company Subsidiary is in violation of any of the
provisions of its respective certificate or articles of incorporation, bylaws,
partnership agreement or other organizational document.
Section 3.3. Capitalization.
The authorized capital stock of the Company consists, as of the date of this
Agreement, of: (a) seventy-three million (73,000,000) shares of Class A Common
Stock, of which ten million five hundred nineteen thousand six hundred and
eighty-one (10,519,681) shares are issued and outstanding; (b) eighteen
million (18,000,000) shares of Class B Common Stock, of which seventeen
million two hundred ninety-three thousand five hundred and seventy-eight
(17,293,578) shares are issued and outstanding; and (c) ten million
(10,000,000) shares of preferred stock, par value $.01 per share, of which no
shares are issued and outstanding. One million nine hundred thousand
(1,900,000) shares of Class A Common Stock have been reserved for issuance
upon the exercise of Plan Options granted under the Company Stock Option
Plans, of which seven hundred forty-five thousand eight hundred and thirty-
four (745,834) shares are issuable upon the exercise of Plan Options
outstanding under the Company Stock Option Plans as of the date hereof. The
Phantom Options assume the issuance of twenty thousand (20,000) shares of
Class A Common Stock upon exercise thereof. One hundred sixty thousand
(160,000) shares of Class A Common Stock are reserved for issuance under the
Company's 1995 Employee Stock Purchase Plan and twenty-five thousand (25,000)
shares of Class A Common Stock are reserved for issuance under the Company's
1995 Non-Employee Director Stock Purchase Plan. Seventeen million two hundred
ninety-three thousand five hundred and seventy-eight (17,293,578) shares of
Class A Common Stock are reserved for purposes of effecting conversions of
Class B Common Stock into Class A Common Stock. Since December 31, 1996, no
shares of Class A Common Stock or Class B Common Stock have been issued,
except for shares of Class A Common Stock issued upon the exercise of options
granted under the Company's Stock Option Plans and shares of Class A Common
Stock issued pursuant to the Company's Stock Purchase Plan. Except as set
forth in Schedule 3.3, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of the Company or any Company Subsidiary or
obligating the Company or any Company Subsidiary to issue or sell any shares
of capital stock of, or other equity interests in the Company or any Company
Subsidiary. Except as set forth in Schedule 3.3, there are no outstanding
contractual obligations of the Company to repurchase, redeem or otherwise
acquire any shares of its capital stock or make any material investment (in
the form of a loan, capital contribution or otherwise) in any other person.
All of the issued and outstanding shares of Class A Common Stock and Class B
Common Stock have been duly authorized and validly issued and are fully paid
and nonassessable and not subject to preemptive rights. Except as set forth in
Schedule 3.3, with respect to each Company Subsidiary that is a corporation,
all of the outstanding shares of capital stock of such Company Subsidiary have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as set forth in Schedule 3.3, with respect to each Company Subsidiary
that is a partnership, all of the partnership interests owned by the Company,
and with respect to each Company Subsidiary that is a corporation, all of the
outstanding shares of capital stock owned by the Company, are owned by the
Company free and clear of any liens, security interests, pledges, agreements,
options, rights, claims, charges or encumbrances (the "Encumbrances"). As of
the date hereof, the only
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outstanding indebtedness for borrowed money of the Company and the Company
Subsidiaries is as set forth in Schedule 3.3 and all such indebtedness is
prepayable in full without premium or penalty in accordance with its terms.
Section 3.4. Authority.
The Company has the necessary corporate power and authority to enter into
this Agreement and subject to obtaining any necessary stockholder approval of
the Merger, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby, other than the approval of this Agreement by the
stockholders of the Company in accordance with Delaware Law. This Agreement
has been duly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Acquiror and Merger Sub, constitutes
a legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general applicability relating to or affecting creditors' rights generally and
by the application of general principles of equity.
Section 3.5. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company do not, and
the performance by the Company of its obligations under this Agreement will
not, subject to compliance with the requirements set forth in Section 3.5(b)
below, (i) conflict with or violate the certificate or articles of
incorporation, bylaws, partnership agreement or other organizational document
of the Company or any Company Subsidiary, (ii) conflict with or violate any
law, statute, ordinance, rule, regulation, order, judgment or decree
applicable to the Company or any Company Subsidiary or by which any of their
respective properties is bound or affected, (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of an
Encumbrance on any of the properties or assets of the Company or any Company
Subsidiary pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any Company Subsidiary is a party or by which the
Company, any Company Subsidiary or any of their respective properties or
assets is bound or affected, or (iv) result in any material breach of or
constitute a material default (or an event which with notice or lapse of time
or both would become a material default) or give rise to any material rights
to other parties under any Material Contract described in Section 3.12(a)(i),
except, in the case of clauses (ii) and (iii) above for any such conflicts,
violations, breaches, defaults or other alterations or occurrences that in the
aggregate (A) would not prevent or delay consummation of the Merger in any
material respect, or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect, and (B) would not
have a Company Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign (each a
"Governmental Entity"), except (i) for (A) applicable requirements, if any, of
the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), state
takeover laws, the exchange on which the Company's securities are traded, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Communications Act of 1934, as amended, together with the rules,
regulations and published decisions of the FCC (collectively, the
"Communications Act"), (B) applicable requirements, if any, of the consents,
approvals, authorizations or permits described in Schedule 3.5, and (C) filing
and recordation of appropriate merger documents as required by Delaware Law
and (ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not in the aggregate
prevent or delay consummation of the Merger in any material respect, or
otherwise prevent the Company from performing its obligations under this
Agreement in any material respect, and would not in the aggregate have a
Company Material Adverse Effect.
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Section 3.6. SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports, statements and other documents
required to be filed with the Securities and Exchange Commission (the "SEC")
since March 21, 1995, and has heretofore made available to Acquiror, in the
form filed with the SEC since such date, together with any amendments thereto,
its (i) Annual Reports on Form 10-K, (ii) all Quarterly Reports on Form 10-Q,
(iii) all proxy statements relating to meetings of stockholders (whether
annual or special), (iv) all reports on Form 8-K, and (v) all other reports or
registration statements filed by the Company (collectively, the "Company SEC
Reports"). As of their respective filing dates the Company SEC Reports (i)
complied as to form in all material respects with the requirements of the
Exchange Act and the Securities Act of 1933, as amended (the "Securities Act")
and (ii) did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(b) The financial statements, including all related notes and schedules,
contained in the Company SEC Reports (or incorporated by reference therein)
fairly present the consolidated financial position of the Company and the
Company Subsidiaries as at the respective dates thereof and the consolidated
results of operations and cash flows of the Company and the Company
Subsidiaries for the periods indicated in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be noted therein) and subject in the case of interim
financial statements to normal year-end adjustments.
Section 3.7. Absence of Certain Changes or Events.
Except as disclosed in the Company SEC Reports filed prior to the date of
this Agreement or as set forth in Schedule 3.7, since December 31, 1996, the
Company and the Company Subsidiaries have not incurred any material liability,
except in the ordinary course of the businesses consistent with their past
practices, and there has not been any change in the business, financial
condition or results of operations of the Company or any of the Company
Subsidiaries or the occurrence of any other event, which has had, or is
reasonably likely to have, a Company Material Adverse Effect, and the Company
and the Company Subsidiaries have conducted their respective businesses in the
ordinary course consistent with their past practices.
Section 3.8. Absence of Litigation.
Except as set forth in Schedule 3.8, as of the date hereof there are (a) no
claims, actions, suits, investigations, or proceedings pending or, to the
Company's knowledge, threatened against the Company or any of the Company
Subsidiaries before any court, administrative, governmental, arbitral,
mediation or regulatory authority or body, domestic or foreign, that (i) if
adversely determined would individually involve the payment of more than One
Hundred Thousand Dollars ($100,000) by the Company or any Company Subsidiary,
(ii) if adversely determined would individually or in the aggregate be
reasonably likely to have a Company Material Adverse Effect, (iii) challenge
or seek to prevent, enjoin, alter or materially delay the transactions
contemplated hereby, or (iv) seek material injunctive relief against the
Company or any Company Subsidiary, and (b) no material judgments, decrees,
injunctions or orders of any Governmental Entity or arbitrator outstanding
against the Company or any Company Subsidiary.
Section 3.9. Licenses and Permits; Compliance with Laws.
The Company and the Company Subsidiaries hold all permits, licenses and
approvals (none of which has been modified or rescinded and all of which are
in full force and effect) from all Governmental Entities (collectively, the
"Permits") necessary for the Company and the Company Subsidiaries to own,
lease and operate their respective properties and to carry on their respective
businesses as now being conducted, except for the Permits for which the
failure to obtain would not have a Company Material Adverse Effect. The
businesses of the Company and the Company Subsidiaries are not being conducted
in violation of any applicable law, statute, ordinance, regulation, judgment,
Permits, order, decree, concession, grant or other authorization of any
Governmental Entity, except for violations that would not be reasonably likely
to have a Company Material Adverse Effect.
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Section 3.10. Taxes.
Except as set forth in Schedule 3.10, the Company and the Company
Subsidiaries have prepared and filed on a timely basis with all appropriate
Governmental Entities all material returns in respect of taxes that they are
required to file on or prior to the Effective Time or by the date therefor
including extensions, and all such returns are correct and complete in all
material respects. Except as set forth in Schedule 3.10, the Company and the
Company Subsidiaries have paid in full all taxes due on or before the
Effective Time and, in the case of taxes accruing on or before the Effective
Time that are not due on or before the Effective Time, the Company has made
adequate provision in its books and records and financial statements for such
payment. Except as set forth in Schedule 3.10, the Company and the Company
Subsidiaries have withheld from each payment made to any of its present or
former employees, officers and directors all amounts required by law to be
withheld and has, where required, remitted such amounts within the applicable
periods to the appropriate Governmental Entities. In addition, except as set
forth in Schedule 3.10, (a) there are no assessments of the Company or any
Company Subsidiary with respect to taxes that have been issued and are
outstanding; (b) no Governmental Entity has examined or audited the Company or
any Company Subsidiary in respect of taxes; (c) neither the Company nor any
Company Subsidiary has executed or filed any agreement extending the period of
assessment or collection of any taxes; and (d) neither the Company nor any
Company Subsidiary has received written notification from any Governmental
Entity of its intention to commence any audit or investigation. Except as set
forth in Schedule 3.10, neither the Company nor any Company Subsidiary is a
party to, is bound by or has any obligation under any tax sharing or tax
indemnification agreement, provision or arrangement, whether formal or
informal, and no power of attorney, which is currently in effect, has been
granted with respect to any matter relating to taxes of the Company or any
Company Subsidiary. Except as set forth in Schedule 3.10, neither the Company
nor any Company Subsidiary is presently required or will be required to
include any adjustment in taxable income under Section 481 of the Internal
Revenue Code of 1986, as amended (the "Code"), (or any similar provision of
the tax laws of any jurisdiction) as a result of any change in method of
accounting or otherwise. Except as set forth in Schedule 3.10, neither the
Company nor any Company Subsidiary has entered into any "intercompany
transaction" as to which any item of deferred gain or loss has not been
restored, and no "excess loss account" exists with respect to the stock of any
Company Subsidiary, as those terms are defined in the Treasury Regulations
issued under Section 1504 of the Code. For the purpose of this Agreement, the
term "tax" (including, with correlative meaning, the terms "taxes" and
"taxable") shall include except where the context otherwise requires, all
federal, state, local and foreign income, profits, franchise, gross receipts,
payroll, sales, employment, use, property, withholding, excise, occupancy and
other taxes, duties or assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts.
Section 3.11. Intellectual Property.
Except as set forth in Schedule 3.11, the Company or one of the Company
Subsidiaries owns or possesses all rights to use of the service marks,
copyrights, franchises, trademarks, trade names, jingles, slogans, logotypes
and other similar intangible assets (the "Intellectual Property") maintained,
owned, used, held for use or otherwise held by the Company and the Company
Subsidiaries, and all of the rights, benefits and privileges associated
therewith material to the conduct of the business of the Company and the
Company Subsidiaries as currently conducted. To the knowledge of the Company,
neither the Company nor any Company Subsidiary is infringing upon any
Intellectual Property right or other legally protectable right of another. To
the knowledge of the Company, no person is materially infringing upon any
Intellectual Property right of the Company or any Company Subsidiary.
Section 3.12. Material Contracts.
