<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1997 or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _______ to ______
Commission file number 1-8309.
PRICE COMMUNICATIONS CORPORATION
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(Exact name of registrant as specified in its charter)
New York 13-2991700
- -------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
45 Rockefeller Plaza, New York, New York 10020
- ---------------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 757-5600
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $.01 per share American Stock Exchange
Boston Stock Exchange
Securities registered pursuant to Section 12(g) Chicago Stock Exchange
of the Act: None. Pacific Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to the
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to the Form 10-K. [X]
AGGREGATE MARKET VALUE OF THE VOTING STOCK
HELD BY NONAFFILIATES OF THE COMPANY
Aggregate market value of the Common Stock held by non-affiliates of the
Company, based on the last sale price on the American Stock Exchange ("AMEX") on
March 31, 1998 ($12.80 as reported in the Wall Street Journal): approximately
---- ------ -------
$73.1 million.
The number of shares outstanding of the Company's common stock as of March
31, 1998 was 8,909,686
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. BUSINESS
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GENERAL
Unless otherwise indicated, all references herein to "PCC" refer to Price
Communications Corporation and all references herein to the "Company" refer to
PCC and its subsidiaries and their respective predecessors. References herein
to the "Acquisition" refer to the acquisition by Price Communications Wireless,
Inc. ("PCW"), a wholly-owned indirect subsidiary of PCC, of Palmer Wireless,
Inc. ("Palmer") and the related sales of the Fort Myers and Georgia-1 systems of
Palmer, as described below under "The Acquisition." As used herein, the terms
"PCW" and "Palmer" include their respective subsidiaries and predecessors.
References to Holdings are to Price Communications Cellular Holdings, Inc., an
indirect wholly-owned subsidiary of PCC and the holder of 100% of the
outstanding capital stock of PCW. PCC was organized in New York in 1979 and
began active operations in 1981. Its principal executive offices are located at
45 Rockefeller Plaza, New York, New York 10020, and its telephone number is
(212) 757-5600. Except for historical financial information and unless
otherwise indicated, all information presented below relating to the Company and
PCW, including Pops, Net Pops and the systems, gives effect to the consummation
of the Acquisition (including the sales of the Fort Myers and Georgia-1
systems). See "Certain Terms" for definitions of certain terms used herein.
The Company 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. The Company'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 the Company determines such dispositions to be in its best interests.
Prior to 1995 the Company owned a number of television, radio, newspaper and
other media and related properties which were disposed of pursuant to the
Company's long-standing policy of buying and selling media properties at times
deemed advantageous by the Company's Board of Directors. On October 6, 1997,
PCW acquired Palmer in the acquisition described below.
The Company is currently engaged through PCW in the construction,
development, management and operation of cellular telephone systems in the
southeastern United States. At December 31, 1997, the Company provided cellular
telephone service to 309,606 subscribers in Georgia, Alabama and Florida in a
total of 16 licensed service areas composed of eight Metropolitan Statistical
Areas ("MSAs") and eight Rural Service Areas ("RSAs"), with an aggregate
estimated population of 3.3 million. The Company sells its cellular telephone
service as well as a full line of cellular products and accessories principally
through its network of retail stores. The Company markets all of its products
and services under the nationally recognized service mark CELLULARONE.
The Company has developed its business through the acquisition and
integration of cellular telephone systems, clustering multiple systems in order
to provide broad areas of uninterrupted service and achieve certain economies of
scale, including centralized marketing and administrative functions as well as
multi-system capital expenditures. The Company devotes considerable attention to
engineering, maintenance and improvement of its cellular telephone systems in an
effort to deliver high-quality service to its subscribers and to implement new
technologies as soon as economically practicable. Through its participation in
the North American Cellular Network ("NACN"), the Company is able to offer
seven-digit dialing access to its subscribers when they travel outside the
Company's service areas, providing them with convenient roaming access
throughout large areas of the United States, Canada, Mexico and Puerto Rico
served by other NACN participants. By marketing its products and services under
<PAGE>
the CELLULARONE name, the Company also enjoys the benefits of association with
a nationally recognized service mark.
MARKETS AND SYSTEMS
The Company's cellular telephone systems serve contiguous licensed
service areas in Georgia, Alabama and South Carolina. The Company also has a
cellular service area in Panama City, Florida. The following table sets forth as
of December 31, 1997, with respect to each service area in which the Company
owns a cellular telephone system, the estimated population, the Company's
beneficial ownership percentage, the Net Pops and the date of initial operation
of such system by Palmer or a predecessor operator.
<TABLE>
<CAPTION>
ESTIMATED DATE SYSTEM
SERVICE AREA POPULATION(1) PERCENTAGE NET POPS OPERATIONAL
--------------- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Albany, GA....... 118,527 86.5% 102,526 4/88
Augusta, GA...... 439,116 100.0 439,116 4/87
Columbus, GA..... 254,150 85.2 216,518 11/88
Macon, GA........ 313,686 99.2 311,234 12/88
Savannah, GA..... 283,978 98.5 279,718 3/88
Georgia-6 RSA.... 199,516 96.3 192,134 4/93
Georgia-7 RSA.... 134,376 100.0 134,376 10/91
Georgia-8 RSA.... 157,451 100.0 157,451 10/91
Georgia-9 RSA.... 119,410 100.0 119,410 9/92
Georgia-10 RSA... 149,699 100.0 149,699 10/91
Georgia-12 RSA... 211,799 100.0 211,799 10/91
Georgia-13 RSA... 147,392 86.5 127,494 10/90
Dothan, AL....... 136,160 94.6 128,807 2/89
Montgomery, AL... 318,371 92.8 295,430 8/88
Alabama-8, RSA... 171,993 100.0 171,993 7/93
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Subtotal.......... 3,155,624 3,037,705
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Panama City, FL.. 146,018 78.4 114,493 9/88
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Total............. 3,301,642 3,152,198
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</TABLE>
(1) Based on population estimates for 1996 from the DLJ 1997 Fall Book.
2
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GEORGIA/ALABAMA
In 1988, Palmer acquired controlling interests in the licenses to
operate cellular telephone systems in the four MSAs (Montgomery and Dothan,
Alabama and Columbus and Albany, Georgia) that make up the core of its
Georgia/Alabama cluster. Palmer continued to increase its presence in this
market by acquiring additional cellular service areas in 1989 (Macon, Georgia
MSA), 1992 (Georgia-9 RSA), 1993 (Alabama-8 RSA), 1994 (Georgia-7 RSA, Georgia-8
RSA, Georgia-10 RSA and Georgia-12 RSA), 1995 (Savannah, Georgia MSA and
Augusta, Georgia MSA) and 1996 (Georgia-1 RSA and Georgia-6 RSA). The Augusta,
Georgia MSA includes Aiken County in South Carolina. In 1994, Palmer also
received an IOA from the FCC to provide service in two counties within the
southern portion of the Alabama-5 RSA. In the aggregate, these markets
(excluding the Alabama-5 RSA where the Company has only an IOA) now cover a
contiguous service area of approximately 38,000 square miles that includes
Montgomery, the state capital of Alabama, prominent resort destinations in
Jekyll Island, St. Simons Island and Sea Island, Georgia, and over 710 miles of
interstate highway, including most of 1-95 from Savannah, Georgia to
Jacksonville, Florida. The Company collects substantial roaming revenue from
cellular telephone subscribers from other systems traveling in these markets
from nearby population centers such as Atlanta and Birmingham, as well as from
vacation and business traffic in the southeastern United States. Due in part to
the favorable labor environment, moderate weather and relatively low cost of
land, during the last several years there has been an influx of new
manufacturing plants in this market. As of December 31, 1997 the Company
utilized 207 cell sites in this cluster (including three cell sites in the
Alabama 5 RSA), 23 of which were constructed by the Company in 1995, 42 of which
were placed in service in 1996, and 26 of which were placed in service in 1997.
PANAMA CITY
Palmer acquired control of the non-wireline cellular license for
the Panama City, Florida market in 1991. The Company collects substantial
roaming revenue in this market from subscribers from other systems who visit
Panama City, a popular spring and summer vacation destination. As of December
31, 1997, the Company utilized 12 cell sites in this market.
STRATEGY
The Company's four strategic objectives are to: (1) expand its revenue
base by increasing penetration in existing service areas and encouraging greater
usage among its existing customers, (2) provide high-quality customer service to
create and maintain customer loyalty, (3) enhance performance by aggressively
pursuing opportunities to increase operating efficiencies and (4) expand its
regional wireless communications presence by selectively acquiring additional
interests in cellular telephone systems (including minority interests).
Specifically, the Company strives to achieve these objectives through
implementation of the following:
3
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Aggressive, Direct Marketing. The Company employs a two-tier direct
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sales force. A retail sales force handles walk-in traffic at the Company's 34
retail outlets, and a targeted sales staff solicits certain industry and
government subscribers. The Company's management believes that its internal
sales force is more likely than independent agents to successfully select and
screen new subscribers and select pricing plans that realistically match
subscriber means and needs.
Flexible, Value-Oriented Pricing Plans. The Company provides a range of
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pricing plans, each of which includes a monthly access fee and a bundle of
"free" minutes. Additional home rate minutes are charged at rates ranging from
$0.05 per minute to $0.30 per minute depending on usage plan and time of day. In
addition, the Company offers wide area home rate roaming in the Company's
systems and low flat rate roaming in a six state region in the Southeastern
United States.
The Company believes that an increase in its bundled minute offerings
will encourage greater customer usage. By increasing the number of minutes a
customer can use for one flat rate, subscribers perceive greater value in their
cellular service and become less usage sensitive, i.e., they can increase their
cellular phone usage without seeing large corresponding increases in their
cellular bill.
Adopting State of the Art System Design. The Company's network allows
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the delivery of full personal communication services ("PCS") functionality to
its digital cellular customers, including primarily caller ID, short message
paging and extended battery life. The Company's network provides for "seamless
handoff" between digital cellular and PCS operators that, like the Company,
employ TDMA (Time Division Multiple Access) technology, one of three industry
standards and the one employed by AT&T and others; i.e. the Company's customers
may leave the Company's service area and enter an area serviced by a PCS
provider using TDMA technology without noticing the difference, and vice versa.
The Company believes this innovation will allow the Company to be the roaming
partner of choice for such PCS operators. The Company has already reached an
agreement with AT&T with respect to PCS roaming and expects that other PCS
operators may choose, like AT&T, to concentrate PCS buildout in urban centers
rather than the more rural areas in which the Company concentrates.
Focusing on Customer Service. Customer service is an essential element
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of the Company's marketing and operating philosophy. The Company is committed to
attracting new subscribers and retaining existing subscribers by providing
consistently high-quality customer service. In each of its cellular service
areas, the Company maintains a local staff, including a market manager, customer
service representatives, technical and engineering staff, sales representatives
and installation and repair facilities. Each cellular service area handles its
own customer-related functions such as credit evaluations, customer evaluations,
account adjustments and rate plan changes. In addition, subscribers are able to
report cellular telephone service or account problems to the Company's
headquarters 24 hours a day. To ensure high-quality service, Cellular One Group
authorizes a third-party marketing research firm to perform customer
satisfaction surveys of each of its licensees. Licensees must achieve a minimum
satisfaction level in order to continue using the Cellular One service mark. The
Company has repeatedly ranked number one in customer satisfaction among all
Cellular One operators (#l MSA in 1997, 1996, 1995, 1993, and 1992; #1 RSA in
1995).
4
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Agressive Cost Control Efforts. The Company believes that its monthly
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operating costs per subscriber rank among the lowest in the industry. The
Company's management attributes this competitive advantage to a variety of
factors, including the efficiencies associated with its direct sales force,
extensive use of in-house technical and engineering staff, maintenance of
aggressive fraud control procedures and in-house billing capabilities, as well
as general efforts to reduce corporate general and administrative expenses. The
Company has also realized substantial savings on its interconnection charges
from landline carriers by using its own microwave and fiber optic network to
connect cellular switching equipment to cell sites without the use of landline
carriers.
THE ACQUISITION
On May 23, 1997, PCC, PCW and Palmer entered into an Agreement and Plan
of Merger (the "Merger Agreement"). The Merger Agreement provided, among other
things, for the merger of PCW with and into Palmer with Palmer as the surviving
corporation (the "Merger"). On October 6, 1997, the Merger was consummated and
Palmer changed its name to "Price Communications Wireless, Inc." Pursuant to the
Merger Agreement, PCC acquired each issued and outstanding share of common stock
of Palmer for a purchase price of $17.50 per share in cash and purchased
outstanding options and rights under employee and director stock purchase plans
for an aggregate price of $486.4 million. In addition, as a result of the
Merger, the Company assumed all outstanding indebtedness of Palmer of
approximately $378.0 million ("Palmer Existing Indebtedness"), making the
aggregate purchase price for Palmer (including transaction fees and expenses)
approximately $880 million. The Company refinanced all of the Palmer Existing
Indebtedness concurrently with the consummation of the Merger.
PCW entered into an agreement (the "Fort Myers Sale Agreement") to sell
Palmer's Fort Myers, Florida MSA covering approximately 382,000 Pops for $168.0
million (the "Fort Myers Sale"). On October 6, 1997, the Fort Myers Sale was
consummated, and generated proceeds to the Company of approximately $166.0
million. The proceeds of the Fort Myers Sale were used to fund a portion of the
acquisition of Palmer.
5
<PAGE>
On October 21, 1997, PCC and PCW entered into an Asset Purchase
Agreement with MJ Cellular Company, L.L.C. (the "Georgia Sale Agreement") which
provided for the sale by PCW, for $25 million, of substantially all of the
assets of the non-wireline cellular telephone system serving the Georgia-1-
Whitfield Rural Service Area ("Georgia-1"), including the FCC licenses to
operate Georgia-1 (the "Georgia Sale"). The sale of the assets of Georgia-1 was
consummated on December 30, 1997 and generated proceeds to the Company of $24.2
million. The proceeds from the Georgia Sale were used to retire a portion of the
debt used to fund the acquisition of Palmer.
In order to fund the Acquisition and pay related fees and expenses, PCW
issued $175.0 million aggregate principal amount of 11 3/4% Senior Subordinated
Notes due 2007 (the "Old Senior Subordinated Notes") and entered into a
syndicated senior loan facility providing for term loan borrowings in the
aggregate principal amount of approximately $325.0 million and revolving loan
borrowings of $200.0 million (the "New Credit Facility"). On October 6, 1997,
PCW borrowed all term loans available thereunder and approximately $120.0
million of revolving loans. DLJ Capital Funding, Inc. ("DLJ Capital Funding")
provided and syndicated the New Credit Facility. See "Description of New Credit
Facility."
The acquisition of Palmer was also funded in part through a $44 million
equity contribution from PCC which was in the form of cash and common stock of
Palmer. An additional amount of approximately $76 million of the purchase price
for the Acquisition was raised from the issuance and sale for $80 million of
units consisting of $153.4 million principal amount of 13 1/2% Senior Secured
Discount Notes due 2007 of Holdings (the "Old Discount Notes")and warrants to
purchase shares of Common Stock of PCC (the "Offering"). In December 1997 and
March 1998, the Old Senior Subordinated Notes and the Old Discount Notes were
exchanged by the holders thereof for 13 1/2% Series B Senior Secured Discount
Notes due 2007 (the "Discount Notes") of Holdings and 11 3/4% Series B Senior
Subordinated Notes due 2007 (the "Senior Subordinated Notes") of PCW,
respectively. The terms of the Discount Notes and the Senior Subordinated Notes
are identical in all material respects to the Old Discount Notes and Old Senior
Subordinated Notes, respectively, except that the offers of the Discount Notes
and the Senior Subordinated Notes were registered under the Securities Act of
1933, as amended, and therefore, the Discount Notes and the Senior Subordinated
Notes are not subject to certain transfer restrictions, registration rights and
related liquidated damages provisions applicable to the Old Discount Notes and
the Old Senior Subordinated Notes, respectively.
RISK FACTORS
In addition to the other matters described herein, holders of PCC's
Common Stock should carefully consider the following risk factors.
Leverage and Liquidity. The Company is highly leveraged which could
----------------------
limit significantly its ability to make acquisitions, withstand competitive
pressures or adverse economic conditions, obtain necessary financing or take
advantage of business opportunities that may arise.