(a) Schedule 3.12 sets forth a complete and correct list, as of the date of
this Agreement, of all agreements of the following type to which the Company
or a Company Subsidiary is a party or may be bound (collectively, the
"Material Contracts"): (i) agreements filed as an exhibit to the Company SEC
Reports and each agreement that would have been required to be filed as an
exhibit to the Company SEC Reports had such agreement been entered into as of
the date of filing any such SEC Report; (ii) employment, severance,
termination, consulting and retirement agreements; (iii) loan agreements,
indentures, letters of credit, mortgages, notes and other debt
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instruments evidencing indebtedness in excess of Five Hundred Thousand Dollars
($500,000); (iv) agreements that require aggregate future payments to or by
the Company or any Company Subsidiary of more than Five Hundred Thousand
Dollars ($500,000) (other than purchase orders and advertising sales contracts
entered into in the ordinary course of business); (v) agreements containing
any "change of control" provisions which, if triggered, would involve payments
by the Company or any Company Subsidiary in excess of Two Hundred Fifty
Thousand Dollars ($250,000) or other material rights or obligations; (vi)
material agreements with any key employee, director, officer, or person known
to the Company to be a direct or indirect stockholder of the Company; (vii)
agreements prohibiting the Company or any Company Subsidiary from engaging or
competing in any line of business or limiting such competition; (viii) except
for the partnership agreements of the Company Subsidiaries, any joint venture,
partnership and similar agreements involving a sharing of profits; (ix)
acquisition or divestiture agreements relating to the (A) sale of assets or
stock of the Company or any Company Subsidiary (other than sales of inventory
in the ordinary course of business) or (B) the purchase of assets or stock of
any other person (other than the purchase of inventory in the ordinary course
of business and acquisitions of additional interests in Company Subsidiaries
involving payments by the Company of less than Five Hundred Thousand Dollars
($500,000) in the aggregate); (x) brokerage, finder's or financial advisory
agreements; (xi) guarantees of indebtedness for borrowed money of any person
(other than a Company Subsidiary); (xii) interconnection agreements and switch
sharing agreements; and (xiii) agreements under which the Company or any
Company Subsidiary manages a cellular system of any third party.
(b) Except as set forth in Schedule 3.12, all the Material Contracts are
valid and in full force and effect on the date hereof except to the extent
they have previously expired in accordance with their terms, and neither the
Company nor any Company Subsidiary has (or has any knowledge that any other
party thereto has) violated any provision of, or committed or failed to
perform any act which with or without notice, lapse of time or both would
constitute a default under the provisions of, any Material Contract, except
for defaults which would not in the aggregate reasonably be expected to have a
Company Material Adverse Effect. True and complete copies of all Material
Contracts have been delivered to Acquiror or made available for inspection.
Section 3.13. Employee Benefit Plans.
(a) Schedule 3.13 sets forth a list of all of the pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus or other material incentive plans, all other
material written employee programs, arrangements or agreements and all other
material employee benefit plans or fringe benefit plans, including, without
limitation, all "employee benefit plans" as that term is defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), currently adopted, maintained by, sponsored in whole or in part by,
or contributed to by the Company or for which the Company could incur a
liability or any entity required to be aggregated with the Company (each, a
"Commonly Controlled Entity") pursuant to Section 414 of the Code for the
benefit of present and former employees or directors of the Company and of
each Company Subsidiary or their beneficiaries, or providing benefits to such
persons in respect of services provided to any such entity (collectively, the
"Benefit Plans"). Any of the Benefit Plans which is an "employee pension
benefit plan", as that term is defined in Section 3(2) of ERISA, is referred
to herein as an "ERISA Plan".
(b) Each of the Benefit Plans intended to be "qualified" within the meaning
of Section 401(a) or 501 of the Code has been determined by the Internal
Revenue Service to be so qualified and to the Company's knowledge, no
circumstances exist that could reasonably be expected by the Company to result
in the revocation of any such determination. Each of the Benefit Plans is in
compliance with their terms and the applicable terms of ERISA and the Code and
any other applicable laws, rules and regulations the breach or violation of
which could result in a material liability to the Company or any Commonly
Controlled Entity.
(c) No ERISA Plan which is a defined benefit pension plan has any "unfunded
current liability", as that term is defined in Section 302(d)(8)(A) of ERISA,
and the present fair market value of the assets of any such plan equals or
exceeds the plan's "benefit liabilities", as that term is defined in Section
4001(a)(16) of ERISA, when determined under actuarial factors that would apply
if the plan terminated in accordance with all applicable legal requirements.
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(d) Except as disclosed in Schedule 3.13, no Benefit Plan is or has been a
multiemployer plan within the meaning of Section 3(37) of ERISA (a
"Multiemployer Plan"). Neither the Company nor any Commonly Controlled Entity
has completely or partially withdrawn from any Multiemployer Plan. No
termination liability to the Pension Benefit Guaranty Corporation or
withdrawal liability to any Multiemployer Plan that is material in the
aggregate has been or is reasonably expected to be incurred with respect to
any Multiemployer Plan by the Company or any Commonly Controlled Entity.
(e) The Company has made available to Acquiror complete copies, as of the
date hereof, of all of the Benefit Plans that have been reduced to writing,
together with all documents establishing or constituting any related trust,
annuity contract, insurance contract or other funding instrument. The Company
has made available to Acquiror complete copies of current plan summaries,
employee booklets, personnel manuals and other material documents or written
materials concerning the Benefit Plans that are in the possession of the
Company as of the date hereof.
(f) To the Company's knowledge, except as set forth in Schedule 3.13 and
except for claims for benefits in the ordinary course of business, no claim,
lawsuit, arbitration or other action has been threatened or instituted against
any Benefit Plan.
(g) Except as set forth in Schedule 3.13, Schedule 7.9 or as otherwise
contemplated by the terms of this Agreement, the consummation of the
transactions contemplated by this Agreement will not give rise to any
liability, including, without limitation, liability for severance pay or
termination pay, or accelerate the time of payment or vesting or increase the
amount of compensation or benefits due to any employee, director or
stockholder of the Company (whether current, former, or retired) or their
beneficiaries solely by reason of such transactions. No amounts payable under
any Benefit Plan will fail to be deductible for federal income tax purposes by
virtue of Section 280G or 162(m) of the Code.
(h) Except as set forth in Schedule 3.13 or Schedule 7.9, neither the
Company nor any Company Subsidiary maintains, contributes to, or in any way
provides for any benefits of any kind (other than under Section 4980B of the
Code, the Federal Social Security Act, or a plan qualified under Section
401(a) of the Code) to any current or future retiree or terminee.
(i) Neither the Company, any Company Subsidiary nor any Commonly Controlled
Entity has (or could incur) any liability under Title IV of ERISA.
Section 3.14. Properties; Assets.
Except as set forth in Schedule 3.14, the Company or one of the Company
Subsidiaries (a) has good and marketable title to all the properties and
assets reflected in the latest consolidated balance sheet of the Company dated
as of March 31, 1997 (the "Balance Sheet") as being owned by the Company or
one of the Company Subsidiaries (except properties sold or otherwise disposed
of since the date thereof in the ordinary course of business), or acquired
after the date thereof which are material to the Company's business on a
consolidated basis, free and clear of all Encumbrances except (i) statutory
liens securing payments not yet due, and (ii) such imperfections or
irregularities of title, claims, liens, charges, security interests or
encumbrances as do not materially affect the use of the properties or assets
subject thereto or affected thereby or otherwise materially impair business
operations at such properties, and (b) is the lessee of all leasehold estates
which are material to its business on a consolidated basis and is in
possession of the properties purported to be leased thereunder, and to the
knowledge of the Company, each such lease is valid without default thereunder
by the lessee or lessor. The assets and properties of the Company and the
Company Subsidiaries, taken as a whole, are in good operating condition and
repair (ordinary wear and tear excepted), and constitute all of the assets and
properties which are required for the businesses and operations of the Company
and the Company Subsidiaries as presently conducted.
Section 3.15. Labor Relations.
Neither the Company nor any Company Subsidiary is a party to any collective
bargaining agreement or other contract or agreement with any labor
organization or other representative of any of the employees of the
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Company or any Company Subsidiary. Except as set forth in Schedule 3.15, the
Company and each Company Subsidiary is in compliance in all material respects
with all laws relating to the employment or the workplace, including, without
limitation, provisions relating to wages, hours, collective bargaining, safety
and health, work authorization, equal employment opportunity, immigration and
the withholding of income taxes, unemployment compensation, worker's
compensation, employee privacy and right to know and social security
contributions.
Section 3.16. Environmental Matters.
(a) Except as specifically set forth in those environmental reports
previously made available to Acquiror in the Company's due diligence data room
(the "Environmental Reports"), and except for matters which would not in the
aggregate have a Company Material Adverse Effect, (i) the Company and each
Company Subsidiary is in compliance with all applicable Environmental Laws (as
defined below) in effect on the date hereof; (ii) all Permits and other
governmental authorizations currently held by the Company and each Company
Subsidiary pursuant to the Environmental Laws are in full force and effect,
the Company and each Company Subsidiary is in compliance with all of the terms
of such Permits and authorizations, and no other Permits or authorizations are
required by the Company or any Company Subsidiary for the conduct of their
respective businesses on the date hereof; and (iii) the management, handling,
storage, transportation, treatment, and disposal by the Company and each
Company Subsidiary of any Hazardous Materials (as defined below) has been in
compliance with all applicable Environmental Laws. Neither the Company nor any
Company Subsidiary has received any written communication that alleges that
the Company or any Company Subsidiary is not in compliance in all material
respects with all applicable Environmental Laws in effect on the date hereof.
As of the date hereof, the Environmental Reports do not set forth any facts or
circumstances which have had or are reasonably likely to have a Company
Material Adverse Effect.
(b) Except as specifically set forth in the Environmental Reports, there is
no material Environmental Claim (as defined below) pending or, to the
knowledge of the Company, threatened against or involving the Company or any
of the Company Subsidiaries or against any person or entity whose liability
for any material Environmental Claim the Company or any of the Company
Subsidiaries has or may have retained or assumed either contractually or by
operation of law.
(c) Except as specifically set forth in the Environmental Reports and except
for matters which would not in the aggregate have a Company Material Adverse
Effect, to the knowledge of the Company, there are no past or present actions
or activities by the Company or any Company Subsidiary including the storage,
treatment, release, emission, discharge, disposal or arrangement for disposal
of any Hazardous Materials, that could reasonably form the basis of any
Environmental Claim against the Company or any of the Company Subsidiaries or
against any person or entity whose liability for any Environmental Claim the
Company or any Company Subsidiary may have retained or assumed either
contractually or by operation of law.
(d) As used herein, these terms shall have the following meanings:
(i) "Environmental Claim" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, claims,
liens, investigations, proceedings or notices of noncompliance or violation
(written or oral) by any person or governmental authority alleging
potential liability arising out of, based on or resulting from the
presence, or release or threatened release into the environment, of any
Hazardous Materials at any location owned or leased by the Company or any
Company Subsidiary or other circumstances forming the basis of any
violation or alleged violation of any Environmental Law.
(ii) "Environmental Laws" means all applicable foreign, federal, state
and local laws (including the common law), rules, requirements and
regulations relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or protection of human health as it relates to the
environment including, without limitation, laws and regulations relating to
releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials or relating to management of asbestos in
buildings.
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(iii) "Hazardous Materials" means wastes, substances, or materials
(whether solids, liquids or gases) that are deemed hazardous, toxic,
pollutants, or contaminants, including without limitation, substances
defined as "hazardous substances", "toxic substances", "radioactive
materials", or other similar designations in, or otherwise subject to
regulation under, any Environmental Laws.
Section 3.17. Insurance.
Schedule 3.17 contains a list of all insurance policies of title, property,
fire, casualty, liability, life, workmen's compensation, libel and slander,
and other forms of insurance in force at the date thereof with respect to the
Company and the Company Subsidiaries. All such insurance policies: (a) insure
against such risks, and are in such amounts, as appropriate and reasonable
considering the Company and the Company Subsidiaries' properties, businesses
and operations; (b) are in full force and effect; and (c) are valid,
outstanding, and enforceable. Neither the Company nor any of the Company
Subsidiaries has received or given notice of cancellation with respect to any
of the material insurance policies.
Section 3.18. FCC Matters and Governmental Matters.