The Company's only committed source of liquidity is the New Credit
Facility, under which $87 million of revolving loans remain available. The
Company expects to have sufficient availability under the New Credit Facility to
meet its liquidity needs for the next 12 months. The Company intends to use the
availability under the New Credit Facility for general corporate purposes and,
if the Company's tax planning strategy is unsuccessful, to finance the $50.5
million tax payment which may be due with respect to the Fort Myers Sale and
Georgia Sale. See "Notes to Consolidated Financial Statements." Borrowings under
the New Credit Facility are subject to significant conditions, including
compliance with certain financial ratios and the absence of any material adverse
change. The Company's ability to meet its working capital and operational needs
and to provide funds for debt service, capital expenditures and other cash
requirements is dependent upon the availability of financing under the New
Credit Facility. In addition, the Company intends to pursue opportunities to
acquire additional cellular telephone systems which, if successful, will require
the Company to obtain additional equity or debt financing to fund such
acquisitions. There can be no assurances as to the availability or terms of any
such financing or that the terms of the Discount Notes, the Senior Subordinated
Notes or the New Credit Facility will not restrict or prohibit any such debt
financing.
The Company's ability to meet its debt service requirements will require
significant and sustained growth in the Company's cash flow. In addition, the
Company expects to fund its growth strategy from cash from operations and
borrowings under the New Credit Facility. There can be no assurance that the
Company will be successful in improving its cash flow by a sufficient magnitude
or in a timely manner or in raising additional equity or debt financing to
enable the Company to meet its debt service requirements or to sustain its
growth strategy. In addition, if the Company is unable to avoid the $50.5
million tax payment which may be due with respect to the Fort Myers Sale and
Georgia Sale, the Company may be required to obtain additional equity or debt
financing. There can be no assurances that the Company would be successful in
procuring any such financing. See "Description of New Credit Facility."
Limitations on Access to Cash Flow of Subsidiaries. The Company does not
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have, and may not in the future have, any assets other than the common stock of
its subsidiaries. The New Credit Facility and other financing instruments to
which the Company and its subsidiaries are or may in the future be a party
impose, and in the future may impose, substantial restrictions on the ability of
the Company's subsidiaries to pay dividends to the Company. Any payment of
dividends to the Company is subject to the satisfaction of certain financial
conditions set forth in the New Credit Facility and other financing documents as
well as restrictions under applicable state corporation law. The Company has not
in the past paid any dividends to its common shareholders, and does not expect
to pay any dividends to common shareholders in the foreseeable future. The
ability of the Company and its subsidiaries to comply with the conditions of its
financial obligations may be affected by events that are beyond the control of
the Company. 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 the Company. There can be no assurance
that the assets of the Company and its subsidiaries would be sufficient to repay
all outstanding indebtedness or meet other financial obligations. See
"Description of New Credit Facility."
Net Losses. For the second half of 1997, the Company incurred net
-----------
losses of approximately $9.5 million. There can be no assurance that the
Company's future operations will generate sufficient earnings to pay its
obligations. The Company expects to incur net losses for several years. See
"Selected Consolidated Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Competition. Although current policies of the FCC authorize only two
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licensees to operate cellular telephone systems in each cellular market, there
is, and the Company expects there will continue to be, competition from the
other licensee authorized to serve each cellular market in which the Company
operates, as well as from resellers of cellular service. Competition for
subscribers between cellular licensees is based principally upon the services
and enhancements offered, the technical quality of the cellular telephone
system, customer service, system coverage and capacity and price. The Company
competes with a wireline licensee in each of its cellular markets, some of which
are larger and have access to more substantial capital resources than the
Company.
6
<PAGE>
The Company also faces competition from other existing communications
technologies such as conventional mobile telephone service, specialized mobile
radio ("SMR") and enhanced specialized mobile radio ("ESMR") systems and paging
services. ESMR is a digital transmission system providing for "cellular-like"
communications service. The Company also faces limited competition from and may
in the future face increased competition from PCS. It is expected that broadband
PCS will involve a network of small, low-powered transceivers placed throughout
a neighborhood, business complex, community or metropolitan area to provide
customers with mobile and portable voice and data communications. PCS may be
capable of offering, and PCS operators claim they will offer, additional
services not offered by cellular providers. PCS subscribers could have dedicated
personal telephone numbers and would communicate using small digital radio
handsets that could be carried in a pocket or purse. There can be no assurances
that the Company will be able to provide nor that it will choose to pursue,
depending on the economics thereof, such services and features. The Company
currently believes that traditional tested cellular is economically proven
unlike many of these other technologies and therefore does not intend to pursue
such other technologies.
Although the Company believes that the technology, financing and
engineering of these other technologies is not as advanced as their publicity
would suggest, there can be no assurance that one or more of the technologies
currently utilized by the Company in its business will not become obsolete at
some time in the future. See "--Competition."
The Company also faces competition from "resellers." The FCC requires
all cellular licensees to provide service to resellers. A reseller provides
wireless service to customers but does not hold an FCC license or own
facilities. Instead, the reseller buys blocks of wireless telephone numbers and
capacity from a licensed carrier and resells service through its own
distribution network to the public.
Potential for Regulatory Changes and Need for Regulatory Approvals. The
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licensing, construction, operation, acquisition, assignment and transfer of
cellular telephone systems, as well as the number of licensees permitted in each
market, are regulated by the FCC. Changes in the regulation of cellular
activities could have a material adverse effect on the Company's operations. In
addition, all cellular licenses in the United States are granted for an initial
term of up to 10 years and are subject to renewal. The Company's cellular
licenses expire in the following years with respect to the following number of
service areas: 1998 (three); 2000 (two); 2001 (four); 2002 (two); 2006 (one);
and 2007 (four). While the Company believes that each of these licenses will be
renewed based upon FCC rules establishing a renewal expectancy in favor of
licensees that have complied with their regulatory obligations during the
relevant license period, there can be no assurance that all of the Company's
licenses will be renewed in due course. In the event that a license is not
renewed, the Company would no longer have the right to operate in the relevant
service area. The non-renewal of licenses could have a material adverse effect
on the Company's results of operations. See "--Regulation."
7
<PAGE>
Fluctuations in Market Value of License. A substantial portion of the
---------------------------------------
Company's assets consists of its interests in cellular licenses. The assignment
of interests in such licenses is subject to prior FCC approval and may also be
subject to contractual restrictions, future competition and the relative supply
and demand for radio spectrum. The future value of the Company's interests in
its cellular licenses will depend significantly upon the success of the
Company's business. While there is a current market for the Company's licenses,
such market may not exist in the future or the values obtainable may be
significantly lower than at present. As a consequence, in the event of the
liquidation or sale of the Company's assets, there can be no assurance that the
proceeds would be sufficient to pay the Company's obligations, and a significant
reduction in the value of the licenses could require a charge to the Company's
results of operations.
Reliance on Use of Third Party Service Mark. The Company currently uses
-------------------------------------------
the registered service mark CELLULARONE to market its services. The Company's
use of this service mark is governed by five-year contracts between the Company
and Cellular One Group, the owner of the service mark. See "-Description of
Cellular One Agreements." If these agreements are not renewed upon expiration
and the Company therefore is no longer permitted to use the CELLULARONE service
mark, the Company's ability both to attract new subscribers and to retain
existing subscribers could be materially affected. In addition, if for some
reason beyond the Company's control, the name CELLULARONE were to suffer
diminished marketing appeal, the Company's ability both to attract new
subscribers and retain existing subscribers could be materially affected. AT&T
Wireless Services, Inc., which has been the single largest user of the
CELLULARONE service mark, has significantly reduced its use of the service mark
as a primary service mark. There can be no assurance that such reduction in use
by AT&T Wireless will not have an adverse effect on the marketing appeal of the
brand name.
Dependence on Key Personnel. The Company's affairs are managed by a
---------------------------
small number of key management and operating personnel, the loss of whom could
have an adverse impact on the Company. Robert Price, a Director, the President,
Chief Executive Officer and Treasurer of PCC, also serves as a Director and
Chairman of PriCellular Corporation ("PriCellular"), another operator of
cellular telephone systems. The Company believes that Mr. Price's positions with
the Company and PriCellular complement one another and benefit both companies
because the systems they operate are similar but do not directly compete with
one another. Mr. Price's employment agreement with PriCellular provides that he
may not be an employee of or have an ownership interest in any company engaged
in the operation of cellular telephone systems in the United States other than
PriCellular and that any such other company may not acquire any additional
cellular telephone system within the United States, in each case, without the
unanimous consent of the executive committee of the Board of Directors of
PriCellular. The executive committee of the Board of Directors of PriCellular
has approved the acquisition of Palmer by PCC. Although the Company and
PriCellular historically have not imposed inconsistent demands on Mr. Price's
availability, there can be no assurances that such conflicts will not arise in
the future. In March 1998, PriCellular entered into an agreement to be sold.
Upon consummation of such sale, the restrictions imposed upon Mr. Price's
activities by said employment agreement would terminate.
8
<PAGE>
PCW entered into employment contracts with William J. Ryan and
M. Wayne Wisehart to remain as officers of PCW and also entered into
employment contracts with other key employees of Palmer prior to the
consummation of the Acquisition. The success of the Company's operations and
expansion strategy depends on its ability to retain and to expand its staff of
qualified personnel in the future. Effective April 1, 1998, Mr. Ryan commenced
to serve as Chairman of the Board and Mr. Wisehart as President and Chief
Executive Officer of PCW.
Radio Frequency Emission Concerns. Media reports have suggested that
---------------------------------
certain radio frequency ("RF") emissions from portable cellular telephones may
be linked to certain types of cancer. In addition, recently a limited number of
lawsuits have been brought, not involving the Company, alleging a connection
between cellular telephone use and certain types of cancer. Concerns over RF
emissions and interference may have the effect of discouraging the use of
cellular telephones, which could have an adverse effect upon the Company's
business. As required by the Telecom Act, in August 1996, the FCC adopted new
guidelines and methods for evaluating RF emissions from radio equipment,
including cellular telephones. While the new guidelines impose more restrictive
standards on RF emissions from low power devices such as portable cellular
telephones, the Company believes that all cellular telephones currently marketed
and in use comply with the new standards.
The Company carries $4.0 million in General Liability insurance and $25
million in umbrella liability coverage. This insurance would cover any liability
suits with respect to human exposure to radio frequency emissions. The Company
believes that this coverage is adequate to cover potential liabilities.
Fraudulent Conveyance Statutes. Various laws enacted for the protection
------------------------------
of creditors may apply to the incurrence of indebtedness and other obligations
by the Company and certain of its subsidiaries in connection with the
acquisition of Palmer. If a court were to find in a lawsuit by an unpaid
creditor or representative of creditors of the Company or any such subsidiary
that the Company 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, the Company 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 the
Company 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 the Company 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, the Company 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 the Company's historical financial information, its recent operating
history and other factors, the Company's management believes that, after giving
effect to indebtedness incurred in connection with the acquisition of Palmer and
the other related financings, the Company 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.
Equipment Failure, Natural Disaster. Although the Company carries
-----------------------------------
"business interruption" insurance, a major equipment failure or a natural
disaster affecting any one of the Company's central switching offices or certain
of its cell sites could have a significant adverse effect on the Company's
operations.
Potential Antitakeover Effect of Class A and Class B Preferred Stock.
--------------------------------------------------------------------
Although the Board of Directors and Compensation Committee of the Company
believe that the provisions of the Company's Series A Preferred Stock and Series
B Preferred Stock provide the Company'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 Common Stock with a payment per share
(or upon the Common Stock trading at such prices for certain periods)
significantly in excess of the market price of the Company's Common Stock at the
time such Preferred Stock was issued, 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 the Company 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 1,422,133 votes, or 13.9% of the total votes cast by all outstanding
shares of Common Stock and Preferred Stock as of April 1, 1998 (after giving
effect to a five-for-four stock split of PCC Common Stock, payable in the form
of a stock dividend on April 1, 1998)) would make it more difficult for a bidder
to elect directors or enact shareholder proposals opposed by management of the
Company.
9
<PAGE>
OPERATIONS
General
PCW has concentrated its efforts on creating an integrated
network of cellular telephone systems in the southeastern United States,
principally to date in Georgia, Alabama and Florida. At December 31, 1997, the
Company provided cellular telephone service to 309,606 subscribers in a total of
16 licensed service areas composed of eight MSAs and eight RSAs. The Company
also participates in the North American Cellular Network ("NACN"), a nationwide
consortium of nonwireline cellular telephone companies, with the goal of
providing seamless regional and national cellular telephone service to its
subscribers. Participation in the NACN allows seven-digit dialing access to the
Company's subscribers when they travel outside the Company's service areas,
providing them with convenient call delivery throughout large areas of the
United States, Canada, Mexico and Puerto Rico served by other NACN participants.
The following table sets forth information, at the dates indicated after
giving effect to the Acquisition, regarding PCW's subscribers, penetration rate,
cost to add a net subscriber, average monthly churn rate and average monthly
service revenue per subscriber.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Subscribers at end of period (1).. 54,382 99,626 187,870 243,204 309,606
Penetration at end of period (2).. 3.57% 4.54% 6.41% 7.73% 9.40%
Cost to add a net subscriber (3).. $ 198 $ 247 $ 275 $ 436 $ 461
Average monthly churn (4)......... 1.32% 1.54% 1.51% 1.89% 1.88%
Average monthly service revenue
per subscriber (5)................ $ 56.70 $ 56.54 $ 53.80 $ 50.23 $ 46.24
</TABLE>
(1) Each billable telephone number in service represents one subscriber.
Amounts at December 31, 1993 include 2,576 subscribers in the Alabama-7
RSA where 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 the periods, by dividing (i) all costs of sales and
marketing, including salaries, commissions and employee benefits and all
expenses incurred by sales and marketing personnel, agent commissions,
credit reference expenses, losses on cellular telephone sales, rental
expenses allocated to retail operations, net installation expenses and
other miscellaneous sales and marketing charges for such period including
fees paid for use of the CELLULARONE service mark, by (ii) the net
subscribers added during such period.
(4) Determined for the periods by dividing total subscribers discontinuing
service by the average number of subscribers for such period, and divided
by the number of months in the relevant period.
(5) Determined for the periods by dividing the (i) sum of the access, airtime,
roaming, long distance, features, connection, disconnection and other
revenues for such period by (ii) the average number of subscribers for such
period, divided by the number of months in the relevant period.
10
<PAGE>
SUBSCRIBERS AND SYSTEM USAGE
On a pro forma basis, after giving effect to the Acquisition, PCW's
subscribers have increased from 17,148 at January 1, 1992 to 309,606 at
December 31, 1997. Reductions in the cost of cellular telephone services and
equipment at the retail level have led to an increase in cellular telephone
usage by general consumers for non-business purposes. As a result, the Company
believes that there is an opportunity for significant growth in each of its
existing service areas. The Company will continue to broaden its subscriber base
for basic cellular telephone services as well as to increase its offering of
customized services. The sale of custom calling features typically results in
increased usage of cellular telephones by subscribers, thereby further enhancing
revenues. In 1997, cellular telephone service revenues represented 94.6% of the
Company's total revenues, with equipment sales and installation representing the
balance.
MARKETING
PCW's marketing strategy is designed to generate continued net
subscriber growth by focusing on subscribers who are likely to generate lower
than average deactivations and delinquent accounts, while simultaneously
maintaining a low cost of adding net subscribers. Management has implemented its
marketing strategy by training and compensating its sales force in a manner
designed to stress the importance of high penetration levels and minimum costs
per net subscriber addition. The Company's sales staff has a two-tier structure.
A retail sales force handles walk-in traffic, and a targeted sales staff
solicits certain industry and government subscribers. The Company believes its
use of an internal sales force keeps marketing costs low, both because
commissions are lower and because subscriber retention is higher than if it used
independent agents. For the twelve months ended December 31, 1997, the Company's
cost to add a net subscriber was $461. The Company believes its cost to add a
net subscriber will continue to be among the lowest in the cellular telephone
industry, principally because of its in-house direct sales and marketing staff.
11
<PAGE>
The Company also maintains an after-sale telemarketing program
implemented through its sales force and a telemarketing service specializing in
cellular customer services. This program not only enhances customer loyalty, but
also increases add-on sales and customer referrals. The telemarketing program
allows the sales staff to check customer satisfaction as well as to offer
additional calling features, such as voicemail, call waiting and call
forwarding.
The Company's sales force works principally out of retail stores in
which the Company offers its cellular products and services. As of December 31,
1997, the Company maintained 34 retail stores and 4 offices. Retail stores,
which range in size up to 11,000 square feet are fully equipped to handle
customer service and the sale of cellular services, telephones and accessories.
Eight of the newer and larger stores are promoted by the Company as
"Superstores," seven of which are located in the Company's Georgia/Alabama
service areas, and one in the Panama City, Florida service area. Each Superstore
has an authorized warranty repair center and provides cellular telephone
installation and maintenance services. Most of the Company's larger markets
currently have at least one Superstore. In addition, to enhance convenience for
its customers, the Company has begun to open smaller stores in locations such as
shopping malls. The Company's stores provide subscriber-friendly retail
environments-extended hours, a large selection of phones and accessories, an
expert sales staff, and convenient locations-which make the sales process quick
and easy for the subscriber.
The Company markets all of its products and services under the name
CELLULARONE. The national advertising campaign conducted by Cellular One Group
enhances the Company's advertising exposure at a fraction of what could be
achieved by the Company alone. The Company also obtains substantial marketing
benefits from the name recognition associated with this widely used service
mark, both with existing subscribers traveling outside the Company's service
areas and with potential new subscribers moving into the Company's service
areas. In addition, travelers who subscribe to CELLULARONE service in other
markets may be more likely to use the Company's service when they travel in the
Company's service areas. Cellular telephones of non-wireline subscribers are
either programmed to select the non-wireline carrier (such as the Company) when
roaming, unless the non-wireline carrier in the roaming area is not yet
operational, or the subscriber dials a special code or has a cellular telephone
equipped with an "A/B" (wireline/non-wireline) switch and selects the wireline
carrier.
12
<PAGE>
Through its membership in NACN and other special networking
arrangements, the Company provides extended regional and national service to its
subscribers, thereby allowing them to make and receive calls while in other
cellular service areas without dialing special access codes. This service
distinguishes the Company's call delivery features from those of many of its
competitors.
PRODUCTS AND SERVICES
In addition to providing high-quality cellular telephone service in each
of its markets, the Company also offers various custom-calling features such as
voicemail, call forwarding, call waiting, three-way conference calling and no
answer and busy transfer. Several rate plans are presented to prospective
subscribers so that they may choose the plan that will best fit their expected
calling needs. Generally, these rate plans include a high user plan, a medium
user plan, a basic plan and an economy plan. Most rate plans combine a fixed
monthly access fee, per minute usage charges and additional charges for custom-
calling features in a package that offers value to the subscriber while
enhancing airtime use and revenues for the Company. In general, rate plans which
include a higher monthly access fee typically include a lower usage rate per
minute. An ongoing review of equipment and service pricing is maintained to
ensure the Company's competitiveness. As appropriate, revisions to pricing of
service plans and equipment are made to meet the demands of the local
marketplace.
The following table sets forth a breakdown of PCW's revenues
after giving effect to the Fort Myers and Georgia Sales from the sale of its
services and equipment for the periods indicated.
<TABLE>
<CAPTION>
PRO FORMA
PREDECESSOR (PALMER) PCW
------------------------------------------------------------ -------------------
FOR THE PERIOD
FOR THE YEAR ENDED DECEMBER 31, FOR THE NINE OCTOBER 1, 1997
MONTHS ENDED THROUGH
SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1996 1997 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SERVICE REVENUE:
ACCESS AND USAGE (1). $20,324 $37,063 $61,607 $105,006 $ 89,339 $31,786
ROAMING (2).......... 3,075 5,844 11,157 13,099 14,447 5,691
LONG DISTANCE (3).... 1,309 2,218 3,634 6,632 5,949 2,014
OTHER (4)............ 1,230 2,745 2,585 2,596 2,061 891
------- ------- ------- -------- -------- -------
TOTAL SERVICE
REVENUE............. 25,938 47,870 78,983 127,333 111,796 40,382
EQUIPMENT SALES AND
INSTALLATION (5).... 5,238 6,381 6,830 7,027 6,242 2,308
------- ------- ------- -------- -------- -------
TOTAL $31,176 $54,251 $85,813 $134,360 $118,038 $42,690
======= ======= ======= ======== ======== =======
</TABLE>
(1) Access and usage revenues include monthly access fees for providing
service and usage fees based on per minute usage rates.
(2) Roaming revenues are fees charged for providing services to subscribers of
other systems when such subscribers or "roamers" place or receive a
telephone call within one of the Company's service areas.
(3) Long distance revenue is derived from long distance telephone calls placed
by the Company's subscribers.
(4) Other revenue includes, among other things, connect fees charged to
subscribers for initial activation on the cellular telephone system and
fees for feature services such as voicemail, call forwarding and call
waiting.
(5) Equipment sales and installation revenue includes revenue derived from the
sale of cellular telephones and fees for the installation of such
telephones.
13
<PAGE>
Reciprocal roaming agreements between each of the Company's cellular
telephone systems and the cellular telephone systems of other operators allow
their respective subscribers to place calls in most cellular service areas
throughout the country. Roamers are charged usage fees which are generally
higher than a given cellular telephone system's regular usage fees, thereby
resulting in a higher profit margin on roaming revenue. Roaming revenue is a
substantial source of incremental revenue for the Company. For 1997, roaming
revenues accounted for 13.2% of the Company's service revenues and 12.5% of the
Company's total revenue. This level of roaming revenue is due in part to the
fact that the Company's market in Panama City, Florida is a regional shopping
and vacation destination and a number of the Company's cellular telephone
systems in the Georgia and Alabama market are located along major interstate
travel corridors.
In order to develop the market for cellular telephone service, the
Company provides retail distribution of cellular telephones and maintains
inventories of cellular telephones. The Company negotiates volume discounts for
the purchase of cellular telephones and, in many cases, passes such discounts on
to its customers. The Company believes that earning an operating profit on the
sale of cellular telephones is of secondary importance to offering cellular
telephones at competitive prices to potential subscribers. To respond to
competition and to enhance subscriber growth, Palmer has historically sold
cellular telephones below cost.
The Company is currently developing several new services which it
believes will provide additional revenue sources. Packet-switching technology
will allow data to be transmitted much more quickly and efficiently than the
current circuit-switching technology. Packet-switching uses the intervals
between voice traffic on cellular channels to send packets of data instead of
tying up dedicated cellular channels. The packets of information, which may be
transmitted using several different channels, are subsequently reassembled and
directed to the correct party at the receiving end. It is expected that the
development of this technology will make it possible for cellular carriers to
offer a broad range of cost-effective wireless data services, including
facsimile and electronic mail transmissions, point-of-sale credit
authorizations, package tracking, remote meter reading, alarm monitoring and
communications between laptop computer units and local area computer networks or
other computer databases. During 1997 Palmer began to implement the use of
microcells. Microcells are low powered transmitters, typically constructed on a
pole or the roof of a building, which provide reduced radius service within a
specific area, such as large office buildings, underground facilities or areas
shielded by topographical obstructions. Microcell service could be used, for
instance, to provide wireless service within an office environment that was also
integrated with wireless service to the home.
14
<PAGE>
CUSTOMER SERVICE
The Company is committed to attracting new subscribers and retaining
existing subscribers by providing consistently high-quality customer service. In
each of its cellular service areas, the Company maintains a local staff,
including a store manager, customer service representatives, technical and
engineering staff, sales representatives and installation and repair facilities.
Each cellular service area handles its own customer-related functions such as
customer activations, account adjustments and rate plan changes. Local offices
and installation and repair facilities enable the Company to better service
customers, schedule installations and repairs and monitor the technical quality
of the cellular service areas.
In addition, subscribers are able to report cellular telephone service
or account problems to the Company 24 hours a day. Through the use of
sophisticated monitoring equipment, technicians at the Company's headquarters
are able to monitor the technical performance of its service areas.
The Company has implemented a new software package to combat cellular
telephone service fraud. This new software system can detect counterfeit
cellular telephones while they are being operated and enables the Company to
terminate service to the fraudulent user of the counterfeit cellular telephone.
The Company also helps protect itself from fraud with pre-call customer
validation and subscriber profiles specifically designed to combat the
fraudulent use of subscriber accounts.
NETWORKS
The Company strives to provide its subscribers with virtually seamless
coverage throughout its cellular service market areas, thereby permitting
subscribers to travel freely within this region and have their calls and custom
calling features, such as voicemail, call waiting and call forwarding, follow
them automatically without having to notify callers of their location or to rely
on special access codes. The Company has been able to offer virtually seamless
coverage by implementing a switch interconnection plan to mobile telephone
switching offices ("MTSO") located in adjoining markets. The Company's equipment
is built by NORTEL, formerly Northern Telecom, Inc. ("NTI"), and interconnection
between MTSOs has been achieved using NTI's internal software and hardware.
15
<PAGE>
Through its participation in NACN since 1992 and other special
networking arrangements, the Company has pursued its goal of offering seamless
regional and national cellular service to its subscribers. NACN is the largest
wireless telephone network system in the world-linking non-wireline cellular
operators throughout the United States and Canada. Membership in NACN has aided
the Company in integrating its cellular telephone systems within its region and
has permitted the Company to offer cellular telephone service to its subscribers
throughout a large portion of the United States, Canada, Mexico and Puerto Rico.
NACN has provided the Company with a number of distinct advantages: (i) lower
costs for roaming verification, (ii) increased roaming revenue, (iii) more
efficient roaming service and (iv) integration of Palmer's markets with over
4,600 cities in more than 40 states in the United States, Canada, Mexico and
Puerto Rico.
SYSTEM DEVELOPMENT AND EXPANSION
The Company develops its service areas by adding channels to existing
cell sites and by building new cell sites. Such development is done for the
purpose of increasing capacity and improving coverage in direct response to
projected subscriber demand. Projected subscriber demand is calculated for each
cellular service area on a cell by cell basis. These projections involve a
traffic analysis of usage by existing subscribers and an estimation of the
number of additional subscribers in each such area. In calculating projected
subscriber demand, the Company builds into its design assumptions a maximum call
"blockage" rate of 2.0% (percentage of calls that are not connected on first
attempt at peak usage time during the day).
The following table sets forth, by market, at the dates indicated, the
number of the Company's operational cell sites.
<TABLE>
<CAPTION>
AT DECEMBER 31
------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Georgia/Alabama......... 39/(1)/ 70/(2)/ 121/(3)/ 173/(4)/ 207/(5)/
Panama City, FL......... 7 7 9 11 12
------- ------- -------- -------- --------
Total........... 46/(1)/ 77/(2)/ 130/(3)/ 184/(4)/ 219/(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 had 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 the Company 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 the Company
has interim operating authority for two counties of such RSA and 17
existing cell sites that were purchased in the Horizon and USCOC
acquisitions. See "-Acquisitions."
(5) Includes three existing cell sites in the Alabama-5 RSA where the Company
has interim operating authority and 8 existing cell sites that were
purchased in the GA-13 acquisition.
16
<PAGE>
The Company estimates that in 1997 the capacity of its existing cellular
telephone systems increased 30%. During 1997, the Company spent $55.3 million
and, based on projected growth in subscriber demand, expects to spend
approximately $16 million in 1998 in order to build out its cellular service
areas, install an additional microwave network and implement certain digital
radio technology. The Company constructed 27 cell sites in 1997 and plans to
construct 30 additional cell sites with respect to its existing cellular systems
during 1998 to meet projected subscriber demand and improve the quality of
service. Cell site expansion is expected to enable the Company to continue to
add subscribers, enhance use of its cellular telephone systems by existing
subscribers, increase services used by subscribers of other cellular telephone
systems due to the larger geographic area covered by the cellular telephone
network and further enhance the overall efficiency of the network. The Company
believes that the increased cellular telephone coverage will have a positive
effect on market penetration and subscriber usage.
Microwave networks enable the Company to connect switching equipment and
cell sites without making use of local landline telephone carriers, thereby
reducing or eliminating fees paid to landline carriers. During 1996, 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 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.
The Company began offering Time Division Multiple Access ("TDMA")
standard digital service, one of three standards for digital service, during
1997. This digital network allows the Company to offer advanced cellular
features and services such as caller-ID, short message paging and extended
battery life. Where cell sites are not yet at their maximum capacity of radio
channels, the Company is adding digital channels to the network incrementally
based on the relative demand for digital and analog channels. Where cell sites
are at full capacity, analog channels are being removed and redeployed to expand
capacity elsewhere within the network and replaced in such cell sites by digital
channels. The implementation of digital cellular technology over a period of
several years will involve modest incremental expenditures for switch software
and possible significant cost reductions as a result of reduced purchases of
radio channels and a reduced requirement to split existing cells. However, as
indicated above, the extent of any implementation of digital radio channels and
the amount of any cost savings ultimately to be derived therefrom will depend
primarily on subscriber demand. In the ordinary course of business, equipment
upgrades at the cell sites have involved purchasing dual mode radios capable of
using both analog and digital technology.
17
<PAGE>
The benefits of digital radio channels can only be achieved if
subscribers purchase cellular telephones that are capable of transmitting and
receiving digital signals. Currently, such telephones are more costly than
analog telephones. The widespread use of digital cellular telephones is likely
to occur only over a substantial period of time and there can be no assurance
that this technology will replace analog cellular telephones. In addition, since
most of the Company's existing subscribers currently have cellular telephones
that exclusively utilize analog technology, it will be necessary to continue to
support, and if necessary increase, the number of analog radio channels within
the network for many years.
ACQUISITIONS
The Company will continue to evaluate expansion through acquisitions of
both (i) contiguous cellular properties and other strategically located RSAs and
small to mid-sized MSAs and (ii) minority interests in its existing cellular
properties. In evaluating acquisition targets, the Company considers, among
other things, demographic factors, including population size and density,
geographic proximity to existing service areas, traffic patterns, cell site
coverage and required capital expenditures.
Palmer entered the cellular telephone business in 1987, when it
constructed a cellular telephone system for the Fort Myers, Florida MSA. Palmer
acquired control of this system in March 1988 and rapidly expanded its cellular
telephone holdings, acquiring control of the non-wireline cellular licenses for
the Columbus and Albany, Georgia and Dothan and Montgomery, Alabama MSAs in
1988.
In 1991, Palmer acquired control of the non-wireline cellular license
for the Panama City, Florida MSA. In 1992 and 1993, Palmer acquired two
nonwireline cellular licenses for RSAs contiguous to Palmer's MSAs in Georgia
and Alabama: the Georgia-9 RSA in June 1992 and the Alabama-8 RSA in April 1993.
The Georgia-9 RSA acquisition added the geographic territory between the
Columbus, Macon and Albany, Georgia MSAs to Palmer's service area coverage. The
Alabama-8 RSA expanded Palmer's service areas around three MSAs served by
Palmer, covering a substantial portion of the geographic territory between the
Montgomery, Alabama, Columbus, Georgia and Dothan, Alabama MSAs and the Georgia-
9 RSA. In 1993, Palmer also increased its majority position in its MSAs in
Albany, Georgia and in Dothan and Montgomery, Alabama, through the purchase of
certain minority interests for an aggregate purchase price of $2.9 million.
During 1994, Palmer continued to acquire minority interests in six of
its MSAs for an aggregate purchase price of $3.1 million. Also, on October 31,
1994, Palmer acquired the cellular telephone systems of Southeast Georgia
Cellular Limited Partnership ("SGC") and Georgia 12 Cellular Limited Partnership
("Georgia 12" and together with SGC, the "Georgia Partnerships") for an
aggregate purchase price of $91.7 million (the "Georgia Acquisition"). The
assets acquired by Palmer from SGC included the non-wireline cellular telephone
systems for the Georgia-7 RSA, Georgia-8 RSA and Georgia-10 RSA. The assets
acquired by Palmer from Georgia 12 included the non-wireline cellular telephone
system located in the Georgia-12 RSA. The cellular telephone systems in the
acquired RSAs serve a geographic territory in southeast Georgia that is adjacent
to Palmer's Georgia-9 RSA and Macon, Georgia MSA.
18
<PAGE>
In December 1995, Palmer acquired interests in cellular telephone
systems by purchasing Georgia Metronet, Inc. ("GMI") and Augusta Metronet, Inc.
("AMI" and together with GMI, the "GTE Companies") for an aggregate purchase
price of $158.4 million (the "GTE Acquisition"). The assets acquired by Palmer
in the GTE Acquisition included the non-wireline cellular telephone system
located in the Savannah MSA and Augusta MSA, respectively. The cellular
telephone systems in the newly-acquired MSAs serve a geographic territory in
eastern Georgia and a portion of South Carolina that is adjacent to Palmer's
existing markets in the Georgia-8 RSA and Georgia-12 RSA. In addition, Palmer
also acquired the interim operating authority to provide cellular service to the
southern portions of the South Carolina-7 RSA and South Carolina-8 RSA,
respectively, which serve a geographic territory that is adjacent to Palmer's
existing markets in the Georgia-8 RSA as well as the Savannah, and Augusta,
Georgia MSAs. In addition, during 1995, Palmer acquired additional minority
interests in six of its MSAs for an aggregate purchase price of $2.0 million.