(a) The Company and the Company Subsidiaries hold all licenses, permits and
other authorizations issued by the FCC to the Company and the Company
Subsidiaries for the operation of their respective businesses (the "FCC
Licenses") as set forth in Schedule 3.18. The FCC Licenses constitute all of
the licenses, permits and authorizations from the FCC that are required for
the operations and businesses of the Company and the Company Subsidiaries as
they are now operated, except where the FCC has not issued a written microwave
authorization. Without limiting the foregoing, the Company and the Company
Subsidiaries have received all necessary authorizations from the Federal
Aviation Administration ("FAA") for all existing towers that are part of the
cellular systems operated by the Company and the Company Subsidiaries and for
any facilities the construction of which have been approved by the FCC or of
which applications or notifications have been filed for such approval.
(b) Schedule 3.18 sets forth each application and notification that the
Company and the Company Subsidiaries have pending before the FCC and sets
forth the expiration date for each of the cellular FCC Licenses. The Company
and the Company Subsidiaries have provided a copy to Acquiror of each of the
FCC Licenses and the applications and notifications listed in Schedule 3.18,
except where the FCC has not issued a written microwave authorization.
(c) The FCC Licenses are valid and in full force and effect, unimpaired by
any condition or restriction or any act or omission by the Company or any of
the Company Subsidiaries which would reasonably be likely to have a Company
Material Adverse Effect. Except as set forth in Schedule 3.18, there are no
modifications, amendments, applications, revocations, or other proceedings, or
complaints pending or, to the knowledge of the Company, threatened, with
respect to the FCC Licenses (other than proceedings that apply to the cellular
industry generally). All fees due and payable to the FCC have been paid and no
event has occurred which, with or without the giving of notice or lapse of
time or both, would constitute grounds for revocation or modification of the
FCC Licenses.
(d) All material reports required by the Communications Act or required to
be filed with the FCC by the Company and the Company Subsidiaries have been
timely filed and are accurate and complete in all material respects. All
material reports required to be filed by the Company and the Company
Subsidiaries with all other governmental or administrative authorities,
federal, state and local, have been timely filed and are accurate and complete
in all material respects.
(e) Except where a lack of compliance would not have a Company Material
Adverse Effect, the Company and the Company Subsidiaries are in compliance
with, and their cellular systems have been operated in compliance with, the
Communications Act and the rules, regulations, policies and orders of the
relevant state public utilities commissions and the FAA, including, without
limitation, the FCC's time and coverage requirements of 47 C.F.R. (S)(S)
22.142, 22.911, 22.912 and 22.946 (the "Statutes"). The Company and the
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Company Subsidiaries have in operation validly licensed and adequate cellular
base stations required to provide 32 dBu contour coverage, as calculated under
the formula prescribed by the FCC in 47 C.F.R. (S) 22.911, to all areas of
their cellular markets except for coverage gaps that are less than 50
contiguous square miles in size. Except as set forth in Schedule 3.10 and
3.18, the Company and the Company Subsidiaries have not received any written
notice to the effect, or otherwise been advised in writing, that they are not
in compliance with any Statutes and do not have any reason to anticipate that
any presently existing circumstances are reasonably likely to result in
violations of any Statutes.
(f) Without limiting the generality of the foregoing, except as set forth in
Schedule 3.8, no adverse finding has been made, no consent decree entered, no
adverse action has been approved or taken by the FCC or any court or other
administrative body, and no admission of liability has been made with respect
to the Company or any of the Company Subsidiaries or any of the Company's
stockholders or any management employee of the Company or the Company
Subsidiaries concerning any civil or criminal suit, action or proceeding
brought under the provision of any federal, state, territorial or local law
relating to any of the following: any felony; unlawful restraint of trade or
monopoly; unlawful combination; contract or agreement in restraint of trade;
the use of unfair methods of competition; fraud; unfair labor practice; or
discrimination.
(g) Neither the Company nor any of the Company Subsidiaries has engaged in
any course of conduct that could reasonably be expected to impair the ability
of Merger Sub or its subsidiaries to be the holder of the FCC Licenses or is
aware of any reason why the FCC Licenses might not be renewed in the ordinary
course, why any of the FCC Licenses might be revoked, or why any pending
applications or notifications might not be approved.
Section 3.19. Board Approval; Vote Required.
The Board of Directors of the Company has determined that the transactions
contemplated by this Agreement are in the best interests of the Company and
its stockholders and has resolved to recommend to such stockholders that they
vote in favor thereof. The affirmative vote of a majority of the votes
entitled to be cast by the holders of outstanding shares of the Class A Common
Stock and Class B Common Stock (voting as a single class) is the only vote of
any class or series of capital stock of the Company necessary to approve the
transactions contemplated under this Agreement and the Merger.
Section 3.20. Opinion of Financial Advisor.
The Company's Board of Directors has received the opinion of Goldman, Sachs
& Co. that the consideration to be received in the Merger by the stockholders
of the Company is fair to such stockholders from a financial point of view, a
written copy of which opinion will be provided to Acquiror when received by
the Company, and such opinion has not been withdrawn or modified in any
material respect.
Section 3.21. Brokers.
Except for Goldman, Sachs & Co., no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
ARTICLE IV
Representations and Warranties of Merger Sub
Acquiror and Merger Sub jointly and severally represent and warrant to the
Company as follows:
Section 4.1. Organization and Qualification.
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Merger Sub
was formed solely for the purpose of engaging in the transactions contemplated
by this Agreement. As of the date of this Agreement, except for obligations or
liabilities incurred
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in connection with its incorporation or organization and the transactions
contemplated by this Agreement, Merger Sub has not incurred, directly or
indirectly, any obligations or liabilities or engaged in any business
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any person.
Section 4.2. Certificate of Incorporation and Bylaws.
Merger Sub has heretofore made available to the Company a complete and
correct copy of the certificate of incorporation and the bylaws of Merger Sub,
each as amended to date. Such certificate of incorporation and bylaws are in
full force and effect. Merger Sub is not in violation of any of the provisions
of its certificate of incorporation or bylaws.
Section 4.3. Authority.
Merger Sub has the necessary corporate power and authority to enter into
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Merger Sub and the consummation by Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Merger Sub
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Merger Sub and, assuming the due authorization, execution and delivery by the
Company and Acquiror, constitutes a legal, valid and binding obligation of
Merger Sub, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity.
Section 4.4. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Merger Sub do not, and
the performance by Merger Sub of its obligations under this Agreement will
not, subject to compliance with the requirements set forth in Section 4.4(b)
below, (i) conflict with or violate the certificate of incorporation or bylaws
of Merger Sub, (ii) conflict with or violate any law, statute, ordinance,
rule, regulation, order, judgment or decree applicable to Merger Sub or by
which any of its properties is bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of any Encumbrance on any of the properties or assets of Merger Sub
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Merger
Sub is a party or by which Merger Sub or any of its properties or assets is
bound or affected, except, in the case of clauses (ii) and (iii) above for any
such conflicts, violations, breaches, defaults or other alterations or
occurrences that would not prevent or delay consummation of the Merger in any
material respect, or otherwise prevent Merger Sub from performing its
obligations under this Agreement in any material respect.
(b) The execution and delivery of this Agreement by Merger Sub does not, and
the performance of this Agreement by Merger Sub will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for (A) applicable requirements, if any, of
the Exchange Act, state takeover laws, exchanges on which Acquiror's
securities are traded, the HSR Act and the Communications Act, (B) applicable
requirements, if any, of the consents, approvals, authorizations or permits
described in Schedule 4.4, and (C) filing and recordation of appropriate
merger documents as required by Delaware Law and (ii) where failure to obtain
such consents, approvals, authorizations or permits, or to make such filings
or notifications, would not prevent or delay consummation of the Merger in any
material respect.
Section 4.5. Vote Required.
The affirmative vote of Acquiror, the sole stockholder of Merger Sub, is the
only vote of the holders of any class or series of Merger Sub capital stock
necessary to approve any of the transactions contemplated hereby.
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ARTICLE V
Representations and Warranties of Acquiror
Acquiror represents and warrants to the Company as follows:
Section 5.1. Organization and Qualification; Subsidiaries.
Acquiror is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation. Acquiror is duly
qualified to conduct its business, and is in good standing, in each
jurisdiction where the character of its properties owned, operated or leased
or the nature of its activities makes such qualification necessary, except for
such failure which would not have an Acquiror Material Adverse Effect (as
defined below). Acquiror has the requisite power and authority and any
necessary governmental authority, franchise, license or permit to own,
operate, lease and otherwise to hold and operate its assets and properties and
to carry on the business as now being conducted, except for such failure which
would not have an Acquiror Material Adverse Effect. As used herein, the term
"Acquiror Material Adverse Effect" means any material adverse effect on the
business, assets, financial condition or results of operations of Acquiror and
its subsidiaries (collectively, the "Acquiror Subsidiaries") taken as a whole.
Section 5.2. Organizational Documents.
Acquiror has heretofore made available to the Company a complete and correct
copy of the certificate of incorporation and bylaws of Acquiror, each as
amended to date. Such certificate of incorporation and bylaws are in full
force and effect. Acquiror is not in violation of any of the provisions of its
certificate of incorporation or bylaws.
Section 5.3. Authority.
Acquiror has the necessary power and authority to enter into this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Acquiror
and the consummation by Acquiror of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action and no
other proceedings on the part of Acquiror are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Acquiror and, assuming the
due authorization, execution and delivery by the Company, constitutes a legal,
valid and binding obligation of Acquiror, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights generally and by the application of
general principles of equity.
Section 5.4. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Acquiror do not, and the
performance by Acquiror of its obligations under this Agreement will not,
subject to compliance with the requirements set forth in Section 5.4(b) below,
(i) conflict with or violate the certificate of incorporation or bylaws of
Acquiror, (ii) conflict with or violate any law, statute, ordinance, rule,
regulation, order, judgment or decree applicable to Acquiror or by which any
of its properties is bound or affected, or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of an
Encumbrance on any of the properties or assets of Acquiror pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Acquiror is a party or by
which Acquiror or any of its properties or assets is bound or affected,
except, in the case of clauses (ii) and (iii) above for any such conflicts,
violations, breaches, defaults or other alterations or occurrences that would
not prevent or delay consummation of the Merger in any material respect, or
otherwise prevent Acquiror from performing its obligations under this
Agreement in any material respect, and would not have an Acquiror Material
Adverse Effect.
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(b) The execution and delivery of this Agreement by Acquiror does not, and
the performance of this Agreement by Acquiror will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for (A) applicable requirements, if any, of
the Exchange Act, state takeover laws, exchanges on which Acquiror's
securities are traded, the HSR Act and the Communications Act, (B) applicable
requirements, if any, of the consents, approvals, authorizations or permits
described in Schedule 5.4, and (C) filing and recordation of appropriate
merger documents as required by Delaware Law and (ii) where failure to obtain
such consents, approvals, authorizations or permits, or to make such filings
or notifications, would not prevent or delay consummation of the Merger in any
material respect, or otherwise prevent Acquiror from performing its
obligations under this Agreement in any material respect, and would not have
an Acquiror Material Adverse Effect.
Section 5.5. Vote Required.
No vote of the stockholders of Acquiror is necessary to approve any of the
transactions contemplated hereby.
Section 5.6. Financing.
Acquiror will have available on the Effective Time sufficient funds to
consummate the Merger and to make all the payments necessary to consummate the
transactions contemplated hereby, including, without limitation, payments
under Article II hereof for the Common Stock, Options and Dissenting Shares,
and payments necessary to satisfy all amounts outstanding as of the Closing
Date under the Company's credit facilities described on Schedule 3.3 hereto.
Section 5.7. Qualification of Acquiror.
Acquiror is and pending the Effective Time will be legally, technically,
financially and otherwise qualified under the Communications Act and all
rules, regulations and policies of the FCC to acquire, own and operate the
assets and business of the Company and the Company Subsidiaries. There are no
facts or proceedings which would reasonably be expected to disqualify Acquiror
under the Communications Act or otherwise from acquiring or operating any of
the assets and business of the Company and the Company Subsidiaries or would
cause the FCC not to approve the FCC Application (as defined in Section
7.5(a)). Acquiror has no knowledge of any fact or circumstance relating to
Acquiror or any of its affiliates that would reasonably be expected to (a)
cause the filing of any objection to the FCC Application, or (b) lead to a
delay in the processing by the FCC of the FCC Application. No waiver of any
FCC rule or policy is necessary to be obtained for the approval of the FCC
Application, nor will processing pursuant to any exception or rule of general
applicability be requested or required in connection with the consummation of
the transactions herein.