On June 20, 1996, Palmer acquired the cellular telephone system of USCOC
of Georgia RSA #1, Inc. ("USCOC") for an aggregate purchase price of $31.6
million. The assets acquired by Palmer from USCOC included the cellular
telephone system in the Georgia-1 RSA. The cellular telephone system in the
acquired RSA serves a geographic territory of northwest Georgia between
Chattanooga and Atlanta.
On July 5, 1996, two of Palmer's majority-owned subsidiaries acquired
the cellular telephone system of Horizon Cellular Telephone Company of Spalding,
L.P. ("Horizon") for an aggregate purchase price of $36.0 million. The assets
acquired by Palmer from Horizon include the cellular telephone system in the
Georgia-6 RSA. The cellular telephone system in the acquired RSA serves a
geographic territory of west central Georgia adjacent to Palmer's Macon and
Columbus, Georgia MSAs.
On January 31, 1997, a majority-owned subsidiary of Palmer acquired the
cellular telephone system serving the Georgia-13 RSA from Mobile Communications
Systems L.P. for a total purchase price of $31.5 million. The cellular telephone
system in the acquired RSA serves a geographic territory of southwest Georgia
adjacent to Palmer's Albany, Georgia and Dothan, Alabama MSAs.
19
<PAGE>
COMPETITION
The cellular telephone service industry in the United States is highly
competitive. Cellular telephone systems compete principally on the basis of
services and enhancements offered, the technical quality of the cellular system,
customer service, coverage capacity and price of service and equipment.
Currently, the Company's primary competition in each of its service areas is the
other cellular licensee-the wireline carrier. The table below lists the wireline
competitor in each of the Company's existing service areas:
MARKET WIRELINE COMPETITOR
Albany, GA ..................... ALLTEL
Augusta, GA .................... ALLTEL
Columbus, GA.................... Public Service Cellular
Macon, GA ...................... BellSouth
Savannah, GA.................... ALLTEL
Georgia-6 RSA................... BellSouth and Intercel (1)
Georgia-7 RSA................... Cellular Plus and BellSouth (1)
Georgia-8 RSA.................. ALLTEL
Georgia-9 RSA................... ALLTEL and Public Service Cellular (1)
Georgia-10 RSA.................. Cellular Plus and ALLTEL (1)
Georgia-12 RSA.................. ALLTEL
Georgia-13 RSA.................. ALLTEL
Dothan, AL...................... BellSouth
Montgomery, AL.................. ALLTEL
Alabama-8 RSA................... ALLTEL
Panama City, FL................. 360(degrees) Communications Company
(formerly Sprint Cellular)
- ------------
(1) The wireline service area has been subdivided into two service areas by the
purchasers of the authorization for the RSA.
The Company also faces limited competition from and may in the future
face increased competition from broadband PCS. Broadband PCS involves a network
of small, low-powered transceivers placed throughout a neighborhood, business
complex, community or metropolitan area to provide customers with mobile and
portable voice and data communications. PCS subscribers communicate using
digital radio handsets.
The FCC allocated 120 MHZ of spectrum for licensed broadband PCS. The
allocations for licensed PCS services are split into six blocks of frequencies-
blocks "A" and "B" being two 30 MHZ allocations for each of the 51 Major Trading
Areas ("MTAs") throughout the United States; block "C" being one 30 MHZ
allocation in each of 493 Basic Trading Areas ("BTAs") in the United States; and
blocks "D," "E" and "F" being three 10 MHZ allocations in each of the BTAs. The
FCC has concluded the auction of all broadband PCS frequency blocks.
20
<PAGE>
The Company also faces competition from other existing communications
technologies such as conventional mobile telephone service, SMR and ESMR systems
and paging services.
In addition, the FCC has licensed operators to provide mobile satellite
service in which transmissions from mobile units to satellites would augment or
replace transmissions to land-based stations. Although such a system is designed
primarily to serve remote areas and is subject to transmission delays inherent
in satellite communications, a mobile satellite system could augment or replace
communications with segments of land-based cellular systems. Based on current
technologies, however, satellite transmission services are not expected to be
competitively priced with cellular telephone services.
In order to grow and compete effectively in the wireless market, the
Company plans to follow a strategy of increasing its bundled minute offerings.
By increasing the number of minutes a customer can use for one flat rate,
subscribers perceive greater value in their cellular service and become less
usage sensitive, i.e., they can increase their cellular phone usage without
seeing large corresponding increases in their cellular bill. These factors
translate into more satisfied customers, greater customer usage and lower churn
among existing subscribers. The perceived greater value also increases the
number of potential customers in the marketplace. The Company believes that this
strategy will enable it to increase its share of the wireless market.
SERVICE MARKS
CELLULARONE is a registered service mark with the U.S. Patent and
Trademark Office. The service mark is owned by Cellular One Group, a Delaware
general partnership of Cellular One Marketing, Inc., a subsidiary of
Southwestern Bell Mobile Systems, Inc., together with Cellular One Development,
Inc., a subsidiary of AT&T and Vanguard Cellular Systems, Inc. The Company uses
the CELLULARONE service mark to identify and promote its cellular telephone
service pursuant to licensing agreements with Cellular One Group. In 1997, the
Company paid $303,000 in licensing and advertising fees under these agreements.
See "Risk Factors-Reliance on Use of Third-Party Service Mark."
DESCRIPTION OF CELLULAR ONE AGREEMENTS
The Company is currently party to sixteen license agreements with
Cellular One Group, which cover separate cellular telephone system areas. The
terms of each agreement (each, a "Cellular One Agreement") are substantially
identical. Pursuant to each Cellular One Agreement, Cellular One Group has
granted a license to use the "CELLULARONE" mark (the "Mark") in its FCC-
licensed territory (the "Licensed Territory") to promote its cellular telephone
service. Cellular One Group has agreed not to license such mark to any other
cellular telephone service provider in such territory during the term of the
agreement.
21
<PAGE>
In connection with each Cellular One Agreement, the Company has agreed
to pay an annual licensing fee equal to $.02 per person in the Licensed
Territory based on the total population of the market, subject to a minimum
payment of $3,000, and, in certain circumstances, will pay an annual advertising
fee not in excess of $.05 per person in the Licensed Territory.
Each Cellular One Agreement has a term of five years and is renewable,
subject to the conditions described herein, at the option of the Company for
three additional five-year terms subject to provision of advanced written notice
by the Company. In connection with any renewal, the Company must execute
Cellular One Group's then-current form of license renewal agreement, which form
may contain provisions materially different than those in the Cellular One
Agreement.
Cellular One Group may terminate the Cellular One Agreements at any time
without written notice to the Company upon certain events, including bankruptcy,
insolvency and dissolution of the Company.
In addition, Cellular One Group may terminate such Agreements at any
time, subject to delivery of written notice (i) if the Company fails to achieve
85% customer satisfaction (or such higher percentage established by Cellular One
Group) for a prescribed amount of time, (ii) if the Company fails to achieve
65% customer satisfaction in any survey other than an initial customer
satisfaction survey by Cellular One, (iii) if any principal stockholder or
officer of the Company is convicted of a felony, fraud or other crime that
Cellular One Group believes is reasonably likely to have an adverse effect on
the Mark, (iv) if a threat or danger to public health or safety results from the
operation of the Company's cellular telephone business, (v) if the Company
violates certain undertakings in the Cellular One Agreement, including
limitations on assignment and confidentiality restrictions, (vi) if the Company
knowingly submits false reports or information to Cellular One Group or any
other entity conducting a customer satisfaction survey or (vii) if the Company
contests in any proceeding the validity or registration of, or Cellular One
Group's ownership of, the Mark. The Company's customer satisfaction ratings have
consistently far exceeded the minimum requirements of such Agreements.
Finally, Cellular One Group may terminate the Cellular One Agreements if
the Company (i) fails to pay any amounts thereunder when due or fails to submit
information required to be provided pursuant to the Cellular One Agreement when
due or makes a false statement in connection therewith, (ii) fails to operate
its business in conformity with FCC directives, technical industry standards and
other standards specified from time to time by Cellular One Group, (iii)
misuses, makes unauthorized use of or materially impairs the goodwill of the
Mark, (iv) engages in any business under a name that is confusingly similar to
the Mark, or (v) permits a continued violation of any law or regulation
applicable to it, in each case subject to a thirty-day cure period.
The Cellular One Agreements are terminable by the Company at any time
subject to 120 days' written notice.
22
<PAGE>
The Company has agreed to indemnify Cellular One Group and its employees
and affiliates, including its constituent partners, against all claims arising
from the operation of its cellular phone business and the costs, including
attorneys fees, of defending against them.
REGULATION
As a provider of cellular telephone services, the Company is subject to
extensive regulation by the federal government.
The licensing, construction, operation, acquisition and transfer of
cellular telephone systems in the United States are regulated by the FCC
pursuant to the Communications Act of 1934, as amended (the "Communications
Act"). The FCC has promulgated rules governing the construction and operation of
cellular telephone systems and licensing and technical standards for the
provision of cellular telephone service ("FCC Rules"). For cellular licensing
purposes, the United States is divided into MSAs and RSAs. In each market, the
frequencies allocated for cellular telephone use are divided into two equal
blocks designated as Block A and Block B. Block A licenses were initially
reserved for non-wireline companies, such as 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. The Company's cellular licenses expire in the following years with
respect to the following number of service areas: 1998 (three); 2000 (two); 2001
(four); 2002 (two); 2006 (one); and 2007 (four). The FCC has issued a decision
confirming that current licensees will be granted a renewal expectancy if they
have complied with their obligations under the Communications Act during their
license terms and provided substantial public service. A potential challenger
will bear a heavy burden to demonstrate that a license should not be renewed if
the licensee's performance merits a renewal expectancy. The Company believes
that the licenses controlled by the Company will be renewed in a timely manner.
However, in the event that a license is not renewed, the Company would no longer
have the right to operate in the relevant service area. A non-renewal of all
licenses that are currently pending would have a material adverse effect on the
Company's result of operations.
Under FCC rules, each cellular licensee was given the exclusive right to
construct one of two cellular telephone systems within the licensee's MSA or RSA
during the initial five-year period of its authorization. At 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. The Company has no material unserved areas
in any of its cellular telephone systems that have been licensed for more than
five years.
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<PAGE>
The Company also regularly applies for FCC authority to use additional
frequencies, to modify the technical parameters of existing licenses, to expand
its service territory and to provide new services. The Communications Act
requires prior FCC approval for acquisitions by the Company of other cellular
telephone systems licensed by the FCC and transfers by the Company of a
controlling interest in any of its licenses or construction permits, or any
rights thereunder. Although there can be no assurance that any future requests
for approval or applications filed by the Company will be approved or acted upon
in a timely manner by the FCC, based upon its experience to date, the Company
has no reason to believe such requests or applications would not be approved or
granted in due course.
The Communications Act prohibits the holding of a common carrier license
(such as the Company's cellular licenses) by a corporation of which more than
20% of the capital stock is owned directly or beneficially by aliens. Where a
corporation such as the Company controls another entity that holds an FCC
license, such corporation may not have more than 25% of its capital stock owned
directly or beneficially by aliens, in each case, if the FCC finds that the
public interest would be served by such prohibitions. Failure to comply with
these requirements may result in the FCC issuing an order to the Company
requiring divestiture of alien ownership to bring the Company into compliance
with the Communications Act. In addition, fines or a denial of renewal, or
revocation of the license are possible.
From time to time, legislation which could potentially affect the
Company, either beneficially or adversely, may be proposed by federal and state
legislators. On February 8, 1996, the Telecommunications Act of 1996 (the
"Telecom Act") was signed into law, revising the Communications Act to eliminate
unnecessary regulation and to increase competition among providers of
communications services. The Company cannot predict the future impact of this or
other legislation on its operations.
The major provisions of the Telecom Act potentially affecting the
Company are as follows:
Interconnection. The Telecom Act requires state public utilities
---------------
commissions and/or the FCC to implement policies that mandate cost-based
reciprocal compensation between cellular carriers and local exchange carriers
("LEC") for interconnection services.
On August 8, 1996, the FCC released its First Report and Order in the
matter of Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996 ("FCC Order") establishing the rules for the
costing and provisioning of interconnection services and the offering of
unbundled network elements by incumbent local exchange carriers. The FCC Order
established procedures for Palmer's renegotiation of interconnection agreements
with the incumbent local exchange carrier in each of Palmer's markets. LECs and
state regulators filed appeals of the FCC Order, which have been consolidated in
the US Court of Appeals for the Eighth Circuit. The Court has temporarily stayed
the effective date of the pricing rules until more permanent relief can be
fashioned.
24
<PAGE>
The Company has renegotiated certain interconnection agreements with
LECs in most of the Company's markets. These negotiations have resulted in a
substantial decrease in interconnection expenses incurred by the Company.
Facilities siting for personal wireless services. The siting and
------------------------------------------------
construction of cellular transmitter towers, antennas and equipment shelters are
often subject to state or local zoning, land use and other regulation. Such
regulation may require zoning, environmental and building permit approvals or
other state or local certification.
The Telecom Act provides that state and local authority over the
placement, construction and modification of personal wireless services
(including cellular and other commercial mobile radio services and unlicensed
wireless services) shall not prohibit or have the effect of prohibiting personal
wireless services or unreasonably discriminate among providers of functionally
equivalent services. In addition, local authorities must act on requests made
for siting in a reasonable period of time and any decision to deny must be in
writing and supported by substantial evidence. Appeals of zoning decisions that
fail to comply with the provisions of the Telecom Act can be made on an
expedited basis to a court of competent jurisdiction, which can be either
federal district or state court. The Company anticipates that, as a result of
the Telecom Act, it will more readily receive local zoning approval for proposed
cellular base stations. In addition, the Telecom Act codified the Presidential
memorandum on the use of federal lands for siting wireless facilities by
requiring the President or his designee to establish procedures whereby federal
agencies will make available their properties, rights of ways and other
easements at a fair and reasonable price for service dependent upon federal
spectrum.
Environmental effect of radio frequency emissions. The Telecom Act
-------------------------------------------------
provides that state and local authorities cannot regulate personal wireless
facilities based on the environmental effects of radio frequency emissions if
those facilities comply with the federal standard.
Universal service. The Telecom Act also provides that all communications
-----------------
carriers providing interstate communications services, including cellular
carriers, must contribute to the federal universal service support mechanisms
that the FCC will establish. The FCC implemented this provision of the Telecom
Act in a "Report and Order" released May 8, 1997 in the matter of "Federal-State
Joint Board on Universal Service," which also provides that any cellular carrier
is potentially eligible to receive universal service support.
The Communications Act preempts state and local regulation of the entry
of, or the rates charged by, any provider of cellular service.
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 herein, unless otherwise indicated, the term "Pops"
25
<PAGE>
means the estimate of the 1996 population of an MSA or RSA, as derived from the
1996 Donnelley Market Information Service. The term "Net Pops" means the
estimated population with respect to a given service area multiplied by the
percentage interest that the Company owns in the entity licensed in such service
area. MSAs and RSAs are also referred to as "markets." The term "wireline"
license refers to the license for any market initially awarded to a company or
group that was affiliated with a local landline telephone carrier in the market,
and the term "non-wireline" license refers to the license for any market that
was initially awarded to a company, individual or group not affiliated with any
landline carrier. The term "System" means an FCC-licensed cellular telephone
system. The term "CTIA" means the Cellular Telecommunications Industry
Association.
Employees
At December 31, 1997, the Company had approximately 600 full-time
employees, none of whom is represented by a labor organization. Management
considers its relations with employees to be good.
ITEM 2. PROPERTIES
----------
For each market served by the Company's operations, the Company
maintains at least one sales or administrative office and operates a number of
cell transmitter and antenna sites. As of December 31, 1997, the Company had
approximately 33 leases for retail stores used in conjunction with its
operations and 3 leases for administrative offices. The Company also had
approximately 142 leases to accommodate cell transmitters and antennas as of
December 31, 1997.
The Company leases space for its headquarters in New York City. (See
Note 14 of the Notes to Consolidated Financial Statements for information on
minimum lease payments by the Company and its subsidiaries for the next five
years.)