Section 5.8. Absence of Litigation.
Except as set forth in Schedule 5.8, there are (a) no claims, actions,
suits, investigations, or proceedings pending or, to Acquiror's knowledge,
threatened against Acquiror or any of its properties or assets before any
court, administrative, governmental, arbitral, mediation or regulatory
authority or body, domestic or foreign, that challenge or seek to prevent,
enjoin, alter or materially delay the transactions contemplated hereby, and
(b) no judgments, decrees, injunctions or orders of any Governmental Entity or
arbitrator outstanding against Acquiror or any of its properties or assets
that would prevent or materially delay the transactions contemplated hereby.
Section 5.9. Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Acquiror.
Section 5.10. SEC Filings; Financial Statements.
(a) Acquiror has filed all forms, reports, statements and other documents
required to be filed with the SEC since December 31, 1996, and has heretofore
made available to the Company, in the form filed with the SEC
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since such date, together with any amendments thereto, its (i) Annual Reports
on Form 10-K, (ii) all Quarterly Reports on Form 10-Q, (iii) all proxy
statements relating to meetings of stockholders (whether annual or special),
(iv) all reports on Form 8-K, and (v) all other reports or registration
statements filed by Acquiror (collectively, the "Acquiror SEC Reports"). As of
their respective filing dates the Acquiror SEC Reports (i) complied as to form
in all material respects with the requirements of the Exchange Act and the
Securities Act and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(b) The financial statements, including all related notes and schedules,
contained in the Acquiror SEC Reports (or incorporated by reference therein)
fairly present the consolidated financial position of Acquiror and Acquiror
Subsidiaries as at the respective dates thereof and the consolidated results
of operations and cash flows of Acquiror and Acquiror Subsidiaries for the
periods indicated in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as may
be noted therein) and subject in the case of interim financial statements to
normal year-end adjustments.
Section 5.11. Absence of Certain Changes or Events.
Except as disclosed in the Acquiror SEC Reports filed prior to the date of
this Agreement or as set forth in Schedule 5.11, since March 31, 1997,
Acquiror and Acquiror Subsidiaries have not incurred any material liability,
except in the ordinary course of their businesses consistent with their past
practices, and there has not been any change in the business, financial
condition or results of operations of Acquiror or any of Acquiror
Subsidiaries, which has had, or is reasonably likely to have, an Acquiror
Material Adverse Effect, and Acquiror and Acquiror Subsidiaries have conducted
their respective businesses in the ordinary course consistent with their past
practices. The representations and warranties contained in this Section 5.11
shall be deemed to speak only as of the date hereof.
ARTICLE VI
Covenants
Section 6.1. Affirmative Covenants of the Company.
The Company hereby covenants and agrees that, prior to the Effective Time,
unless otherwise expressly contemplated by this Agreement or consented to in
writing by Acquiror, the Company shall, and shall cause each Company
Subsidiary to, (a) operate its business in the usual and ordinary course
consistent with past practices; (b) use its reasonable efforts to preserve
substantially intact its business organization, maintain its rights and
franchises, retain the services of its respective principal officers and key
employees and maintain its relationship with its respective principal
customers and suppliers; (c) use its reasonable efforts to maintain and keep
its properties and assets in as good repair and condition as at present,
ordinary wear and tear excepted; and (d) use its reasonable efforts to keep in
full force and effect insurance comparable in amount and scope of coverage to
that currently maintained; provided, however, that in the event the Company or
any of the Company Subsidiaries deems it necessary to take certain actions
that would otherwise be prohibited by clauses (a)-(d) of this Section 6.1, the
Company shall consult with Acquiror and Acquiror shall consider in good faith
the Company's request to take such action and not unreasonably withhold or
delay its consent for such action.
Section 6.2. Negative Covenants of the Company.
Except as expressly contemplated by this Agreement and except as set forth
in Schedule 6.2, or otherwise consented to in writing by Acquiror, from the
date hereof until the Effective Time, the Company shall not, and shall cause
each Company Subsidiary not to, do any of the following:
(a) (i) increase the compensation payable to or to become payable to any
of its directors, executive officers or employees, except for increases in
salary, wages or bonuses payable or to become payable in the ordinary
course of business and consistent with past practice; (ii) grant any
severance or termination pay
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(other than pursuant to existing severance arrangements or policies as in
effect on the date of this Agreement) to, or enter into or modify any
employment or severance agreement with, any of its directors, officers or
employees; or (iii) adopt or amend any employee benefit plan or
arrangement, except as may be required by applicable law;
(b) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of its capital stock;
(c) (i) redeem, repurchase or otherwise reacquire any share of its
capital stock or any securities or obligations convertible into or
exchangeable for any share of its capital stock, or any options, warrants
or conversion or other rights to acquire any shares of its capital stock or
any such securities or obligations (except in connection with the exercise
of outstanding Options referred to in Schedule 3.3 in accordance with their
terms); (ii) effect any reorganization or recapitalization; or (iii) split,
combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of, or
in substitution for, shares of its capital stock;
(d) (i) issue, deliver, award, grant or sell, or authorize or propose the
issuance, delivery, award, grant or sale (including the grant of any
Encumbrances) of, any shares of any class of its capital stock (including
shares held in treasury), any securities convertible into or exercisable or
exchangeable for any such shares (including any phantom options or stock
appreciation rights), or any rights, warrants or options to acquire, any
such shares (except for the issuance of shares upon the exercise of
outstanding Options and the issuance of shares under the Company Stock
Purchase Plans); or (ii) amend or otherwise modify the terms of any such
rights, warrants or options in a manner inconsistent with the provisions of
this Agreement or the effect of which shall be to make such terms more
favorable to the holders thereof;
(e) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division (other than a wholly-owned
Subsidiary) thereof, or otherwise acquire or agree to acquire any assets of
any other person (other than the purchase of assets in the ordinary course
of business and consistent with past practice), or make or commit to make
any capital expenditures other than capital expenditures in the ordinary
course of business consistent with past practice;
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer
or otherwise dispose of, any of its material assets except for the grant of
purchase money security interests not to exceed Five Hundred Thousand
Dollars ($500,000) in the aggregate and dispositions in the ordinary course
of business and consistent with past practice;
(g) propose or adopt any amendments to its certificate of incorporation
or, as to its bylaws or partnership agreement, as the case may be, any
amendments that would have an adverse impact on the consummation of the
transactions contemplated by this Agreement or would be adverse to
Acquiror's interests;
(h) (i) change any of its methods of accounting in effect at January 1,
1997, or (ii) make or rescind any express or deemed election relating to
taxes, settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
taxes (except where the amount of such settlements or controversies,
individually or in the aggregate, does not exceed Five Hundred Thousand
Dollars ($500,000), or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in the
preparation of the federal income tax returns for the taxable year ending
December 31, 1996, except, in the case of clause (i) or clause (ii), as may
be required by law or generally accepted accounting principles;
(i) incur any obligation for borrowed money, whether or not evidenced by
a note, bond, debenture or similar instrument, other than (i) purchase
money indebtedness not to exceed Five Hundred Thousand Dollars ($500,000)
in the aggregate, (ii) indebtedness incurred in the ordinary course of
business under the existing loan agreements described on Schedule 3.3
hereto, and (iii) capitalized leases not to exceed One Million Dollars
($1,000,000) in the aggregate;
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(j) without the written consent of Acquiror (which consent shall not be
unreasonably withheld, delayed or conditioned), enter into or modify in any
material respect any agreement which, if in effect as of the date hereof,
would have been required to be disclosed on Schedule 3.12 as a Material
Contract; or
(k) agree in writing or otherwise to do any of the foregoing.
Section 6.3. Negative Covenants of Acquiror.
From the date hereof until the Effective Time, Acquiror shall not (a)
declare or pay any dividend on or make any other distribution of cash or
property in respect of, outstanding shares of its capital stock; or (b)
redeem, repurchase or otherwise reacquire any shares of its capital stock or
any securities or obligations convertible into or exchangeable for any shares
of its capital stock.
Section 6.4. Control of Operations.
Nothing contained in this Agreement shall give Acquiror or Merger Sub,
directly or indirectly, except as expressly provided in this Agreement, the
right to control or direct the Company's operations prior to the Effective
Time. Prior to the Effective Time, each of the Company and Acquiror shall
exercise, consistent with the terms and conditions of this Agreement, complete
control and supervision over its respective operations.
ARTICLE VII
Additional Agreements
Section 7.1. Access and Information.
From the date hereof to the Effective Time, the Company shall, and shall
cause the Company Subsidiaries to, afford to Acquiror and its officers,
employees, accountants, consultants, legal counsel, representatives of current
and prospective sources of financing for the Merger and other representatives
of Acquiror (collectively, the "Acquiror Representatives"), reasonable access
during normal business hours to the properties, executive personnel and all
information concerning the business, properties, contracts, records and
personnel of the Company and the Company Subsidiaries as Acquiror may
reasonably request. The Company further agrees to reasonably cooperate with
Acquiror in connection with Acquiror's obtaining financing for this
transaction (including making appropriate officers of the Company available on
a reasonable basis for road show presentations).
Section 7.2. Confidentiality.
Acquiror acknowledges and agrees that all information received from or on
behalf of the Company or any of the Company Subsidiaries in connection with
the Merger shall be deemed received pursuant to the confidentiality agreement,
dated as of May 21, 1997, between the Company and Acquiror (the
"Confidentiality Agreement") and Acquiror shall, and shall cause the Acquiror
Representatives to comply with the provisions of the Confidentiality Agreement
with respect to such information and the provisions of the Confidentiality
Agreement are hereby incorporated herein by reference with the same effect as
if fully set forth herein.
Section 7.3. Stockholder Approval.
The Company shall, promptly after the date of this Agreement, take all
action necessary in accordance with Delaware Law and its certificate of
incorporation and bylaws to convene a meeting of the Company's stockholders
(the "Stockholders' Meeting"), to approve and adopt this Agreement and the
Merger. The Company shall use its best efforts to solicit from stockholders of
the Company proxies in favor of the approval and adoption of this Agreement
and the Merger and to take all other actions reasonably necessary or in
Acquiror's reasonable judgment advisable to secure such vote as promptly as
practicable, unless otherwise required by applicable fiduciary duties of the
directors of the Company, as determined by such directors in good faith after
consultation with independent legal counsel.
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Section 7.4. Proxy Statement.
(a) As promptly as practicable after the execution and delivery of this
Agreement, the Company shall prepare and file with the SEC a proxy statement
in connection with the matters to be considered at the Stockholders' Meeting
(the "Proxy Statement"). The Company shall use its best efforts to cause the
Proxy Statement to be "cleared" by the SEC for mailing to the stockholders of
the Company as promptly as practicable and shall mail the Proxy Statement to
its stockholders as promptly as practicable thereafter. Acquiror shall furnish
all information concerning it and the holders of its capital stock as the
Company may reasonably request in connection with such actions. The Proxy
Statement shall include the recommendation of the Company's Board of Directors
in favor of approval and adoption of this Agreement and the Merger, unless
otherwise required by applicable fiduciary duties of the directors of the
Company, as determined by such directors in good faith after consultation with
independent legal counsel. Acquiror shall have the right to review the Proxy
Statement before it is filed with the SEC.
(b) The information supplied by Acquiror for inclusion in the Proxy
Statement shall not, at the date the Proxy Statement (or any supplement
thereto) is first mailed by stockholders or at the time of the Stockholders'
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are
made, not misleading. If at any time prior to the Stockholders' Meeting any
event or circumstance relating to Acquiror or any of its affiliates, or its or
their respective officers or directors, should be discovered by Acquiror that
should be set forth in a supplement to the Proxy Statement, Acquiror shall
promptly inform the Company.
(c) All information contained in the Proxy Statement (other than information
provided by Acquiror for inclusion therein) shall not, at the date the Proxy
Statement (or any supplement thereto) is first mailed to stockholders or at
the time of the Stockholders' Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. If at any time prior
to the Stockholders' Meeting any event or circumstance relating to the Company
or any of the Company Subsidiaries, or to its or their respective officers or
directors, should be discovered by the Company that should be set forth in a
supplement to the Proxy Statement, the Company shall promptly inform Acquiror.
All documents that the Company is responsible for filing with the SEC in
connection with the transactions contemplated herein will comply as to form
and substance in all material respects with the applicable requirements of the
Exchange Act and the rules and regulations thereunder.
Section 7.5. FCC Application.
(a) As promptly as practicable after the execution and delivery of this
Agreement, Acquiror, Merger Sub and the Company shall prepare all appropriate
applications for FCC consent, and such other documents as may be required,
with respect to the transfer of control of the Company to Acquiror
(collectively, the "FCC Application"). Not later than the fifth (5th) business
day following execution and delivery of this Agreement, Acquiror and Merger
Sub shall deliver to the Company their respective completed portions of the
FCC Application. Not later than the tenth (10th) business day following the
execution and delivery of this Agreement, the Company shall file, or cause to
be filed, the FCC Application. Acquiror, Merger Sub and the Company shall
prosecute the FCC Application in good faith and with due diligence in order to
obtain such FCC consent as expeditiously as practicable. If the Closing shall
not have occurred for any reason within the initial effective period of the
granting of approval by the FCC of the FCC Application, and neither Acquiror
nor the Company shall have terminated this Agreement pursuant to Section 9.1,
Acquiror and the Company shall jointly request one or more extensions of the
effective period of such grant. No party hereto shall knowingly take, or fail
to take, any action the intent or reasonably anticipated consequence of which
action or failure to act would be to cause the FCC not to grant approval of
the FCC Application.
(b) Acquiror and the Company shall each pay one-half ( 1/2) of any FCC fees
that may be payable in connection with the filing or granting of approval of
the FCC Application. Acquiror and the Company shall each
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oppose any request for reconsideration or judicial review of the granting of
approval of the FCC Application. The Company shall pay any cost incurred in
connection with complying with the FCC notice and advertisement requirements
in connection with the transfer of control of the Company.
Section 7.6. Further Action; Best Efforts.
(a) Each of the parties shall use best efforts to take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable laws or otherwise to
consummate and make effective the transactions contemplated by this Agreement
as promptly as practicable, including, without limitation, using its best
efforts to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of Governmental Entities and parties to contracts
with the Company and Acquiror as are necessary for the transactions
contemplated herein. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall use
commercially reasonable efforts to take all such action.
(b) From the date of this Agreement until the Effective Time, each of the
parties shall promptly notify the other in writing of any pending or, to the
knowledge of such party, threatened action, proceeding or investigation by any
Governmental Entity or any other person (i) challenging or seeking damages in
connection with the Merger or the conversion of the Common Stock into the
Merger Consideration pursuant to the Merger or (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of
Acquiror to own or operate all or any portion of the business or assets of the
Company.
(c) The Company shall give prompt written notice to Acquiror, and Acquiror
and Merger Sub shall give prompt written notice to the Company, of the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date of this Agreement to the Effective Time. Each party shall use
its best efforts to not take any action, or enter into any transaction, which
would cause any of its representations or warranties contained in this
Agreement to be untrue or result in a breach of any covenant made by it in
this Agreement.
Section 7.7. Public Announcements.
Acquiror and the Company shall consult with each other before issuing any
press release or otherwise making any public statements with respect to the
Merger and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law or any
listing agreement of Acquiror or the Company with any exchange on which the
securities of the Company or Acquiror are traded.
Section 7.8. Indemnification; Directors' and Officers' Insurance.
(a) The certificate of incorporation and bylaws of the Surviving Corporation
shall contain the provisions with respect to indemnification set forth in the
certificate of incorporation and bylaws of the Company on the date of this
Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six (6) years after the Effective Time in any manner
that would adversely affect the rights thereunder of persons who at any time
prior to the Effective Time were identified as prospective indemnities under
the certificate of incorporation or bylaws of the Company in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement), unless
such modification is required by applicable law.
(b) From and after the Effective Time, the Surviving Corporation shall
indemnify, defend and hold harmless the present and former officers, directors
and employees of the Company and the Company Subsidiaries (collectively, the
"Indemnified Parties") against all losses, expenses, claims, damages,
liabilities or amounts that are paid in settlement of, with the approval of
Acquiror and the Surviving Corporation (which approval shall not be
unreasonably withheld), or otherwise in connection with, any claim, action,
suit, proceeding or investigation (a "Claim"), based in whole or in part on
the fact that such person is or was such a director, officer or employee and
arising out of actions or omissions occurring at or prior to the Effective
Time (including, without limitation,
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the transactions contemplated by this Agreement), in each case to the fullest
extent permitted under Delaware Law (and shall pay expenses in advance of the
final disposition of any such action or proceeding to each Indemnified Party
to the fullest extent permitted under Delaware Law, upon receipt from the
Indemnified Party to whom expenses are advanced of the undertaking to repay
such advances contemplated by Section 145(e) of Delaware Law).
(c) Without limiting the foregoing, in the event any Claim is brought
against any Indemnified Party (whether arising before or after the Effective
Time) after the Effective Time (i) the Indemnified Parties may retain its
regularly engaged independent legal counsel as of the date of this Agreement,
or other independent legal counsel satisfactory to them provided that such
other counsel shall be reasonably acceptable to Acquiror and the Surviving
Corporation, (ii) the Surviving Corporation shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received, and (iii) the Surviving Corporation will use its
reasonable efforts to assist in the vigorous defense of any such matter,
provided that the Surviving Corporation shall not be liable for any settlement
of any Claim effected without its written consent, which consent shall not be
unreasonably withheld. Any Indemnified Party wishing to claim indemnification
under this Section 7.8, promptly upon learning of any such Claim, shall notify
the Surviving Corporation (although the failure so to notify the Surviving
Corporation shall not relieve the Surviving Corporation from any liability
which the Surviving Corporation may have under this Section 7.8, except to the
extent such failure prejudices the Surviving Corporation), and shall deliver
to the Surviving Corporation the undertaking contemplated by Section 145(e) of
Delaware Law. The Indemnified Parties as a group may retain one law firm (in
addition to local counsel) to represent them with respect to each such matter
unless there is, under applicable standards of professional conduct (as
reasonably determined by counsel to such Indemnified Parties) a conflict on
any significant issue between the position of any two or more of such
Indemnified Parties, in which event, an additional counsel as may be required
may be retained by such Indemnified Parties.
(d) Acquiror shall cause to be maintained in effect for not less than six
(6) years after the Effective Time the current policies of directors' and
officers' liability insurance and fiduciary liability insurance maintained by
the Company with respect to matters occurring prior to the Effective Time;
provided, however, that (i) Acquiror may substitute therefor policies of
substantially the same coverage containing terms and conditions that are
substantially the same for the Indemnified Parties to the extent reasonably
available and (ii) Acquiror shall not be required to pay an annual premium for
such insurance in excess of three hundred percent (300%) of the last annual
premium paid prior to the date of this Agreement, but in such case shall
purchase as much coverage as possible for such amount.
(e) This Section 7.8 is intended to be for the benefit of, and shall be
enforceable by, the Indemnified Parties referred to herein, their heirs and
personal representatives and shall be binding on Acquiror and Merger Sub and
the Surviving Corporation and their respective successors and assigns.
Acquiror hereby guarantees the Surviving Corporation's obligations pursuant to
this Section 7.8.
Section 7.9. Employee Benefits Matters.
(a) For a period of two (2) years after the Effective Time, Acquiror shall
cause the Surviving Corporation to provide employee benefits under plans,
programs and arrangements, which, in the aggregate, will provide benefits to
the employees of the Company and the Company Subsidiaries which are no less
favorable, in the aggregate, than those provided pursuant to the plans,
programs and arrangements of the Company in effect and disclosed to Acquiror
on the date hereof; provided, however, that nothing herein shall interfere
with the Surviving Corporation's right or obligation to make such changes to
such plans, programs or arrangements as are necessary to conform with
applicable law; provided, further, however, that with respect to any such
plan, program or arrangement that provides for the issuance of the Company's
Common Stock, or options or securities exercisable or convertible into the
Company's Common Stock, the Surviving Corporation shall be required to adopt
equity compensation programs providing for the issuance of common stock of
Acquiror to such employees.
(b) In furtherance of the provisions of Section 7.9(a), Acquiror shall cause
the Surviving Corporation to provide to those executives listed on Schedule
7.9 hereto with the employee benefits provided to each such
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executive on the date hereof and for the time period set forth in the
Company's employment and/or severance agreements with such executives as set
forth on Schedule 7.9 hereto; provided, however, that notwithstanding the
foregoing, to the extent that any contributions under a qualified retirement
plan would be prohibited by applicable law, Acquiror shall cause the Surviving
Corporation to make cash payments from time to time to such executives equal
to the value of such contributions which can not be so made under applicable
law, as and when such contributions would have been made as noted on Schedule
7.9. The employee benefits provided to such executives on the date hereof
under the Company's employment and/or severance agreements with such
executives are detailed on Schedule 7.9 hereto.
(c) Acquiror acknowledges and agrees that prior to the Effective Time, the
Company will take all such actions as may be necessary to cause (i) all
participants to become fully vested in their benefits under the Company's
401(k) Plan, and (ii) employer contributions to be made with respect to
periods prior to the Effective Time to the Company's 401(k) Plan to the extent
that such contributions would be made if the participants were employed by the
Company on the last day of the calendar year in which the Closing occurs.
Acquiror will allow employees of PCI to continue to participate in the
Company's 401(k) Plan at least until the end of the calendar year in which the
Closing occurs.
(d) On or prior to the Effective Time, the Company shall pay a pro-rated
portion of the annual bonuses and gainshare that would have otherwise been
payable to the eligible employees of the Company after the end of the year,
such bonuses and gainshare to be consistent with the Company's 1997 Management
and Professional Bonus Plan and the Company's Gainshare Program, with past
practice, and the estimates contained in Schedule 7.9(d).
(e) Acquiror agrees that it will not allow the Surviving Corporation to
amend or terminate the Palmer Wireless, Inc. Change of Control Severance
Program for a period of one (1) year after the Effective Time.
(f) Prior to Closing, the Company shall make, or shall make accruals on its
financial statements for, all payments required to be made by the Company
under the terms of any Benefit Plan or by any law applicable to any Benefit
Plan with respect to all periods through the Closing Date.
(g) On or prior to the Effective Time, the Company shall take, or cause to
be taken, such actions as are reasonably necessary to:
(i) cause the Company to adopt the PCI plans providing medical, dental,
vision, prescription drug, flexible spending account, pre-tax premium
contribution, travel accident, accidental death and dismemberment, long
term disability, and life insurance benefits for the benefit of Company
employees;
(ii) add the Company as a contractholder under insurance contracts
providing insurance coverage, and administrative contracts relating to, for
one or more of the benefits listed in the immediately preceding paragraph
(i) above as well as workers compensation liability coverage and provide
that such contracts continue as to the Company after the Effective Time;
(iii) substitute the Company for PCI as the party to the Palmer
Communications Health Care Expense Fund which is a Code Section 501(c)(9)
trust used to fund certain of the benefits listed in paragraph (i) above
and any other trust or account which is used with respect to flexible
spending accounts or pre-tax premium contributions for Company employees;
and
(iv) except as provided in Section 7.9(c) hereof, cease participation and
coverage in the Company plans, trusts and insurance contracts referred to
in paragraphs (i) through (iii) above with respect to all individuals who
are not Company employees as of the Effective Time.
Section 7.10. HSR Act Matters.
Acquiror, Merger Sub and the Company (as may be required pursuant to the HSR
Act) promptly will complete all documents required to be filed with the
Federal Trade Commission and the United States Department of Justice in order
to comply with the HSR Act and, not later than fifteen (15) days after the
date
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hereof, together with the persons who are required to join in such filings,
shall file the same with the appropriate Governmental Entities. Acquiror,
Merger Sub and the Company shall promptly furnish all materials thereafter
required by any of the Governmental Entities having jurisdiction over such
filings, and shall take all reasonable actions and shall file and use best
efforts to have declared effective or approved all documents and notifications
with any such Governmental Entity, as may be required under the HSR Act or
other Federal antitrust laws for the consummation of the Merger and the other
transactions contemplated hereby.
Section 7.11. Negotiation With Others.