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is not currently involved in any pending legal proceedings
likely to have a material adverse impact on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
--------------------------
Not Applicable
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
---------------------------------
a) Market for Common Stock
-----------------------
The Company's Common Stock is listed for trading on the American Stock
Exchange ("AMEX") under the ticker symbol "PR". The range of high and low last
sale prices for the Company's Common Stock on the AMEX as adjusted to reflect
its December 1997 and April 1998 5 for 4 stock splits, for each of the four
quarters of 1997 and 1996, as reported by the AMEX was:
1998 1997 1996
------------- ------------ ------------
Quarter High Low High Low High Low
- --------- ------ ----- ---- ---- ---- ----
First $13.90 $6.50 $6.40 $5.36 $5.08 $4.32
Second 6.19 4.04 5.52 4.48
Third 5.92 4.72 6.08 4.96
Fourth 7.12 5.08 5.52 5.04
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<PAGE>
The above sale prices give effect to 5 for 4 stock splits in December 1997 and
April 1998). The Company's Common Stock has been afforded unlisted trading
privileges on the Pacific Stock Exchange under the ticker symbol "PR.P", on the
Chicago Stock Exchange under the ticker symbol "PR.M" and on the Boston Stock
Exchange under the ticker symbol "PR.B".
b) Holders
-------
On March 31, 1998, there were approximately 400 holders of record of
the Company's Common Stock. The Company estimates that brokerage firms hold
Common Stock in street name for approximately 1,700 persons.
c) Dividends
---------
The Company, to date, has paid no cash dividends on its Common Stock.
The Board of Directors will determine future dividend policy based on the
Company's earnings, financial condition, capital requirements and other
circumstances. The New Credit Facility and other financing instruments to which
the Company and its subsidiaries are or may in the future be a party impose, and
in the future may impose, substantial restrictions on the ability of the
Company's subsidiaries to pay dividends to the Company. It is not anticipated
that dividends will be paid on its Common Stock in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains certain consolidated financial data with
respect to the Company and for Palmer ("Predecessor") for the periods and dates
set forth below. This information has been derived from the audited consolidated
financial statements of the Company and Palmer.
The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto, included elsewhere
herein.
Consolidated Operating Statement Items
<TABLE>
<CAPTION>
Company
----------------------------------------------------------------
Year ended December 31,
----------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Revenue $22,790 $24,039 $29,155 $2,962 $43,713
Engineering, Technical and Other
Direct Expenses - - - - 5,978
Cost of Equipment - - - - 5,259
Media Operating Expenses 16,335 14,962 16,685 2,233 -
Selling, General and Administra-
tive Expenses 3,649 4,475 2,687 2,373 16,750
Depreciation and Amortization 3,109 3,958 3,919 467 11,107
----- ----- ----- ----- ------
Operating Income (303) 644 5,864 (2,111) 4,619
Other Income (Expense):
Interest, net (1,485) (813) (2,099) 4,367 (20,063)
Other, net (1,803) 16,245 7,114 92,995 1,400
--- -------- ----- ------ -----
Total Other Income (Expense) (3,288) 16,076 5,015 97,362 (18,663)
Extaordinary Item 2,010 - - - -
Minority Interest - - - - (414)
Income Tax Benefit (Expense) (124) (1,652) 247 (24,584) 5,509
------- ------- --- -------- -----
Net Income (Loss) ($1,705) $14,424 $11,126 $70,667 ($8,949)
======= ======= ======= ======= ========
Per Share Amounts (1):
Basic Net Income (Loss) ($0.07) $0.74 $0.72 $4.82 ($0.91)
Diluted Net Income (Loss) ($0.07) $0.74 $0.69 $4.76 ($0.91)
</TABLE>
(1) Per share amounts have been retroactively adjusted to reflect 5 for 4 stock
splits in April 1998, December 1997 and April 1995. All per share amounts
prior to 1997 have been restated to comply with Statement of Financial
Accounting Standards No. 128, "Earnings per Share." See notes to
consolidated financial statements.
Consolidated Balance Sheet Items
<TABLE>
<CAPTION>
As of December 31
----------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Current Assets $8,925 $9,093 $10,047 $114,809 $79,949
Total Assets 37,272 90,852 95,985 115,888 1,173,608
Total Current Liabilities (2) 3,192 9,076 36,309 7,109 55,603
Long-Term Debt 3,200 21,310 - - 690,300
Shareholders' Equity 30,705 39,079 40,876 108,779 60,926
</TABLE>
(2) Includes in 1995 $28 million of a note payable to Bank of Montreal which was
repaid upon the sale of three television stations on February 2, 1996.
27
<PAGE>
<TABLE>
<CAPTION>
Predecessor
----------------------------------------------------------
For the year ended December 31,
----------------------------------------
For the nine
months ended
September 30,
1993 1994(1) 1995(2) 1996(3) 1997
-------- -------- -------- --------- ----------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGE AND PER SUBSCRIBER DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Service .............. $ 35,173 $ 61,021 $ 96,686 $ 151,119 $ 134,123
Equipment sales and
installation......... 6,285 7,958 8,220 8,624 7,613
-------- -------- -------- --------- --------
Total revenue..... 41,458 68,979 104,906 159,743 141,736
-------- -------- -------- --------- --------
Engineering, technical
and other direct
expenses............. 7,343 12,776 18,184 28,717 23,301
Cost of equipment..... 7,379 11,546 14,146 17,944 16,112
Selling, general and
administrative
expenses............. 13,886 19,757 30,990 46,892 41,014
Depreciation and
amortization......... 10,689 9,817 15,004 25,013 25,498
-------- -------- -------- --------- --------
Operating income...... 2,161 15,083 26,582 41,177 35,811
-------- -------- -------- --------- --------
Other income (expense):
Interest, net....... (9,006) (12,715) (21,213) (31,462) (24,467)
Other, net.......... (590) (70) (687) (429) 208
-------- -------- -------- --------- --------
Total other
expenses....... (9,596) (12,785) (21,900) (31,891) (24,259)
-------- -------- -------- --------- --------
Minority interest
share of (income)
losses............... 83 (636) (1,078) (1,880) (1,310)
Income tax benefit
(expense)............ 0 0 (2,650) (2,724) (4,153)
-------- -------- -------- --------- --------
Net income (loss)..... $ (7,352) $ 1,662 $ 954 $ 4,682 $ 6,089
======== ======== ======== ========= ========
Per share amounts(11):
Basic Net Income (Loss) ($0.41) 0.09 0.04 0.18 0.22
Diluted Net Income
(Loss): ($0.41) 0.09 0.04 0.18 0.22
OTHER DATA:
Capital expenditures.. $ 13,304 $ 22,541 $ 36,564 $ 41,445 $ 40,757
Operating income
before depreciation
and amortization
("EBITDA")(4)........ $ 12,850 $ 24,900 $ 41,586 $ 66,190 $ 61,309
EBITDA margin on
service revenue...... 36.5% 40.8% 43.0% 43.8% 45.7%
Net cash provided by
(used in):
Operating activities $ 9,108 $ 7,238 $ 27,660 $ 30,130 $ 38,791
Investing activities (27,362) (116,850) (196,776) (110,610) (73,759)
Financing activities 19,481 110,940 169,554 78,742 36,851
Penetration(5)........ 3.48% 4.58% 6.41% 7.45% 8.60%
Subscribers at end of
period(6)............ 65,761 117,224 211,985 279,816 337,345
Cost to add a net
subscriber(7)........ $ 203 $ 247 $ 276 $ 407 $ 514
Average monthly
service revenue per
subscriber(8)........ $ 62.69 $ 60.02 $ 56.68 $ 52.20 $ 47.52
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Predecessor
-----------------------------------------------------------
For the year ended December 31,
-----------------------------------------------------------
For the nine
months ended
September 30,
1993 1994(l) 1995(2) 1996(3) 1997
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGE AND PER SUBSCRWER DATA)
<S> <C> <C> <C> <C> <C>
Average monthly churn (9)....... 1.37% 1.55% 1.55% 1.84% 1.89%
Ratio of earnings to fixed
charges (10).................. N/A 1. 17x 1.21x 1.28x 1.45x
CONSOLIDATED BALANCE SHEET DATA:
Cash.......................... $ 1,670 $ 2,998 S 3,436 $ 1,698 $ 3,581
Working capital (deficit)..... 799 2,490 (1,435) 296 7,011
Property and equipment,
net........................... 23,918 51,884 100,936 132,438 161,351
Licenses and other intangibles,
net........................... 114,955 199,265 332,850 387,067 406,828
Total assets.................. 150,054 273,020 462,871 549,942 599,815
Total debt.................... 131,361 245,609 350,441 343,662 378,000
Stockholders' equity.......... 3,244 4,915 74,553 164,930 172,018
</TABLE>
(1) Includes the Georgia Acquisition (as defined herein), which occurred on
October 31, 1994. For the two months ended December 31, 1994, the Georgia
Acquisition resulted in revenues to Palmer of $1,803 and operating loss of
$645.
(2) Includes the GTE Acquisition (as defined herein), which occurred on
December 1, 1995. For the one month ended December 31, 1995, the GTE
Acquisition resulted in revenues to Palmer of $2,162 and operating income
of $208.
(3) Includes the acquisition of the cellular telephone systems of USCOC (as
defined herein) (Georgia-1 RSA), which occurred on June 20, 1996, and
Horizon (as defined herein) (Georgia-6 RSA), which occurred on July 5,
1996. The acquisitions of USCOC and Horizon resulted in revenues to Palmer
of $1,239 and $2,682, respectively, and operating (loss) income of $(278)
and $743, respectively, during such year.
(4) EBITDA should not be considered in isolation or as an alternative to net
income (loss), operating income (loss) or any other measure of performance
under GAAP. The Company believes that EBITDA is viewed as a relevant
supplemental measure of performance in the cellular telephone industry.
(5) Determined by dividing the aggregate number of subscribers by the estimated
population.
(6) Each billable telephone number in service represents one subscriber.
(7) Determined for a period by dividing (i) costs of sales and marketing,
including salaries, commissions and employee benefits and all expenses
incurred by sales and marketing personnel, agent commissions, credit
reference expenses, losses on cellular telephone sales, rental expenses
allocated to retail operations, net installation expenses and other
miscellaneous sales and marketing charges for such period, by (ii) the net
subscribers added during such period.
(8) Determined for a period by dividing (i) the sum of the access, airtime,
roaming, long distance, features, connection, disconnection and other
revenues for such period by (ii) the average number of subscribers for such
period divided by the number of months in such period.
(9) Determined for a period by dividing total subscribers discontinuing service
by the average number of subscribers for such period, and dividing that
result by the number of months in such period.
(10) The ratio of earnings to fixed charges is determined by dividing the sum of
earnings before interest expense, taxes and a portion of rent expense
representative of interest by the sum of interest expense and a portion of
rent expense representative of interest. The ratio of earnings to fixed
charges is not meaningful for periods that result in a deficit. For the
year ended December 31, 1993 the deficit of earnings to fixed charges was
$7,435.
(11) All per share amounts prior to 1997 have been restated to comply with
Statement of Financial Accounting Standards No. 128, "Earnings per Share."
See notes to consolidated financial statements.
29
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
In May 1997, PCC, PCW and Palmer entered into an Agreement and Plan of
Merger (the "Merger Agreement"). The Merger Agreement provided, among other
things, for the merger of PCW with and into Palmer with Palmer as the surviving
corporation (the "Merger"). In October, 1997, the Merger was consummated and
Palmer changed its name to "Price Communications Wireless, Inc." Pursuant to the
Merger Agreement, PCC acquired each issued and outstanding share of common stock
of Palmer for a purchase price of $17.50 per share in cash and purchased
outstanding options and rights under employee and director stock purchase plans
for an aggregate price of $486.4 million. In addition, as a result of the
Merger, PCW assumed all outstanding indebtedness of Palmer of approximately
$378.0 million. As a result, the aggregate purchase price for Palmer (including
transaction fees and expenses) was approximately $880 million. PCW refinanced
all of the Palmer Existing Indebtedness concurrently with the consummation of
the Merger.
PCW entered into an agreement to sell Palmer's Fort Myers, Florida MSA
covering approximately 382,000 Pops for $168.0 million ( the "Fort Myers Sale").
In October, 1997, the Fort Myers Sale was consummated, and generated proceeds to
the Company of approximately $166.0 million. The proceeds of the Fort Myers Sale
were used to fund a portion of the acquisition of Palmer. Accordingly, no gain
or loss was recognized on the Fort Myers Sale.
On October 21, 1997, PCC and PCW entered into an Asset Purchase Agreement
with MJ Cellular Company, L.L.C. (The "Georgia Sale Agreement") which provided
for the sale by PCW, for $25 million, of substantially all of the assets of the
non-wireline cellular telephone system serving the Georgia-1-Whitfield Rural
Service (the "Georgia-1"), including the FCC licenses to operate Georgia-1 (the
"Georgia Sale"). The sale of the assets of Georgia-1 was consummated on December
30, 1997 for $24.2 million. The proceeds from the Georgia Sale were used to
retire a portion of the debt used to fund the acquisition of Palmer.
Accordingly, no gain or loss was recognized on the Georgia sale.
In order to fund the Acquisition and pay related fees and expenses, in
July, 1997, PCW issued $175.0 million aggregate principal amount of 11 3/4%
Senior Subordinated Notes due 2007 and entered into a syndicated senior loan
facility providing for term loan borrowings in the aggregate principal amount of
approximately $325.0 million and revolving loan borrowings of $200.0 million. In
October, 1997, PCW borrowed all term loans available thereunder and
approximately $120.0 million of revolving loans. DLJ Capital Funding, Inc.
provided and syndicated the New Credit Facility.
The acquisition of Palmer was also funded in part through a $44 million
equity contribution from PCC which was in the form of cash and common stock of
Palmer. An additional amount of approximately $76 million of the purchase price
for the acquisition was raised out of the proceeds from the issuance and sale
for $80 million of units consisting of $153.4 million principal amount of 13
1/2% Senior Secured Discount Notes due 2007 of Holdings and warrants to purchase
shares of Common Stock of PCC.
Due to the Merger, the Fort Myers Sale, the Georgia Sale, and the
incurrence of the borrowings effected to complete the Merger as described above,
the Company's historical operations are not comparable from period to period, or
indicative of its results in the future.
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. As of
December 31, 1997, the Company provided cellular telephone service to 309,606
subscribers in Alabama, Florida and Georgia in a total of 16 licensed service
areas, composed of eight MSA's and eight RSA's with an aggregate estimated
population of 3.3 million. The Company sells its cellular telephone service as
well as a full line of cellular products and accessories principally through its
network of retail stores. The Company markets all of its products and services
under the nationally-recognized service mark CELLULARONE.
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MARKET OWNERSHIP
The following is a summary of the Company's ownership interest in the
cellular telephone system in each licensed service area to which the Company
provided service at December 31, 1997.
Cellular Service Area December 31, December 31,
1996 1997
Albany, Georgia 82.7% 86.5%
Augusta, Georgia 100.0 100.0
Columbus, Georgia 84.9 85.2
Macon, Georgia 99.1 99.2
Savannah, Georgia 98.5 98.5
Dothan, Alabama 92.3 94.6
Montgomery, Alabama 91.9 92.8
Georgia 1-RSA 100.0 N/A
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 86.5
Alabama 8-RSA 100.0 100.0
Fort Myers, Florida 99.0 N/A
Panama City, Florida 77.9 78.4
On February 1, 1997, one of the Company's majority-owned subsidiaries
acquired the assets of and the license to operate the non-wireline cellular
telephone system serving the Georgia-13 RSA, for a total purchase price of $31.5
million, subject to certain adjustments.
On October 6, 1997, as part of the Acquisition of Palmer by the
Company, the Fort Myers MSA was sold for approximately $168.0 million.
On December 30, 1997, the Company sold the assets of and license to
operate the non-wireline cellular telephone system serving the Georgia-1 RSA for
a total price of $24.2 million, subject to certain adjustments.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The Company's revenues, operating expenses and interest expense for
the year ended December 31, 1997 are not comparable to the year ended December
31, 1996 due to the Merger between PCC, PCW and Palmer which took place on
October 6, 1997, the issuance of the 11 3/4% Senior Subordinated Notes by PCW
in July, 1997, the debt incurred by PCW under the syndicated loan facility and
the issuance by Holdings of the 13 1/2% Senior Secured Discount Notes in
August, 1997. During the first quarter of the year ended December 31, 1996 the
Company sold its four network affiliated television stations. The Company's
revenue and operating expenses for 1996 represent the results of those
television stations through their respective dates of sale. During 1996, the
Company recognized a $95.0 million pretax gain on the sale of the television
stations, which is included in other income (expense) and recorded tax expense
related primarily to the gain of approximately $25.6 million. The Company
recorded net income of $70.7 million in 1996 or $7.45 per share. For 1997, the
Company recorded a net loss of $8.9 million, primarily as a result of the
increased depreciation and amortization charges related to the assets acquired
in the Merger, and
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interest expense of $24.4 million for the year incurred to complete
the Merger as described above. Basic and diluted earnings per share for 1997
were a loss of $0.91.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The Company's 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 the
Company's television properties during the first quarter of 1996 and the
subsequent retirement of the Company'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 $217,000
and $470,000 from $2.1 million and $3.5 million, respectively. All of the above
mentioned items decreased as a result of the sales of all the Company's
operating properties. The sale of such properties resulted in approximately a
$95.0 million pretax gain which was the primary reason for the Company's net
income of $70.7 million for the year ended December 31, 1996 compared to $11.1
million in 1995.