(a) Unless and until this Agreement shall have been terminated in accordance
with its terms, the Company shall not, through any officer, director,
employee, representative, agent or direct or indirect stockholder of the
Company or any Company Subsidiaries, directly or indirectly, encourage or
solicit any proposal that constitutes an Acquisition Proposal (as defined
below), engage in any discussions or negotiations or provide any information
to any person relating thereto or in furtherance thereof or accept any
Acquisition Proposal; provided, however, that nothing contained in this
Section 7.11 shall prohibit the Company, or its Board of Directors, from
making any disclosure to its stockholders that, in the judgment of its Board
of Directors in accordance with, and based upon, the advice of outside
counsel, is required under applicable law. For purposes of this Agreement,
"Acquisition Proposal" means any offer to acquire (or meaningful indication of
interest in the acquisition of) all or any substantial part of the business
and properties or capital stock of the Company or the Company Subsidiaries,
whether by merger, consolidation, sale of assets or stock, tender offer or
similar transaction or series of transactions involving the Company, the
Company Subsidiaries or their direct or indirect stockholders.
(b) Notwithstanding Section 7.11(a), the Board of Directors of the Company,
in the exercise of and as required by its fiduciary duties as determined in
good faith by the Board of Directors of the Company in accordance with and
based upon the advice of outside counsel, may (i) furnish information
(including, without limitation, confidential information) concerning the
Company to a third party who makes an unsolicited request for such information
for the purpose of making an Acquisition Proposal, provided that such third
party executes and delivers a confidentiality agreement substantially the same
as the Confidentiality Agreement, and (ii) engage in discussions or
negotiations with a third party who submits in writing an interest in making
an Acquisition Proposal that the Board of Directors believes, based on advice
of its financial advisors, is reasonably capable of being consummated and is
reasonably likely to be superior to the transactions contemplated by this
Agreement from a financial point of view to all stockholders of the Company,
provided, however, that in the case of clause (i) or (ii) hereof, the Company
shall promptly notify Acquiror in writing of such request for information or
Acquisition Proposal, providing reasonable details with respect thereto, and
shall keep Acquiror informed as to the status of any discussions or
negotiations referred to in clause (ii) above.
ARTICLE VIII
Closing Conditions
Section 8.1. Conditions to Obligations of Acquiror, Merger Sub and the
Company to Effect the Merger.
The respective obligations of Acquiror, Merger Sub and the Company to effect
the Merger and the other transactions contemplated herein shall be subject to
the satisfaction at or prior to the Effective Time of the following
conditions, any or all of which may be waived, in whole or in part, to the
extent permitted by applicable law:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of the
Company in accordance with applicable law.
(b) No Order. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in
any case which is in effect and which prevents or prohibits consummation of
the Merger or any other transactions contemplated in this Agreement;
provided, however, that the parties shall use their reasonable efforts to
cause any such decree, judgment, injunction or other order to be vacated or
lifted.
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(c) HSR Act. Any waiting period with any extensions thereof under the HSR
Act shall have expired or been terminated.
(d) FCC Approval. All consents, waivers, approvals and authorizations
(the "FCC Transfer Approvals") required to be obtained, and all filings or
notices required to be made, by Acquiror, Merger Sub and the Company prior
to consummation of the transactions contemplated in this Agreement shall
have been obtained from, and made with, the FCC. Each of the FCC Transfer
Approvals shall have become a Final Order. For purposes of this Agreement,
"Final Order" shall mean an action by the FCC: (i) that is not reversed,
stayed, enjoined, set aside, annulled or suspended within the deadline, if
any, provided by applicable statute or regulation; (ii) with respect to
which no request for stay, motion or petition for reconsideration or
rehearing, application or request for review, or notice of appeal or other
judicial petition for review that is filed within such period is pending,
and (iii) as to which the deadlines, if any, for filing any such request,
motion, petition, application, appeal or notice, and for the entry of
orders staying, reconsidering or reviewing on the FCC's own motion have
expired. Notwithstanding anything to the contrary contained herein or
otherwise, Acquiror may, at is option by written notice to the Company: (i)
waive on behalf of the parties the requirement that each of the FCC
Transfer Approvals shall have become a Final Order; and (ii) acquire the
microwave licenses pursuant to special temporary authority granted to
Acquiror by the FCC.
Section 8.2. Additional Conditions to Obligations of Acquiror.
The obligations of Acquiror to effect the Merger and the other transactions
contemplated in this Agreement are also subject to the following conditions,
any or all of which may be waived, in whole or in part, to the extent
permitted by applicable law:
(a) Representations and Warranties. The representations and warranties of
the Company made in this Agreement shall be true and correct in all
material respects, on and as of the Effective Time with the same effect as
though such representations and warranties had been made on and as of the
Effective Time (provided that any representation or warranty contained
herein that is qualified by a materiality standard shall not be further
qualified hereby), except for representations and warranties that speak as
of a specific date or time other than the Effective Time (which need only
be true and correct in all material respects as of such date or time).
Acquiror shall have received a certificate of the Chief Executive Officer
or Chief Financial Officer of the Company to that effect.
(b) Agreements and Covenants. The agreements and covenants of the Company
required to be performed on or before the Effective Time shall have been
performed in all material respects. Acquiror shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer of
the Company to that effect.
(c) Legal Opinions. Acquiror shall have received (i) an opinion from
Hogan & Hartson L.L.P., counsel to the Company, in form and substance
reasonably satisfactory to Acquiror, and (ii) an opinion from the Company's
FCC counsel in substantially the form attached hereto as Exhibit A.
(d) Dissenting Shares. The Dissenting Shares shall constitute not greater
than ten percent (10%) of the shares of Class A Common Stock outstanding on
the Closing Date.
(e) No Company Material Adverse Effect. Since the date of this Agreement,
no Company Material Adverse Effect shall have occurred and be continuing.
Section 8.3. Additional Conditions to Obligations of the Company.
The obligations of the Company to effect the Merger and the other
transactions contemplated in this Agreement are also subject to the following
conditions any or all of which may be waived, in whole or in part, to the
extent permitted by applicable law:
(a) Representations and Warranties. The representations and warranties of
Acquiror and Merger Sub made in this Agreement shall be true and correct in
all material respects, on and as of the Effective
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Time with the same effect as though such representations and warranties had
been made on and as of the Effective Time (provided that any representation
or warranty contained herein that is qualified by a materiality standard
shall not be further qualified hereby), except for representations and
warranties that speak as of a specific date or time other than the
Effective Time (which need only be true and correct in all material
respects as of such date or time). The Company shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer of
Acquiror to that effect.
(b) Agreements and Covenants. The agreements and covenants of Acquiror
and Merger Sub required to be performed on or before the Effective Time
shall have been performed in all material respects. The Company shall have
received a certificate of the Chief Executive Officer or Chief Financial
Officer of Acquiror to that effect.
(c) Legal Opinion. The Company shall have received an opinion from
Proskauer Rose Goetz & Mendelsohn LLP, counsel to Acquiror and Merger Sub,
in form and substance reasonably satisfactory to the Company.
ARTICLE IX
Termination, Amendment and Waiver
Section 9.1. Termination.
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of this Agreement and the Merger by the
stockholders of the Company:
(a) by mutual written consent of each of Acquiror and the Company;
(b) by Acquiror if the Company shall have breached, or failed to comply
with, in any material respect any of its obligations under this Agreement
or any representation or warranty made by the Company shall have been
incorrect in any material respect when made or shall have since ceased to
be true and correct in any material respect, such that as a result of such
breach, failure or misrepresentation the conditions set forth in Section
8.2(a), 8.2(b) or 8.2(e) would not be satisfied, and such breach, failure
or misrepresentation is not cured within thirty (30) days after notice
thereof;
(c) by the Company if Acquiror or Merger Sub shall have breached, or
failed to comply with, in any material respect any of its obligations under
this Agreement or any representation or warranty made by Acquiror or Merger
Sub shall have been incorrect in any material respect when made or shall
have since ceased to be true and correct in any material respect, such that
as a result of such breach, failure or misrepresentation the conditions set
forth in Section 8.3(a) or 8.3(b) would not be satisfied, and such breach,
failure or misrepresentation is not cured within thirty (30) days after
notice thereof;
(d) by either Acquiror or the Company if any decree, permanent
injunction, judgment, order or other action by any court of competent
jurisdiction or any Governmental Entity preventing or prohibiting
consummation of the Merger shall have become final and nonappealable;
(e) by either Acquiror or the Company if the Agreement shall fail to
receive the requisite vote for approval and adoption by the stockholders of
the Company at the Stockholders' Meeting and the Merger shall not have been
consummated within forty-five (45) days thereafter; and
(f) by either the Company or Acquiror if the merger shall not have been
consummated before December 31, 1997 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section
9.1(f) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before the Termination Date.
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Section 9.2. Effect of Termination.
Except as provided in Section 9.3 or Section 10.1, in the event of the
termination of this Agreement pursuant to Section 8.1, this Agreement shall
forthwith become void, there shall be no liability on the part of Acquiror,
Merger Sub or the Company or any of their respective officers or directors to
the other parties hereto and all rights and obligations of any party hereto
shall cease, except that nothing herein shall relieve any party for any breach
of this Agreement.
Section 9.3. Expenses; Fee.
(a) Except as otherwise expressly provided herein, all expenses incurred by
the parties hereto shall be borne solely by the party that has incurred such
expenses. All FCC annual regulatory fees which are due and payable prior to
Closing shall be paid by the Company prior to Closing.
(b) Without in any way limiting the Company's obligations under this
Agreement (including without limitation under Sections 1.1, 1.2, 1.6, 2.3,
6.1, 6.2, 7.1, 7.3, 7.4, 7.5, 7.6, 7.10 and 7.11 hereof) or Acquiror's rights
under Section 10.7 hereof, the Company shall pay, or shall cause to be paid
to, Acquiror a Fee (the "Fee") of Fifteen Million Dollars ($15,000,000), if
this Agreement is (i) terminated either (A) by Acquiror under Section 9.1(b)
as a result of the Company's breach of its obligations under Sections 1.1,
1.2, 1.6, 2.3, 6.1, 6.2, 7.1, 7.3, 7.4, 7.5, 7.6, 7.10 or 7.11, (B) by the
Company or Acquiror under Section 9.1(e) and (ii) either (A) an Alternative
Transaction (as defined below) has been publicly announced and has not been
withdrawn at the time of such termination (in which event the Fee shall be
paid simultaneously with such termination) or (B) an Alternative Transaction
is consummated on or prior to the date that is one (1) year after the date of
this Agreement (in which event the Fee shall be paid simultaneously with such
consummation); provided, however, that payment of such Fee shall be deemed to
satisfy in full all of the liabilities and obligations of the Company under
this Agreement. As used herein, an "Alternative Transaction" shall mean any
transaction or proposed transaction or related series of transactions
(including without limitation any merger, consolidation, sale of assets or
stock, tender offer or other transaction) providing for the receipt by the
Company and/or the holders of more than fifty percent (50%) of its Common
Stock of consideration equivalent to a value in excess of Seventeen Dollars
and Fifty Cents ($17.50) per share of Common Stock.
Section 9.4. Amendment.
This Agreement may be amended by the parties hereto by action taken by or on
behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that, after approval of this Agreement and
the Merger by the stockholders of the Company, no amendment may be made which
would reduce the amount or change the type of consideration into which each
share of Common Stock shall be converted pursuant to this Agreement upon
consummation of the Merger. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 9.5. Waiver.
At any time prior to the Effective Time, the parties may (a) extend the time
for the performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant to this
Agreement and (c) waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE X
General Provisions
Section 10.1. Nonsurvival of Representations, Warranties and Agreements.
The representations, warranties and agreements in this Agreement (and in any
certificate delivered in connection with the Closing) shall be deemed to be
conditions to the Merger and shall not survive the Effective Time or
termination of this Agreement, except for the agreements set forth in Articles
I (the Merger) and II
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(Conversion of Securities; Exchange of Certificates) and Sections 7.8
(Indemnification and Insurance) and 7.9 (Employee Benefits Matters), each of
which shall survive the Effective Time indefinitely, and Sections 7.2
(Confidentiality), 9.2 (Effect of Termination) and 9.3 (Expenses; Fee), each
of which shall survive termination of this Agreement indefinitely.
Section 10.2. Notices.
All notices and other communications given or made pursuant hereto shall be
in writing and shall be deemed to have been duly given or made as of the date
delivered, mailed or transmitted, and shall be effective upon receipt, if
delivered personally, mailed by registered or certified mail (postage prepaid,
return receipt requested) to the parties at the following addresses (or at
such other address for a party as shall be specified by like changes of
address) or sent by electronic transmission to the telecopier number specified
below:
(a) If to Acquiror:
Price Communications Corporation
45 Rockefeller Plaza
Suite 3200
New York, New York 10020
Telecopier No.: (212) 397-3755
Attention: Robert Price
With a copy (which shall not constitute notice) to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036-8299
Telecopier No.: (212) 969-2900
Attention: Peter G. Samuels, Esq.
(b) If to the Company:
Palmer Wireless, Inc.
12800 University Drive
Fort Myers, Florida 33014
Telecopier No.: (941) 433-8213
Attention: Pat Meehan, Esq.
With a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, DC 20004
Telecopier No.: (202) 637-5910
Attention: David B.H. Martin, Jr., Esq.
Section 10.3. Certain Definitions.
For purposes of this Agreement, the term:
(a) "affiliate" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "beneficial owner" means with respect to any shares of Common Stock a
person who shall be deemed to be the beneficial owner of such shares (i)
which such person or any of its affiliates or associates beneficially owns,
directly or indirectly, (ii) which such person or any of its affiliates or
associates (as such term is defined in Rule 12b-2 of the Exchange Act) has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant
to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights,
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warrants or options, or otherwise, or (B) the right to vote pursuant to any
agreement, arrangement or understanding, (iii) which are beneficially
owned, directly or indirectly, by any other persons with whom such person
or any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding voting or disposing of
any such shares or (iv) pursuant to Section 13(d) of the Exchange Act and
any rules or regulations promulgated thereunder;
(c) "business day" shall mean any day other than a day on which banks in
the State of Florida are authorized or obligated to be closed;
(d) "control" (including the terms "controlled by" and "under common
control with") means, other than for purposes of the Communications Act,
the possession, directly or indirectly or as trustee or executor, of the
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of stock or as trustee or executor,
by contract or credit arrangement or otherwise; and
(e) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d) of the Exchange Act).
Section 10.4. Headings.
The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Section 10.5. Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the
end that transactions contemplated hereby are fulfilled to the extent
possible.
Section 10.6. Entire Agreement.
This Agreement (together with the Exhibits, the Schedules and the other
documents delivered pursuant hereto) and the Confidentiality Agreement
constitute the entire agreement of the parties and supersede all prior
agreements and undertakings, both written and oral, between the parties, or
any of them, with respect to the subject matter hereof and, except as
otherwise expressly provided herein, are not intended to confer upon any other
person any rights or remedies hereunder.
Section 10.7. Specific Performance.
The transactions contemplated by this Agreement are unique. Accordingly,
each of the parties acknowledges and agrees that, in addition to all other
remedies to which it may be entitled, each of the parties hereto is entitled
to a decree of specific performance, provided such party is not in material
default hereunder.
Section 10.8. Assignment.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other party.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties and their respective
successors and assigns.
Section 10.9. Third Party Beneficiaries.
This Agreement shall be binding upon and inure solely to the benefit of each
party hereto, and nothing in this Agreement, express or implied, is intended
to or shall confer upon any other person any right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement except for (a) the
Indemnified Parties
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under Section 7.8, (b) the rights of the holders of Common Stock to receive
the Merger Consideration payable in the Merger pursuant to Article II, and (c)
the rights of the individuals listed on Schedule 7.9 under Section 7.9.
Section 10.10. Governing Law.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of law.
Section 10.11. Counterparts.
This Agreement may be executed and delivered in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which
when executed and delivered shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
In Witness Whereof, the parties hereto have caused this Agreement and Plan
of Merger to be executed and delivered as of the date first written above.
Price Communications Corporation
/s/ Robert Price
By: _________________________________
Name: Robert Price
Title:President
Price Communications Cellular Merger
Corp.
/s/ Robert Price
By: _________________________________
Name: Robert Price
Title:President
Palmer Wireless, Inc.
/s/ William J. Ryan
By: _________________________________
William J. Ryan
President and Chief Executive
Officer
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 721 of the New York Business Corporation Law provides that the
indemnification and advancement of expenses of directors and officers may be
provided by the certificate of incorporation or by-laws of a corporation, or
when authorized by the certificate of incorporation or by-laws, a resolution
of shareholders, a resolution of directors or an agreement providing for
indemnification (except in cases where a judgment or other final adjudication
establishes that such acts were committed in bad faith or were the result of
active or deliberate dishonesty and were material to the cause of action so
adjudicated or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled).
Section 722 of the New York Business Corporation Law provides that a
corporation may indemnify any person, made, or threatened to be made, a party
of an action or proceeding other than one by or in the right of the
corporation to procure a judgment in its favor, whether civil or criminal,
including an action by or in the right of any other corporation, partnership,
joint venture, trust, employee benefit plan or other entity which any director
or officer of the corporation served in any capacity at the request of the
corporation, by reason of the fact that he was a director or officer of the
corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other entity in any other capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses if such
director or officer acted, in good faith, for a purpose which he reasonably
believed to be in, or in the case of service for any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation and, in criminal acts or
proceedings, in addition, had no reasonable cause to believe that his conduct
was unlawful.
Section 722 of the New York Business Corporation Law also states that a
corporation may indemnify any person made, or threatened to be made, a party
to an action by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director or officer of the
corporation or any other corporation, partnership, joint venture, trust,
employee benefit plan or other entity at the request of the corporation,
against amounts paid in settlement and reasonable expenses actually and
necessarily incurred by him in connection with the defense or settlement of
such action, or in connection with an appeal therein if such director or
officer acted, in good faith, for a purpose which he reasonably believed to be
in, or in the case of service for any other corporation, partnership, joint
venture, employee benefit plan or other entity, not opposed to, the best
interests of the corporation, except that no indemnification shall be made in
respect to a threatened or pending action which is settled or otherwise
disposed of, or any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation, unless the court determines the
person is fairly and reasonably entitled to indemnity for such portion of the
settlement amount and expenses as the court deems proper.
Section 726 of the New York Business Corporation Law provides that a
corporation shall have the power to purchase and maintain insurance for
indemnification of directors and officers. However, no insurance may provide
for any payment, other than cost of defense, to or on behalf of any director
or officer for a judgment or a final adjudication adverse to the insured
director or officer if (i) a judgment or other final adjudication establishes
that his acts of active and deliberate dishonesty were material to the cause
of action adjudicated or that he personally gained a financial profit or other
advantage to which he was not legally entitled or (ii) if prohibited under the
insurance law of New York.
Section 724 of the New York Business Corporation Law provides that
indemnification shall be awarded by a court to the extent authorized under
Sections 722 and 723(a) of the New York Business Corporation Law
notwithstanding the failure of a corporation to provide indemnification, and
despite any contrary resolution of the board or of the shareholders.
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The Certificates of Incorporation and By-laws of the Company and Holdings
exonerate directors of the Company and Holdings from personal liability to the
Company or Holdings, as the case may be, and their respective stockholders,
for monetary damages for breach of the fiduciary duty of care as a director,
but it does not eliminate or limit liability for any breach of the directors'
duty of loyalty for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, for any improper
declaration of dividends or for any transaction from which the directors
derived an improper personal benefit. The Certificates of Incorporation do not
eliminate a stockholder's right to seek nonmonetary, equitable remedies, such
as an injunction or rescission, to redress an action taken by the directors.
However, as a practical matter, equitable remedies may not be available in all
situations, and there may be instances in which no effective remedy is
available.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger among the Company, Holdings and PCC
Sub, Inc. (the "Plan of Merger") (incorporated by reference to
Exhibit 3.3).
3.1 Certificate of Incorporation of Holdings.
3.2 By-laws of Holdings.
3.3 The Plan of Merger.
4.1 Certificate of Incorporation of Holdings (incorporated by
reference to Exhibit 3.1).
4.2 By-Laws of Holdings (incorporated by reference to Exhibit 3.2).
5.1 Opinion of Proskauer Rose LLP.*
8.1 Opinion of Proskauer Rose LLP.*
10.1 1992 Long Term Incentive Plan, incorporated by reference to
Exhibit 10(a) to the Company's Form 10-K for the year ended
December 31, 1992.
10.2 Warrant Agreement dated April 12, 1990 between the Company and
Warner Communications Investors, Inc., incorporated by reference
to Exhibit (4) to the Company's Form 8-K filed to report an
event of April 12, 1990.
10.3 Form of Amendment to Time Warner Warrant, incorporated by
reference to Exhibit 10(i) to the Company's Form 10-K for the
year ended December 31, 1992.
10.4 Stock Purchase Agreement, dated as of April 27, 1987, among the
Company, Republic Broadcasting Corporation and Fairfield
Broadcasting, Inc., as amended July 16, 1987, incorporated by
reference to Annex I to the Company's Definitive Proxy Statement
dated July 27, 1987.
10.5 Notes and Stock Purchase Agreement between and among Fairfield
Broadcasting, Inc., the Company and Republic Broadcasting
Corporation dated as of September 30, 1987, as amended,
incorporated by reference to Exhibit 10(a) to Registration
Statement on Form S-1 (File No. 33-30318).
10.6 Stockholders' Agreement among Fairfield Broadcasting, Inc., the
Company, Citicorp Venture Capital Ltd., Osborn Communications
Corporation and Prudential-Bache Interfunding Inc., dated as of
September 30, 1987, incorporated by reference to Exhibit 10(b)
to Registration Statement on Form S-1 (File No. 33-30318).
10.7 Form of Indemnification Agreement between the Company and its
officers and directors, incorporated by reference to Exhibit
10(y) to the Company's Form 10-K for the year ended December 31,
1993.
10.8 Employment Agreement, dated as of October 6, 1994, between the
Company and Robert Price, incorporated by reference to Exhibit
10(aa) to the Company's Form 10-K for the year ended December
31, 1994.
10.9 Employment Agreement, dated as of January 5, 1995, between the
Company and Kim Pressman, incorporated by reference to Exhibit
10(bb) to the Company's Form 10-K for the year ended December
31, 1994.
</TABLE>
- --------
* Filed herewith.
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.10 Stock Option Agreement, dated as of February 10, 1994, between
the Company and Robert Price, incorporated by reference to
Exhibit 10(cc) to the Company's Form 10-K for the year ended
December 31, 1994.
10.11 Rights Agreement dated as of October 6, 1994 between the Company
and Harris Trust Company of New York, incorporated by reference
to Exhibit 4 to Registrant's Form 8-K filed to report an event
on October 6, 1994.
10.12 Amendment dated January 12, 1995 to Rights Agreement dated as of
October 6, 1994 between the Company and Harris Trust Company of
New York, incorporated by reference to Exhibit 4 to the
Company's Form 8-K filed to report an event on January 12, 1995.
10.13 Securities Purchase Agreement, dated as of February 15, 1994,
between the stockholders and warrant holders of Smith
Acquisition Corp. and the Registrant, incorporated by reference
to Exhibit 10 to the Company's Form 8-K filed to report an event
of September 16, 1994.
10.14 Asset purchase agreement dated as of August 8, 1995 by and
between USA Broadcast Group L.L.C. and Price Communications
Corporation, Texoma Broadcasting Corp., Southeast Texas
Broadcasting Corp. and Tri-State Broadcasting Corp.,
incorporated by reference to Exhibit 10(gg) to the Company's
Form 10-Q for the Quarter ended September 30, 1995.
10.15 Asset purchase agreement dated as of October 18, 1995 by and
between WHTM-TV, Inc. and Allbritton Communications Company,
incorporated by reference to Exhibit 10(hh) to the Company's
Form 10-Q for the Quarter ended September 30, 1995.
10.16 Agreement and Plan of Merger, dated May 23, 1997, by and among
Palmer Wireless, Inc., the Company and Price Communications
Cellular Merger Corp. (incorporated by reference from Annex I to
the proxy statement and prospectus included in the Company's
Registration Statement on Form S-4 (File No. 333-33299)).
10.18 Commitment Letter, dated July 2, 1997, among DLJ Capital
Funding, Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ Securities"), Price Communications Wireless Inc. ("PCW")
and the Company, incorporated by reference to Exhibit 10.18 to
the Company's Registration Statement on Form S-4 (File No. 333-
33299).
10.19 Purchase Agreement, dated July 3, 1997, among the Company, PCW,
the Purchasers named therein and DLJ Securities, as
Representative of the Purchasers, incorporated by reference to
Exhibit 10.19 to the Company's Registration Statement on Form S-
4 (File No. 333-33299).
10.20 Purchase Agreement, dated July 31, 1997, among the Company,
Price Communications Cellular Inc., Price Communications
Cellular Holdings, Inc., NatWest Capital Markets Limited
("NatWest") and Wasserstein Perella Securities, Inc.