The Company had net income per share of $7.45 as opposed to $1.06 for
the year ended December 31, 1995.
RESULTS OF OPERATIONS OF PALMER WIRELESS, INC. AND SUBSIDIARIES (PREDECESSOR)
The following discussion is intended to facilitate an understanding
and assessment of significant changes and trends related to the financial
condition and results of operations of the Company. This discussion should be
read in conjunction with the Company's Consolidated Financial Statements and
related Notes thereto and the Consolidated Financial Statements and Notes
thereto of Palmer Wireless, Inc. and Subsidiaries (the "Predecessor") included
as a supplement to this report. References to the Company where appropriate also
include its subsidiaries, PCW, Holdings and the Predecessor.
Results for the Predecessor for the years ended December 31, 1995 and
December 31, 1996 are based solely on the historical operations of the
Predecessor prior to the Merger. The discussion for 1997 is based on the
combination of results of the Predecessor through September 30, 1997 and the
results of PCW for the period May 29, 1997 through December 31, 1997. As a
result, the combined information has not been prepared in accordance with
generally accepted acccounting principles. The 1997 results do not include
operations at the parent company level of PCC.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUE. Service revenues totaled $175.5 million for 1997, an increase
of 16.1% over $151.1 million for 1996. This increase was due to a 29.8% increase
in the average number of subscribers to 313,042 for 1997 versus 241,255 for
1996. The increase in subscribers is the result of internal growth, which the
Company attributes primarily to its strong sales and marketing efforts, and
revenues also increased because of a 35.3% increase in outcollect roaming
revenues.
Average monthly revenue per subscriber decreased 10.5% to $46.72 for
1997 from $52.20 for 1996. This is due to a common trend in the cellular
telephone industry, where on average, new customers use less airtime than
existing subscribers. Therefore, service revenues generally do not increase
proportionately with the increase in subscribers. In addition, the decline
reflects more competitive rate plans introduced into the Company's markets.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $10.0 million for 1997 from
$8.6 million for 1996. As a percentage of total cellular revenue, equipment
sales and installation revenue remained flat at 5.4% for both 1997 and 1996,
reflecting the increased recurring revenue base as well as lower cellular
equipment prices charged to customers.
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OPERATING EXPENSES. Engineering and technical expenses increased by
16.0% to 14.6 million for 1997 from $12.6 million in 1996, due primarily to the
increase in subscribers and in cell site locations. As a percentage of revenue,
engineering and technical expenses remained flat at 7.9% for both 1997 and 1996.
This reflects the increased fixed costs associated with additional cell sites
constructed. As revenue grows the Company expects engineering and technical
expenses to decrease as a percentage of revenue due to its large component of
fixed costs. There can be no assurance, however, that this forward-looking
statement will differ materially from actual results due to unforeseen
engineering and technical expenses.
Other direct costs of services declined to $14.7 million for 1997 from
$16.1 million in 1996. As a percentage of revenue, other direct costs of service
decreased to 7.9% in 1997 from 10.1% in 1996, reflecting the decrease in
interconnection costs as a result of the Company's renegotiation of
interconnection agreements with the local exchange carriers ("LECs") in most of
the Company's markets, offset somewhat by more competitive roaming rates for
Company's customer roaming in adjacent areas.
The cost of equipment increased 19.1% to $21.4 million for 1997 from
$17.9 million for 1996, due primarily to the increase in gross subscriber
activations. Equipment sales resulted in losses of $11.4 million in 1997 versus
$9.3 million in 1996. The Company sells equipment below its costs in an effort
to address market competition and improve market share. The Company sold more
telephones below cost in 1997 that in 1996.
Selling, general and administrative expenses increased 14.8% to $53.8
million in 1997 from $46.9 million in 1996. These expenses are comprised of (i)
sales and marketing costs, (ii) customer service costs and (iii) general and
administrative expenses.
Sales and marketing costs increased 15.5% to $15.8 million for 1997
from $13.7 million for 1996. This increase is primarily due to a 13.5% increase
in gross subscriber activations and the costs to acquire them and higher
advertising costs in response to market competition. As a percentage of total
revenue, sales and marketing costs decreased to 8.5% for 1997 compared to 8.6%
for 1996. The Company's cost to add a net subscriber, including loss on
telephone sales, increased to $469 for 1997 from $407 for 1996 due primarily to
increased losses from the Company's sales of cellular telephones and an increase
in commissions.
Customer service costs increased 23.6% to $11.7 million for 1997 from
$9.4 million for 1996. As a percentage of revenue, customer service costs
increased to 6.3% for 1997 from 5.9% for 1996. The increase was due primarily to
an increase in license and maintenance costs for the Company's billing systems.
General and administrative expenditures increased 10.8% to $26.3
million for 1997 from $23.8 million for 1996. General and administrative
expenses decreased as a percentage of total revenue to 14.2% in 1997 from 14.9%
in 1996. As the Company continues to add more subscribers, and generates
associated revenue, general and administrative expenses should continue to
decrease as a percentage of total revenues. There can be no assurance, however,
that this forward-looking statement will not differ materially from actual
results due to unforeseen general and administrative expenses and other factors.
Depreciation and amortization increased 46.1% to $36.6 million for
1997 from $25.0 million for 1996. This increase was primarily due to the
depreciation and amortization associated with the new carrying value of assets
as a result of the "push down" of the purchase price to the Company, recent
acquisitions and additional capital expenditures. As a percentage of revenue,
depreciation and amortization increased to 19.7% from 15.7% for 1997 compared to
1996.
Operating income increased 7.9% to $44.4 million in 1997, from $41.2
million for 1996. This improvement in operating results is attributable
primarily to increases in revenue which exceeded increases in operating
expenses.
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NET INTEREST EXPENSE, INCOME TAXES, AND NET INCOME
Net interest expense increased 48.3% to $46.7 million for 1997 from
$31.5 million for 1996 primarily due to rate increases and additional borrowings
incurred as a result of the recent acquisition of Palmer. For 1996, net interest
expense increased 48.3% to $31.5 million from $21.2 for 1995 due primarily to
debt incurred for the Acquisition and amortization of deferred financing fees
related to the Predecessor credit agreement.
Income tax expense was $3.1 million in 1997 compared to $2.7 million
in 1996 and 1995. The $2.7 million income tax expense in 1995 was a non-
recurring deferred income tax charge related to the difference between the
financial statement and income tax return based on certain assets and
liabilities of Palmer Cellular Partnership. See Note 6 to the Company's
Consolidated Financial Statements.
Net loss for 1997 was $6.8 million compared to net income in 1996 of
$4.7 million. The loss was due to increased interest and amortization incurred
as a result of the Merger. Net income for 1996 was $4.7
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million, compared to net income of $1.0 million for 1995. The increase in net
income is primarily attributable to increases in revenue which exceeded
increases in operating expenses.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUE. Service revenues totaled $151.1 million for the 1996, an
increase of $54.4 million or 56.3% over $96.7 million for 1995. This increase
was primarily due to a 69.7% increase in the average number of subscribers to
241,255 in 1996 from 142,147 in 1995. The increase in subscribers is the result
of internal growth, which the Company attributes primarily to its strong sales
and marketing efforts, and recent acquisitions. The GTE Acquisiton accounted for
41,163 subscribers at December 31, 1996. Service revenue attributable to the
cellular telephone systems acquired in the GTE Acquisition totaled $24.6 million
for 1996 as compared to $2.0 million for the one month ended December 31, 1995.
Average monthly revenue per subscriber decreased to $52.20 for 1996
from $56.68 for 1995. This decrease occurred because, on average, new
subscribers use less airtime and generate less revenue per subscriber that
existing subscribers as is customary in the cellular telephone industry.
Therefore, airtime usage and service revenue did not increase in proportion to
the increase in subscribers. In addition, the Company entered into revised
roaming agreements with certain of its neighboring carriers. These agreements
provide for reciprocal lower roaming rates per minute of use, resulting in lower
roaming revenue for the Company, but offset by lower direct costs of services
when the Company's subscribers were roaming on these neighboring systems.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $8.6 million for 1996 from
$8.2 million for 1995, a 4.9% increase, primarily due to the increase in gross
subscriber activations, partially offset by lower cellular phone prices. While
equipment sales and installation revenue increased slightly for 1996 from 1995,
it decreased as a percentage of total cellular revenue to 5.4% for 1996 from
7.8% for 1995, reflecting the increased recurring annual revenue base as well as
lower cellular equipment prices charged to customers. Equipment sales and
installation revenue attributable to the cellular telephone systems acquired in
the GTE Acquisition totaled $1.0 million for 1996 as compared to $0.1 million
for the one month ended December 31, 1995.
OPERATING EXPENSES. Engineering and technical expense increased by
57.5% to $12.6 million for 1996 from $8.0 million for 1995, due primarily to the
32.0% increase in the number of subscribers. As a percentage of revenue,
engineering and technical expenses increased to 7.9% 1996 from 7.6% for 1995 due
to additional costs incurred for the recent acquisitions and recurring costs
associated with the Company's system development and expansion. Such development
is done for the purpose of increasing capacity and improving coverage.
Engineering and technical expenses attributable to the cellular
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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% $16.1 million for 1996
from $10.2 million for 1995. As a percentage of revenue, other direct costs of
services increased to 10.1% for 1996 from 9.7% for 1995. This increase in other
direct costs of services as a percentage of revenue was due primarily to the
Company subsidizing more roaming costs for competitive reasons. Other direct
costs of service attributable to the cellular telephone systems acquired in the
GTE Acquisition totaled $1.6 million for 1996 as compared to $0.2 million for
the one month ended December 31, 1995.
Cost of equipment increased 26.8% to $17.9 million for 1996 from $14.1
million for 1995, due primarily to the increase in gross subscriber activations
for the same period. Equipment sales resulted in losses of $9.3 million in 1996
versus $5.9 million in 1995. The Company sells equipment below its costs in an
effort to address market competition and improve market share. The Company sold
more telephones below cost in 1996 than in 1995. The cost of equipment
attributable to the cellular telephone systems acquired in the GTE Acquisition
totaled $3.1 million for 1996 as compared to $0.2 million for the one month
ended December 31, 1995.
Selling, general and administrative expense increased 51.3% to $46.9
million in 1996 from $31.0 million in 1995. These expenses are comprised of (i)
sales and marketing costs, (ii) customer service costs and (iii) general and
administrative expenses.
Sales and marketing costs increased 50.2% to $13.7 million for 1996
from $9.1 million for 1995. This increase is primarily due to the 28.1% increase
in gross subscriber activations and the resulting increase in costs to acquire
them. As a percentage of total revenue, sales and marketing costs remained
relatively flat at 8.6% for 1996 and 8.7% for 1995. The Company's cost to add a
net subscriber, including losses on telephone sales, increased to $407 in 1996
from $276 in 1995. This increase in cost to add a net subscriber was caused
primarily by additional advertising and fixed marketing overhead associated with
the systems acquired in the GTE Acquisition, which are not yet generating the
offsetting gains in net subscribers. In addition, there were increased losses
from the Company's sales of cellular telephones. Sales and marketing costs
totaled $2.8 million in 1996 as compared to $0.2 million for the one month ended
December 31, 1995.
Customer service costs increased 49.9% to $9.4 million for 1996 from
$6.3 million for 1995. As a percentage of revenue, customer service costs
remained relatively flat at 5.9% and 6.0% for 1996 and 1995 respectively.
Customer service costs attributable to the cellular telephone system 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. There can be no assurance,
however, that this forward-looking statement will not differ materially from
actual results due to unforeseen general and administrative expenses and other
factors. The general and administrative costs attributable to the cellular
telephone systems acquired in the GTE Acquisition totaled $3.4 million for 1996
as compared to $0.4 million for the one month ended December 31, 1995.
Depreciation and amortization increased 66.7% to $25.0 million for
1996 from $15.0 million for 1995. This increase is primarily due to the
depreciation and amortization associated with recent acquisitions and additional
capital expenditures. Depreciation and amortization attributable to the cellular
telephone systems acquired in the GTE Acquisition totaled $6.2 million for 1996
as compared to $0.5 million for the one month ended December 31, 1995.
Operating income for 1996 increased 54.9% to $41.2 million, an
increase of $14.6 million over operating income for 1995. This improvement in
operating results is attributable primarily to increases in revenue which
exceeded increases in operating expenses. Operating income attributable to the
cellular telephone systems acquired in the GTE Acquisition totaled $3.8 million
for 1996 as compared to $0.2 million for the one month ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company had approximately $29.5 million in cash and cash
equivalents and net working capital of $25 million at December 31, 1997.
The Company will require substantial capital for debt service, capital
expenditures and potentially, for acquisitions. Historically, the Company's
sources of funds to meet such obligations have been its liquid assets, cash flow
from operating and investment activities and proceeds from loans and financings.
In 1997 the Company spent approximately $14.5 million for capital
expenditures and $55.3 million including the Predecessor. Capital expenditures
are limited by the Credit Agreement referred to below to $32 million and $18
million for the years ended December 31, 1998 and 1999, respectively. The
Company expects to spend approximately $16 million and $18 million for capital
expenditures for the years ended December 31, 1998 and 1999, respectively. The
Company expects to use net cash provided by operating activities to fund such
capital expenditures.
In October 1997, PCW entered into a credit agreement (the "Credit
Agreement") with a syndicate of banks, financial institutions and other
"accredited investors" providing for loans of up to $525 million. The Credit
Agreement includes a $325 million term loan facility and a $200 million
revolving credit facility. The term loan facility is comprised of tranche A term
loans of up to $100 million, which will have a maturity of eight years, and
tranche B term loans of up to $225 million, which will have a maturity of nine
years. The revolving credit facility will terminate eight years after the
closing date of the Credit Agreement. The Credit Agreement bears interest at the
alternate base rate, as defined in the Credit Agreement, or the reserve adjusted
Euro-Dollar rate plus, in each case, applicable margins of (i) in the case of
tranche A term loans and revolving loans (x) 2.5% for Euro-Dollar rate loans and
(y) 1.5% for base rate loans and (ii) in the case of tranche B term loans (x)
2.75% for Euro-Dollar rate loans and (y) 1.759 for base rate loans. The Credit
Agreement contains restrictions on the subsidiary's ability to engage in certain
activities, including limitations on incurring additional indebtedness, capital
expenditures, liens and investments, payment of dividends and the sale of
assets, Holdings is a guarantor of the Credit Agreement. As of December 31, 1997
there was $438.0 million outstanding under the Credit Agreement.
In July 1997, the Company's subsidiary, PCW, issued $175 million of $11.75%
Senior Subordinated Notes due July 15, 2007 with interest payable semi-annually
commencing January 15, 1998. Such Notes contain covenants that restrict the
payment of dividends, incurrence of debt and sale of assets.
In August 1997, Holdings issued 153,400 units, consisting of Notes and
Warrants of PCC, in exchange for $80 million. The Notes accrete at a rate of
13.5% compounded semi-annually, to an aggregate principal amount of
approximately $153.4 million by August 1, 2002. Cash interest will not commence
to accrue on the Notes prior to August 2, 2002. Commencing on February 1, 2003,
cash interest on the Notes will be payable at a rate of 13.5% per annum, payable
semi-annually. The Notes will be redeemable at the option of Holdings, in whole
or in part, at any time after August 1, 1998 in cash at the redemption price as
defined, plus accrued and unpaid interest, if any, thereon to the redemption
date; provided that the trading price of the common stock, par value $0.01 per
share of PCC shall equal or exceed certain levels. The Notes mature on August 1,
2007 and contain covenants that restrict payment of dividends, incurrence of
debt and sale of assets.