("Wasserstein Perella"), incorporated by reference to Exhibit
10.20 to the Company's Registration Statement on Form S-4 (File
No. 333-33299).
10.21 Registration Rights Agreement, dated July 10, 1997, by and among
PCW and DLJ Securities, Wasserstein Perella, NatWest, Lehman
Brothers, Inc. and PaineWebber Incorporation as Purchasers,
incorporated by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-4 (File No. 333-33299).
10.22 Indenture, dated as of July 10, 1997, between PCW and Bank of
Montreal Trust Company, as trustee, incorporated by reference to
Exhibit 10.22 to the Company's Registration Statement on Form S-
4 (File No. 333-33299).
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Proskauer Rose LLP (included in Exhibits 5.1 and
8.1).
23.2 Consent of Arthur Andersen LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of KPMG Peat Marwick LLP
24.1 Powers of Attorney are set forth on the signature page hereof.
</TABLE>
- --------
* Filed herewith.
II-3
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c) the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to (1) immediately preceeding, or (ii) that purports to meet the requirements
of section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effected, and that, for purposes 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy 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.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 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.
The undersigned registrant hereby undertakes 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.
The undersigned registrant hereby undertakes:
(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.
II-4
<PAGE>
(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-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK,
STATE OF NEW YORK, ON AUGUST 29, 1997.
PRICE COMMUNICATIONS CORPORATION
By /s/ Robert Price
___________________________________
ROBERT PRICE
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 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 President and
- ------------------------------------- Director (Principal August 29, 1997
(ROBERT PRICE) Executive Officer,
Financial Officer
and Accounting
Officer)
Director
/s/ George H. Cadgene* August 29, 1997
- -------------------------------------
(GEORGE H. CADGENE)
Director
/s/ Robert F. Ellsworth* August 29, 1997
- -------------------------------------
(ROBERT F. ELLSWORTH)
*By Robert Price, as Attorney in Fact.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK,
STATE OF NEW YORK, ON AUGUST 29, 1997.
PRICE HOLDINGS CORPORATION
By /s/ Robert Price
___________________________________
ROBERT PRICE
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 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 President and
- ------------------------------------- Director (Principal August 29, 1997
(ROBERT PRICE) Executive Officer,
Financial Officer
and Accounting
Officer)
Director
/s/ George H. Cadgene* August 29, 1997
- -------------------------------------
(GEORGE H. CADGENE)
Director
/s/ Robert F. Ellsworth* August 29, 1997
- -------------------------------------
(ROBERT F. ELLSWORTH)
*By Robert Price, as Attorney in Fact.
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
2.1 Agreement and Plan of Merger among the Company,
Holdings and PCC Sub, Inc. (the "Plan of Merger")
(incorporated by reference to Exhibit 3.3).
3.1 Certificate of Incorporation of Holdings.
3.2 By-laws of Holdings.
3.3 The Plan of Merger.
4.1 Certificate of Incorporation of Holdings
(incorporated by reference to Exhibit 3.1).
4.2 By-Laws of Holdings (incorporated by reference to
Exhibit 3.2).
5.1 Opinion of Proskauer Rose LLP.*
8.1 Opinion of Proskauer Rose LLP.*
10.1 1992 Long Term Incentive Plan, incorporated by
reference to Exhibit 10(a) to the Company's Form 10-K
for the year ended December 31, 1992.
10.2 Warrant Agreement dated April 12, 1990 between the
Company and Warner Communications Investors, Inc.,
incorporated by reference to Exhibit (4) to the
Company's Form 8-K filed to report an event of April
12, 1990.
10.3 Form of Amendment to Time Warner Warrant,
incorporated by reference to Exhibit 10(i) to the
Company's Form 10-K for the year ended December 31,
1992.
10.4 Stock Purchase Agreement, dated as of April 27, 1987,
among the Company, Republic Broadcasting Corporation
and Fairfield Broadcasting, Inc., as amended July 16,
1987, incorporated by reference to Annex I to the
Company's Definitive Proxy Statement dated July 27,
1987.
10.5 Notes and Stock Purchase Agreement between and among
Fairfield Broadcasting, Inc., the Company and
Republic Broadcasting Corporation dated as of
September 30, 1987, as amended, incorporated by
reference to Exhibit 10(a) to Registration Statement
on Form S-1 (File No. 33-30318).
10.6 Stockholders' Agreement among Fairfield Broadcasting,
Inc., the Company, Citicorp Venture Capital Ltd.,
Osborn Communications Corporation and Prudential-
Bache Interfunding Inc., dated as of September 30,
1987, incorporated by reference to Exhibit 10(b) to
Registration Statement on Form S-1 (File No. 33-
30318).
10.7 Form of Indemnification Agreement between the Company
and its officers and directors, incorporated by
reference to Exhibit 10(y) to the Company's Form 10-K
for the year ended December 31, 1993.
10.8 Employment Agreement, dated as of October 6, 1994,
between the Company and Robert Price, incorporated by
reference to Exhibit 10(aa) to the Company's Form 10-
K for the year ended December 31, 1994.
10.9 Employment Agreement, dated as of January 5, 1995,
between the Company and Kim Pressman, incorporated by
reference to Exhibit 10(bb) to the Company's Form 10-
K for the year ended December 31, 1994.
10.10 Stock Option Agreement, dated as of February 10,
1994, between the Company and Robert Price,
incorporated by reference to Exhibit 10(cc) to the
Company's Form 10-K for the year ended December 31,
1994.
10.11 Rights Agreement dated as of October 6, 1994 between
the Company and Harris Trust Company of New York,
incorporated by reference to Exhibit 4 to
Registrant's Form 8-K filed to report an event on
October 6, 1994.
10.12 Amendment dated January 12, 1995 to Rights Agreement
dated as of October 6, 1994 between the Company and
Harris Trust Company of New York, incorporated by
reference to Exhibit 4 to the Company's Form 8-K
filed to report an event on January 12, 1995.
</TABLE>
- -------
* Filed herewith.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
10.13 Securities Purchase Agreement, dated as of February
15, 1994, between the stockholders and warrant
holders of Smith Acquisition Corp. and the
Registrant, incorporated by reference to Exhibit 10
to the Company's Form 8-K filed to report an event of
September 16, 1994.
10.14 Asset purchase agreement dated as of August 8, 1995
by and between USA Broadcast Group L.L.C. and Price
Communications Corporation, Texoma Broadcasting
Corp., Southeast Texas Broadcasting Corp. and Tri-
State Broadcasting Corp., incorporated by reference
to Exhibit 10(gg) to the Company's Form 10-Q for the
Quarter ended September 30, 1995.
10.15 Asset purchase agreement dated as of October 18, 1995
by and between WHTM-TV, Inc. and Allbritton
Communications Company, incorporated by reference to
Exhibit 10(hh) to the Company's Form 10-Q for the
Quarter ended September 30, 1995.
10.16 Agreement and Plan of Merger, dated May 23, 1997, by
and among Palmer Wireless, Inc., the Company and
Price Communications Cellular Merger Corp.
(incorporated by reference from Annex I to the proxy
statement and prospectus included in the Company's
Registration Statement on Form S-4 (File No. 333-
33299)).
10.18 Commitment Letter, dated July 2, 1997, among DLJ
Capital Funding, Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ Securities"), Price
Communications Wireless Inc. ("PCW") and the Company,
incorporated by reference to Exhibit 10.18 to the
Company's Registration Statement on Form S-4 (File
No. 333-33299).
10.19 Purchase Agreement, dated July 3, 1997, among the
Company, PCW, the Purchasers named therein and DLJ
Securities, as Representative of the Purchasers,
incorporated by reference to Exhibit 10.19 to the
Company's Registration Statement on Form S-4 (File
No. 333-33299).
10.20 Purchase Agreement, dated July 31, 1997, among the
Company, Price Communications Cellular Inc., Price
Communications Cellular Holdings, Inc., NatWest
Capital Markets Limited ("NatWest") and Wasserstein
Perella Securities, Inc. ("Wasserstein Perella"),
incorporated by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-4 (File
No. 333-33299).
10.21 Registration Rights Agreement, dated July 10, 1997,
by and among PCW and DLJ Securities, Wasserstein
Perella, NatWest, Lehman Brothers, Inc. and
PaineWebber Incorporation as Purchasers, incorporated
by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-4 (File No. 333-
33299).
10.22 Indenture, dated as of July 10, 1997, between PCW and
Bank of Montreal Trust Company, as trustee,
incorporated by reference to Exhibit 10.22 to the
Company's Registration Statement on Form S-4 (File
No. 333-33299).
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Proskauer Rose LLP (included in Exhibits
5.1 and 8.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of KPMG Peat Marwick LLP.
24.1 Powers of Attorney are set forth on the signature
page hereof.
</TABLE>
- -------
* Filed herewith.
<PAGE>
EXHIBIT 5.1
August 29, 1997
Price Communications Corporation
Price Holdings Corporation
45 Rockefeller Plaza
New York, New York 10020
RE: REGISTRATION STATEMENT ON FORM S-4
(REGISTRATION NO. 333-34017)
----------------------------------------
Gentlemen:
You have requested our opinion in connection with the above-referenced
Registration Statement on Form S-4 (the "Registration Statement"), pursuant to
which Price Communications Corporation, a New York corporation (the "Company"),
or Price Holdings Corporation, a New York corporation ("Holdings"), intends to
issue 10,000,000 shares (the "Shares") of its Common Stock, par value $.01 per
share.
We have reviewed copies of the Certificate of Incorporation and the By-laws
of the Company and of Holdings and the Registration Statement and exhibits
thereto, and have examined such corporate documents and records and other
certificates, and have made such investigations of law, as we have deemed
necessary, in order to render the opinion hereinafter set forth.
Based upon, and subject to, the foregoing, we advise you that, in our
opinion, the Shares have been duly authorized and, upon issuance, will be
validly issued, fully paid and non-assessable.
We hereby consent to the references to our firm under the caption "Legal
Matters" in the Registration Statement and to the use of this opinion as an
exhibit to the Registration Statement. In giving this consent, we do not hereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
PROSKAUER ROSE LLP
<PAGE>
EXHIBIT 8.1
August 29, 1997
Price Communications Corporation
Price Holdings Corporation
45 Rockefeller Plaza
New York NY 10020
Re: Form S-4, Registration Statement under The Securities Act of 1933
-----------------------------------------------------------------
Dear Sirs :
We have acted as your counsel in connection with the proposed acquisition (the
"Acquisition") by Price Communications Corporation ("Price"), a New York
corporation, and Price Communications Wireless, Inc., a Delaware Corporation, of
Palmer Wireless, Inc. ("Palmer"), a Delaware corporation, pursuant to an
Agreement and Plan of Merger dated as of May 23, 1997 (the "Palmer Merger
Agreement"). In that connection we have participated in the preparation of a
registration statement under the Securities Act of 1933 on Form S-4 (the
"Prospectus"), with regard to an offer to exchange Price common stock for Palmer
common stock (the "Offer").
We have examined the Palmer Merger Agreement, the Prospectus, the representation
letter of Price delivered to us for purposes of this opinion, and such other
documents and corporate records as we have deemed necessary or appropriate for
purposes of this opinion. In addition, we have assumed (i) the Acquisition will
be consummated in the manner contemplated in the Prospectus and in accordance
with the Palmer Merger Agreement, (ii) the statements concerning the Acquisition
set forth in the Prospectus are accurate and complete and (iii) the
representations made to us by Price in the representation letter to us are
accurate and complete.
Based upon the foregoing, it is our opinion that the description of the Federal
income tax consequences to certain holders of outstanding shares of Palmer
common stock who participate in the Offer, contained in the Prospectus under the
heading "THE OFFER--Certain Federal Income Tax Consequences" correctly sets
forth the material Federal income tax consequences for such holders.
In addition, based upon the foregoing, we confirm our opinion set forth in the
second paragraph under the heading "THE OFFER--Certain Federal Income Tax
Consequences" in the Prospectus.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this Firm in the section
captioned "THE OFFER--Certain Federal Income Tax Consequences" in the Prospectus
constituting a part of the Registration Statement. In giving this consent we do
not thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
PROSKAUER ROSE LLP
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant
Price Holdings Corporation
PCCSub, Inc.
Price Communications Wireless, Inc.
Price Communications Cellular Holdings, Inc.
Price Communications Cellular Inc.