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In February, 1997, the Company's Board of Directors authorized the
repurchase by the Company of up to 3 million shares of its Common Stock in
addition to previous authorizations. The Company is authorized to make such
purchases from time to time when it is legally permissible to do so and believed
to be in the best interest of its shareholders, in the open market or in
privately negotiated transactions. During the years ended December 31, 1997,
1996, and 1995, the Company purchased and retired approximately 2,468,000,
644,000 and 1,691,000, respectively, under these authorizations.
In June 1997, the Company entered into a transaction with NatWest Capital
Markets Limited ("NatWest"), whereby the Company issued to NatWest 1,129 units
(the "PIK Units") of PIK Preferred Stock and warrants ("PIK Warrants"), in part,
in exchange for 2,292,953 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 consisted 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 the Company's Common Stock, representing in the aggregate 10% of the
fully diluted shares of Common Stock of the Company at an exercise price of
$0.01 per share. The PIK Preferred Stock was callable, together with the PIK
Warrants, by the Company, 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.
On October 6, 1997, the Company repurchased the PIK Units.
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DESCRIPTION OF NEW CREDIT FACILITY
PCW will pay commitment fees in an amount equal to 0.50% per annum on
the daily average unused portion of the revolving credit facility. Such fees
shall be payable quarterly in arrears and upon the maturity or termination of
the revolving credit facility.
Beginning six months after the Closing Date, the applicable margins for
the tranche A term loans and revolving loans will be determined based on the
ratio of consolidated total debt to consolidated EBITDA of PCW and its
subsidiaries (as defined in the New Credit Facility).
PCW will pay, in respect of each letter of credit, a fee calculated on
the daily amount available to be drawn on the issued letter of credit at a rate
per annum equal to the applicable margin for Euro-Dollar rate loans under the
revolving credit facility, which shall be shared by all Lenders, and the greater
of $500 or an additional 0.25% per annum, which shall be retained by the Lender
issuing the letter of credit, which percentage shall be multiplied by the amount
available from time to time for drawing under such letter of credit.
The New Credit Facility is subject to the following amortization
schedule:
REVOLVING
TRANCHE A TRANCHE B CREDIT
YEAR TERM LOANS TERM LOANS FACILITY
- ------------------------ ------------ ------------ ----------
(%) (%) (%)
1....................... 0.0 1.0 0.0
2....................... 0.0 1.0 0.0
3....................... 10.0 1.0 10.0
4....................... 12.5 1.0 12.5
5....................... 15.0 1.0 15.0
6....................... 17.5 1.0 17.5
7....................... 20.0 1.0 20.0
8....................... 25.0 1.0 25.0
- 92.0 -
9....................... ------------ ------------ ----------
100.0 100.0 100.0
The New Credit Facility is subject to mandatory prepayment: (i) with the
net after-tax cash proceeds of the sale or other disposition of any property or
assets of PCW or any of its subsidiaries in excess of $5 million per year,
subject to certain exceptions, (ii) with 50% of the net cash proceeds received
from the issuance of equity securities of Holdings or any of its subsidiaries,
(iii) with the net cash proceeds received from certain issuances of debt
securities by Holdings or any of its subsidiaries, (iv) with 50% of excess cash
flow (as defined in the New Credit Facility) for each fiscal year, payable
within 90 days after the end of the applicable fiscal year. All mandatory
prepayment amounts shall be applied first to the prepayment of the term loan
facility and thereafter to the prepayment of the revolving credit facility.
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Holdings and all existing or future subsidiaries of PCW are guarantors
of the New Credit Facility. PCW's obligations under the New Credit Facility are
secured by: (i) all existing and after-acquired personal property of PCW and the
subsidiary guarantors, including a pledge of all of the stock of all existing or
future subsidiaries of PCW, (ii) first-priority perfected liens on all existing
and after-acquired real property fee and leasehold interests of PCW and the
subsidiary guarantors, subject to customary permitted liens (as defined in the
New Credit Facility), (iii) a pledge by Holdings of the stock of PCW and (iv) a
negative pledge on all assets of PCW and its subsidiaries, subject to
exceptions.
The New Credit Facility contains customary covenants and restrictions on
PCW's ability to engage in certain activities, including, but not limited to:
(i) limitations on other indebtedness, liens, investments and guarantees, (ii)
restrictions on dividends and redemptions and payments on subordinated debt and
(iii) restrictions on mergers and acquisitions, sales of assets and leases.
The New Credit Facility also contains financial covenants requiring PCW
to maintain a minimum total debt service coverage test, a minimum EBITDA test, a
minimum interest coverage test, a minimum fixed charge coverage test and a
maximum leverage test.
Borrowing under the New Credit Facility is subject to significant
conditions, including compliance with certain financial ratios and the absence
of any material adverse change. See "Risk Factors-Leverage, Liquidity and
Ability to Meet Required Debt Service."
ACCOUNTING POLICIES
For financial reporting purposes, the Company reports 100% of revenues and
expenses for the markets for which its provides cellular telephone service.
However, in several of its markets, the Company holds less than 100% of the
equity ownership. The minority stockholders' and partners' share of income or
losses in those markets are reflected in the consolidated financial statements
as "minority interest share of (income) losses", except for losses in excess of
their capital accounts and cash call provisions which are not eliminated in
consolidation. For financial reporting purposes, the Company consolidates each
subsidiary and partnership in which its has a controlling interest (greater than
50%).
YEAR 2000 IMPACT
The Company has studied the impact of the year 2000 on its operational
and financial systems and has developing estimates of costs of implementing
changes or upgrades where necessary. Preliminary estimates indicate that these
costs will be less than $2 million. However the Company is unable to predict all
of the implications of the year 2000 issue as it relates to its suppliers and
other entities. It is anticipated that a substantial portion of the costs will
be incurred in the next two years and will be expensed as incurred.
INFLATION
The Company believes that inflation affects its business no more than
it generally affects other similar businesses.
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
----------------------
See Index to financial Statements on page 41.
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
------------------------
Not Applicable.
PART III
The information called for by Items 10, 11, 12 and 13 is incorporated
herein by reference from the following portions of the definitive proxy
statement to be filed by the Company in connection with its 1998 Meeting of
Shareholders.
Item Incorporated from
-------------------------- ----------------------------
ITEM 10. Directors and Executive "Directors and Executive
Officers of the Company Officers"
ITEM 11. Executive Compensation "Executive Compensation"
and "Related Transactions"
ITEM 12. Security Ownership of "Principal Shareholders"
Certain Beneficial Owners and "Security Ownership of
and Management Management"
ITEM 13. Certain Relationships and "Executive Compensation"
Related Transactions and "Related Transactions"
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
--------------------------------------------
(a) (1) and (2) List of financial statements and financial statement schedules:
See Index to Financial Statements on page 41.
(Schedules other than those listed are omitted for the reason that they are
not required or are not applicable or the required information is shown in
the financial statements or notes thereto.)
(3) Exhibits
See Exhibit Index at page E-1, which is incorporated herein by
reference.
(b) Reports on Form 8-K.
None.
40
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Auditors' Reports F-1
Consolidated Balance Sheets at December 31, 1997 and 1996 F-2
Consolidated Statements of Operations for Years ended
December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for Years ended
December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Shareholders' Equity for Years
ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
PALMER WIRELESS, INC. AND ASSOCIATES
CONSOLIDATED FINANCIAL STATEMENTS
Auditors' Reports F-21
Consolidated Balance Sheets at December 31, 1996 F-23
Consolidated Statements of Operations and for the Nine Months
ended September 30, 1997 and for Years ended December 31,
1996 and 1995. F-25
Consolidated Statements of Stockholders' Equity for the Nine
Months Ended September 30, 1997 and for the Years ended
December 31, 1996 and 1995 F-26
Consolidated Statements of Cash Flows for the Nine Months
ended September 30, 1997 and for Years ended
December 31, 1996 and 1995 F-27
Notes to Consolidated Financial Statements F-29
Price Communications Corporation and Subsidiaries
Financial Statement Schedules
Schedule
No.
- -----
I. Condensed Financial Information of Registrant F-39
II. Valuation and Qualifying Accounts F-43
41
<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, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements and the schedules
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 the Price Communications and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules listed in the index of financial
statements are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
New York, New York
March 17, 1998
F-1
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
($ in thousands)
<TABLE>
<CAPTION>
1997 1996
------------------ -------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 29,451 $ 83,357
Accounts receivable, net of allowance for doubtful
accounts of $818 in 1997 and $474
in 1996 15,951 489
Receivables from other cellular carriers 3,902 -
Investment securities:
Trading securities - 4,046
Available for sale securities 22,849 26,898
Inventory 1,280 -
Deferred income taxes 5,402 -
Prepaid expenses and other current assets 1,114 19
------------------ -------------------
Total current assets 79,949 114,809
------------------ -------------------
Property and equipment:
Land and improvements 6,438 -
Buildings and improvements 8,834 257
Equipment, communication systems and furnishings 140,381 -
------------------ -------------------
155,653 257
Less accumulated depreciation 4,389 98
------------------ -------------------
Net property and equipment 151,264 159
Licenses, net of accumulated amortization of
$6,016 in 1997 918,488 -
Other intangible and other assets, less accumulated
amortization of $818 and $0 in 1997 and 1996, respectively 23,907 920
------------------ -------------------
Total assets $ 1,173,608 $ 115,888
================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
($ in thousands)
<TABLE>
<CAPTION>
1997 1996
-------------------- ---------------------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 2,812 $ -
Accounts payable and accrued expenses 14,477 2,755
Accrued interest payable 11,361 -
Accrued salaries and employee benefits 2,977 -
Deferred revenue 3,755 -
Customer deposits 602 -
Deferred tax liability 1,156 1,043
Other current liabilities 18,463 3,311
-------------------- ---------------------
Total current liabilities 55,603 7,109
Long-term debt, excluding current installments 690,300 -
Accrued income taxes long-term 50,491 -
Deferred income taxes 308,901 -
Commitments and contingencies - -
Minority interests in cellular licenses 7,352 -
Redeemable preferred stock, Series A, par value $.01 per share;
728,133 shares authorized and outstanding 25 -
Redeemable preferred stock, Series B, par value $.01 per share;
364,066 shares authorized and outstanding 10 -
Shareholders' equity:
Preferred stock, par value $.01 per share; authorized
18,907,801 shares; no shares outstanding - -
Common stock, par value $.01; authorized 60,000,000
shares; outstanding 6,994,435 shares in 1997 and
9,038,808 shares in 1996 70 90
Additional paid-in-capital 9,930 12,240
Unrealized gain on marketable equity securities, net of
tax effect 2,148 1,937
Retained earnings 48,778 94,512
-------------------- ---------------------
Total shareholders' equity 60,926 108,779
-------------------- ---------------------
Total liabilities and shareholders' equity $ 1,173,608 $ 115,888
==================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------ ------------------
<S> <C> <C> <C>
Revenue:
Cellular operations:
Service $ 41,365 $ - $ -
Equipment sales and installation 2,348 - -
Net media revenue - 2,962 29,155
------------------- ------------------ ------------------
Total revenue 43,713 2,962 29,155
Operating expenses:
Engineering, technical and other direct 5,978 - -
Cost of equipment 5,259 - -
Media operating expenses - 2,233 16,685
Selling, general and administrative 16,750 2,373 2,687
Depreciation and amortization 11,107 467 3,919
------------------- ------------------ ------------------
Total operating expenses 39,094 5,073 23,291
------------------- ------------------ ------------------
Operating income (Loss) 4,619 (2,111) 5,864
------------------- ------------------ ------------------
Other income (expense):
Interest income 4,378 4,583 -
Interest expense (24,441) (216) (2,099)
------------------- ------------------ ------------------
Interest expense, net (20,063) 4,367 (2,099)
Other income (expense) 1,400 92,995 7,114
------------------- ------------------ ------------------
Total other income (expense) (18,663) 97,362 5,015
------------------- ------------------ ------------------
(Loss) income before minority interest
and income taxes (14,044) 95,251 10,879
Minority interest (414) - -
------------------- ------------------ ------------------
(Loss) income before income taxes (14,458) 95,251 10,879
Income tax benefit (expense) 5,509 (24,584) 247
------------------- ------------------ ------------------
Net (loss) income $ (8,949) $ 70,667 $ 11,126
=================== ================== ==================
Per share data:
Basic (loss) earnings per share $ (.91) $ 4.82 $ .72
Weighted average shares outstanding 9,812,905 14,659,525 15,557,065
Diluted (loss) earnings per share $ (.91) $ 4.76 $ .69
Weighted average shares outstanding 9,812,905 14,824,869 16,037,045
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ------------------ ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (8,949) $ 70,667 $ 11,126
----------------- ------------------ ------------------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Deprecation and amortization 11,107 467 3,559
Minority interest share of income 414 - -
Deferred income taxes (2,505) - -
Interest deferred and added to long-term debt 4,400 - -
Loss on mark/down of investments 1,400 1,000 -
(Increase) decrease in accounts receivable (70) 3,191 (1,023)
Decrease in other current assets 936 392 379
Decrease in film broadcast rights - 334 1,862
Increase (decrease) in accounts payable 1,602 (937) (405)
Increase (decrease) in accrued interest payable 9,394 (510) 510
Increase (decrease) in other current liabilities (8,153) 53 (2,268)
Increase in deferred revenue (1,046) - -
Gain on sale of properties, net - (94,998) -
Loss on purchase of common stock - - 1,186
(Gain) Loss on sale of trading securities, net (609) 794 166
(Purchase) of trading securities, net - (4,601) -
Recovery on notes receivable, net 250 - (7,885)
(Decrease) in accrued income tax long-term (2,675) - -
Other 955 - -
----------------- ------------------ ------------------
Total adjustments 15,400 (94,815) (3,919)
----------------- ------------------ ------------------
Net cash provided by (used in) operating
activities 6,451 (24,148) 7,207
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (14,515) (137) (1,469)
Acquisition of cellular operation (497,856) - -
Proceeds from sales of businesses and equipment 193,799 155,706 -
Purchase of available-for-sale securities and
long-term investments (2,010) (16,570) (10,567)
Proceeds from sale of marketable securities 8,097 - 1,813
Proceeds from notes receivable, net - - 8,202
Other (92) - -
----------------- ------------------ ------------------
Net cash (used in) provided by investing
activities (312,577) 138,999 (2,021)
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (385,000) (28,000) -
Proceeds from long-term debt 695,712 - -
Payment of debt issuance costs (19,412) - -
Paid in kind preferred stock dividends (1,176) - -
Issuance of warrants 4,288 - -
Issuance of preferred stock 35 - -
Issuance of common stock 6,047 - -
Borrowings under line of credit
agreements, net - - 5,400
Repurchase of paid in kind
preferred stock (28,225) - -
Repurchase of Company common stock (20,241) (5,103) (10,660)
Exercise of stock options and warrants 192 402 145
----------------- ------------------ ------------------
Net cash provided by (used in) financing
activities 252,220 (32,701) (5,115)
----------------- ------------------ ------------------
Net (decrease) increase in cash and cash
equivalents (53,906) 82,150 71
CASH AND CASH EQUIVALENTS, beginning of year 83,357 1,207 1,136
----------------- ------------------ ------------------
CASH AND CASH EQUIVALENTS, end of year $ 29,451 $ 83,357 $ 1,207
================= ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ and share amounts in thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Unrealized Gain
--------------- ------------ on Marketable
Equity
Number Number Additional Securities,
of of Paid-in Net of Retained
Shares Value Shares Value Capital Tax Effect Earnings Total
------ ----- ------ ----- ------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 -- $ -- 11,214 $ 112 $ 26,248 $ -- $ 12,719 $ 39,079
Net income -- -- -- -- -- -- 11,126 11,126
Purchase and retirement of
common stock -- -- (1,691) (17) (9,457) -- -- (9,474)
Stock options exercised -- -- 57 1 144 -- -- 145
------ ------ ------- ------ --------- ---------- -------- ---------
BALANCE, December 31, 1995 -- -- 9,580 96 16,935 -- 23,845 40,876
Net income -- -- -- -- -- -- 70,667 70,667
Net unrealized gain on marketable
equity securities, net of
tax effect -- -- -- -- -- 1,937 -- 1,937
Purchase and retirement of
common stock -- -- (644) (7) (5,096) -- -- (5,103)
Stock options exercised -- -- 103 1 401 -- -- 402
------ ------ ------- ------ --------- ---------- -------- ---------
BALANCE, December 31, 1996 -- -- 9,039 90 12,240 1,937 94,512 108,779
Net income -- -- -- -- -- -- (8,949) (8,949)
Net unrealized gain on marketable equity
securities, net of tax effect -- -- -- -- -- 211 -- 211
Purchase and retirement of
common stock -- -- (2,468) (25) (6,674) -- (13,542) (20,241)
Exchange of preferred stock for
common stock 1,129 28,225 (2,292) (23) (6,140) -- (22,062) 0
Purchase of preferred stock (1,129) (28,225) -- -- -- -- -- (28,225)
Dividends on preferred stock -- -- -- -- -- -- (1,176) (1,176)
Stock options exercised -- -- 456 5 192 -- (5) 192
Issuance of common stock -- -- 750 8 6,039 -- -- 6,047
Issuance of warrants -- -- -- -- 4,288 -- -- 4,288
Exercise of warrants -- -- 79 1 (1) -- -- --
Five-for-four stock split -- -- 1,431 14 (14) -- -- --
------ ------ ------- ------ --------- ---------- -------- ---------
BALANCE, December 31, 1997 -- $ -- 6,995 $ 70 $ 9,930 $ 2,148 $ 48,778 $ 60,926
====== ====== ======= ====== ========= ========== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
($ in thousands, except per share amounts)
1. ACQUISITION
-----------
Price Communications Corporation ("Price" or the "Company") owns 100% of Price
Communications Cellular, Inc., which owns 100% of Price Communications Cellular
Holdings, Inc. ("Holdings") which owns 100% of Price Communications Wireless,
Inc. ("PCW"). In May 1997, Price and PCW entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Palmer Wireless, Inc. ("Palmer"). The
Merger Agreement provided, among other things, for the merger of PCW with and
into Palmer, with Palmer as the surviving corporation (the "Merger"). In October
1997, the Merger was consummated and Palmer changed its name to "Price
Communications, Wireless, Inc." Pursuant to the Merger Agreement, Price acquired
each issued and outstanding share of common stock of Palmer for a purchase price
of $17.50 per share in cash and purchased outstanding options and rights under
employee and director stock purchase plans for an aggregate price of
approximately $486,400. In addition, as a result of the Merger, PCW assumed all
outstanding indebtedness of Palmer of approximately $378,000. Therefore, the
aggregate purchase price for Palmer (including transaction fees and expenses)
was approximately $880,000. PCW refinanced all of the Palmer existing
indebtedness concurrently with the consummation of the Merger.
In June 1997, PCW entered into an agreement to sell Palmer's Fort Myers, Florida
MSA as part of the financing of the Merger (the "Fort Myers Sale"). In October
1997, the Fort Myers Sale was consummated, and generated proceeds to the Company
of approximately $166,000. The proceeds of the Fort Myers Sale were used to
fund a portion of the acquisition of Palmer. Accordingly, no gain or loss was
recognized on the Fort Myers Sale.
Also in connection with the Merger, on October 21, 1997, Price and PCW entered
into an Asset Purchase Agreement which provided for the sale by PCW of
substantially all of the assets used in the operation of the non-wireline
cellular telephone system serving the Georgia Whitfield Rural Service Area
("Georgia-1") , including the FCC licenses to operate Georgia-1 (the "Georgia
Sale"). The Georgia Sale was consummated on December 30, 1997 for $24,200. In
January 1998, the proceeds from the Georgia Sale were used to retire a portion
of the debt used to fund a portion of the Palmer acquisition. Accordingly, no
gain or loss was recognized on the Georgia Sale.
In order to fund the Merger and pay related fees and expenses, in July 1997, PCW
issued $175,000 aggregate principal amount of 11.75% Senior Subordinated Notes
due 2007 and entered into a syndicated senior loan facility providing for term
loan borrowings in the aggregate principal amount of approximately $325,000 and
revolving borrowings of $200,000. In October 1997, PCW borrowed all term loans
available thereunder and approximately $120,000 of revolving loans. DLJ Capital
Funding, Inc. provided and syndicated the New Credit Facility (see Notes 8(a)
and 8(b)). In August 1997, Holdings issued 153,400 units, consisting of notes
and warrants of the Company, in exchange for $80,000 (see Note 8(C)).
The remaining acquisition price of Palmer was funded through a $44,015 equity
contribution by the Company.
The acquisition of Palmer was accounted for under the purchase method of
accounting. Accordingly, the results of operations of PCW are included in the
consolidated financial statements since the date of acquisition. The
consolidated financial statements as of December 31, 1997 and from the
acquisition date through December 31, 1997 reflect a preliminary allocation of
the purchase price to the assets acquired and liabilities assumed. Additional
purchase liabilities recorded include approximately $6,464 for severance and
related costs and $4,051 for costs associated with the shutdown of certain
acquired facilities. See Note 7, other Accrued Liabilities, for amounts
outstanding as of December 31, 1997. The preliminary allocation of the purchase
price resulted in licenses of approximately $924,504 on the balance sheet, which
are being amortized on a straight-line basis over a period of 40 years.
The following unaudited pro forma condensed consolidated financial information
was prepared assuming (i) Palmer was acquired on January 1, 1996, (ii) Palmer's
acquisition of the Georgia - 1 RSA on June 20, 1996, the Georgia - 6 RSA on July
5, 1996 and the Georgia - 13 RSA on January 31, 1997 occurred on January 1, 1996
and (iii) the Fort Myers Sale and Georgia Sale occurred on January 1, 1996.
The pro forma results may change as purchase price allocations change. Pro forma
information is presented for comparative purposes only and does not purport to
be indicative of the results which could have been achieved had this acquisition
occurred as of January 1, 1996, nor does it purport to be indicative of results
that may be achieved in the future.
Unaudited
Pro Forma
Year Ended December 31,
-----------------------
1997 1996
---- ----
Total Revenue $161,468 $148,605
-------- --------
Income (Loss) Before Income Taxes $(52,009) $ 40,722
-------- --------
Net Income (Loss) $(44,008) $ 21,772
-------- --------
Basic earnings (loss) per share $ (4.48) $ 1.49
-------- --------
$ (4.48) $ 1.47
Diluted earnings (loss) per share -------- --------
2. OPERATIONS
----------
The Company has majority ownership in corporations and partnerships which
operate the non-wireline cellular telephone systems in eight Metropolitan
Statistical Areas ("MSA") in three states: Florida (one), Georgia (five) and
Alabama (two). The Company's ownership percentages in these entities range from
approximately 78 percent to 100 percent. The Company owns directly and operates
eight non-wireline cellular telephone systems in Rural Service Areas ("RSA") in
Georgia (seven) and Alabama (one).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation
- ---------------------
F-7
<PAGE>
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 to 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
- -------------------------
The Company 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
- ---------------------
At December 31, 1997, the Company's Investment Securities were marketable equity
securities classified as "Available-for-Sale Securities" under the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". At December 31, 1996, the Company's
Investment Securities were marketable equity securities classified as "Trading
Securities", as well as Available-for-Sale 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 and Available-for-Sale Securities were shown at fair value,
which was based on quoted market prices, if available, for these investments.
Inventory
- ---------
Inventory consisting primarily of cellular telephones and telephone parts is
stated at the lower of cost or market. Cost is determined using the first-in,
first-out (FIFO) method.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. The cost of additions and
improvements are capitalized while maintenance and repairs are charged to
expense when incurred. Depreciation is provided principally by the straight-
line method over the estimated useful lives, ranging from 5 to 25 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. The excess of the total consideration over the amounts assigned to
identifiable assets is recorded as goodwill. Licenses and goodwill are amortized
on a straight-line basis over a 40-year period.
Subsequent to the acquisition of the licenses, the Company continually evaluates
whether later events and circumstances have occurred that indicate the remaining
estimated useful life of licenses may warrant revision or that the remaining
balance of the license rights may not be recoverable. The Company utilizes
F-8
<PAGE>
projected undiscounted cash flows over the remaining life of the licenses and
sales of comparable businesses to evaluate the recorded value of licenses. The
assessment of the recoverability of the remaining balance of the license rights
will be impacted if projected cash flows are not achieved.
Other Intangible Assets
- -----------------------
Other intangible assets consist principally of deferred financing costs. These
costs are being amortized by the interest or straight-line method over the lives
of the related debt agreements which range from 5 to 10 years.
Film Broadcast Rights
- ---------------------
The total cost of film broadcast 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
agreement. Amortization of film broadcast rights included in operating expenses
amounted to approximately $334 and $1,831 for the years ended December 31, 1996
and 1995, respectively.
Interest Rate Swap Agreements
- -----------------------------
The differential to be paid or received in connection with interest rate swap
agreements is accrued as interest rates change and is recognized over the life
of the agreements.
Revenue Recognition
- -------------------
Service revenue from cellular operations includes local subscriber revenue and
outcollect roaming revenue.
Local subscriber revenue is earned by providing access to the cellular network
("access revenue") or, as applicable, for usage of the cellular network
("airtime revenue"). Access revenue is billed one month in advance and is
recognized when earned. Airtime revenue is recognized when the service is
rendered.
Outcollect roaming revenue represents revenue earned for usage of its cellular
network by subscribers of other cellular carriers. Outcollect roaming revenue
is recognized when the services are rendered.
Equipment sales and installation revenues are recognized upon delivery to the
customer or installation of the equipment.
Net media revenue consists of advertising revenue and revenue from barter
transactions.
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.
Operating Expenses Engineering, Technical and Other Direct
- -----------------------------------------------------------
Engineering, technical and other direct operating expenses represent certain
costs of providing cellular telephone services to customers. These costs
include incollect roaming expense. Incollect roaming expense is the result of
the Company's subscribers using cellular networks of other cellular carriers.
Incollect roaming revenue, collected from the Company's subscribers, is netted
against the incollect roaming expense to determine net incollect roaming
expense.
Per Share Data
- --------------
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share". SFAS No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Basic
earnings per share excludes the dilutive effects of options, warrants and
convertible securities. Diluted earnings per share gives effect to all dilutive
securities that were outstanding during the period. All earnings per share
amounts have been presented or restated to conform to the SFAS No. 128
requirements. The only difference between basic and diluted earnings per share
of the Company is the effect of dilutive stock options and warrants.
F-9
<PAGE>
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 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. The Company has elected to adopt
the disclosure requirements.
Income Taxes
- ------------
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 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.
Fair Value of Financial Instruments
- -----------------------------------
Fair value estimates, methods and assumptions used to estimate the fair value of
financial instruments are set forth below:
For cash and cash equivalents, trade accounts receivable, receivables from other
cellular carriers, notes payable, accounts payable and accrued expenses, the
carrying value approximates fair value due to the short-term nature of those
instruments. Investment securities are recorded at fair value.
Rates currently available for long-term debt with similar terms and remaining
maturities are used to discount the future cash flows to estimate the fair value
of long-term debt. Note 8 presents the fair value of 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. For financial
instruments where no market exists for fair value, estimates are based on
judgments regarding current conditions and other factors. These estimates are
subjective in nature and involve uncertainties and matters of judgment and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
F-10
<PAGE>
4. DISPOSITIONS
------------
On February 2, 1996, the Company sold substantially all of the assets, except
cash and accounts receivable, together with certain liabilities, of its three
NBC affiliated television stations, for approximately $40.7 million in cash.
The Company recognized a pre-tax gain of approximately $29.4 million.
On March 1, 1996, the Company sold substantially all of the assets except cash
and accounts receivable, together with certain liabilities of WHTM-TV, its ABC
affiliated television station serving the Harrisburg-Lancaster-Lebanon-York,
Pennsylvania, television market, for $115 million in cash. The Company
recognized a pre-tax gain of approximately $65.6 million.
The gains and losses on the dispositions outlined above have been included in
other (income) expense, net on the Company's statement of operations.
5. OTHER ASSETS
------------
Included in other assets are investments in notes receivable, which include the
following:
During 1996, the Company loaned $1,000 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 extendable at the Maker's option until
December 31, 2001. A Director of the Company is a participant in Hamilton.
During 1997, the Company set up a reserve for the full amount of this note.
In 1995, the Company received a $655 payment on a note receivable originating
from the sale of its outdoor advertising business in 1994. During 1994, the
Company set up a reserve of $338 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) on the
Company's consolidated statement of operations.
During 1994, in connection with the sale of Eimar Realty Corporation, the
Company received a note from the buyer, TLM Corporation ( a former subsidiary of
the Company), in the amount of $540. 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 sales price of $120
million, the Company 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 12.5% 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.
During 1992, Fairmont filed for voluntary relief under Chapter 11 of the U.S.
Bankruptcy Code. Accordingly, the Company wrote off its equity interest in
Fairmont and the Fairmont Notes.
F-11
<PAGE>
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 1997, 1996 and 1995,
the Company received net cash payments totaling approximately $250, $63 and
$7,900 from the proceeds of the liquidation of Fairmont, respectively. This
amount has been treated as income and included in other income (expense) on the
Company's consolidated statements of operations.
6. INVESTMENT IN PARTIALLY OWNED COMPANIES
---------------------------------------
On December 21, 1995, the Company acquired warrants for $8,350 to purchase
1,819,610 shares of PriCellular Corporation's ("PriCellular") Class B Common
Stock. The exercise price at December 31, 1997 was approximately $5.26 per
share of Class B Common Stock, and escalates over the next two years to $6.29.
During 1996, the Company purchased 1,726,250 shares of PriCellular Class A
Common Stock for approximately $13,100. During 1997, the Company sold 640,500 of
these shares for approximately $5,469 and recognized a gain of approximately
$409.
The President of the Company is a director and Chairman of PriCellular.
In March 1988, PriCellular Corporation agreed to be acquired by American
Cellular Corporation. Under the terms of the definitive merger agreement,
holders of PriCellular stock will receive $14 in cash for each common share. If
the merger is consummated, the Company expects to record an estimated pre-tax
gain of $15.3 upon the sale of stock and warrants it holds in PriCellular.
F-12
<PAGE>
7. OTHER CURRENT LIABILITIES
-------------------------
Other current liabilities consist of:
December 31,
-----------------------
1997 1996
-------- --------
Accrued telecommunication expenses $ 2,176 $ -
Accrued local taxes 3,973 3,311
Accrued severance payments 6,155 -
Accrued shutdown and consolidation costs
of certain acquired facilities 3,818 -
Miscellaneous accruals 2,341 -
-------- --------
$ 18,463 $ 3,311
-------- --------
8. LONG-TERM DEBT
--------------
Long-term debt consists of the following:
December 31,
-----------------------
1997 1996
-------- --------
Credit Agreement $ 438,000 (a) $ -
11.75% Senior Subordinated Notes 175,000 (b) -
13.5% Senior Secured Discount Notes 80,112 (c) -
--------- ---------
693,112 -
Less current installments 2,812 -
--------- ---------
Long-term debt, excluding current installments $ 690,300 $ -
--------- ---------
(a) In October 1997, PCW entered into a credit agreement ("Credit Agreement")
with a syndicate of banks, financial institutions and other "accredited
investors" providing for loans of up to $525,000. The Credit Agreement
includes a $325,000 term loan facility and a $200,000 revolving credit
facility. The term loan facility is composed of tranche A loans of up to
$100,000, which will mature on September 30, 2005, and tranche B loans of
up to $225,000, which will mature on September 30, 2006. The revolving
credit facility will terminate on September 30, 2006. The credit agreement
bears interest at the alternate base rate, as defined in the Credit
Agreement, or at the reserve adjusted Euro-Dollar rate plus, in each case,
applicable margins of (i) in the case of tranche A term loans and revolving
loans (x) 2.5% for Euro-Dollar rate loans and (y) 1.5% for base rate loans
and (ii) in the case of tranche B loans (x) 2.75% for Euro-Dollar rate
loans and (y) 1.75% for base rate loans. As of December 31, 1997, the
Credit Agreement was bearing interest at 8.5% for the tranche A loan and
revolving credit facility and 8.7% for the tranche B loan. As of December
31, 1997, $87,000 of the revolving credit facility was unused and available
for borrowings.
PCW will pay commitment fees in an amount equal to 0.50% per annum on the
daily average unused portion of the revolving credit facility. Such fees
shall be payable quarterly in arrears and upon the maturity or termination
of the revolving credit facility.
Beginning in March 1998, the applicable margins for the tranche A term
loans and revolving loans will be determined based on the ratio of
consolidated total debt to consolidated EBITDA of PCW and subsidiaries (as
defined in the Credit Agreement).
Holdings and all existing or future subsidiaries of PCW are guarantors of
the Credit Agreement. PCW's obligations under the Credit Agreement are
secured by: (i) all existing and after-acquired personal property of PCW
and the subsidiary guarantors, including a pledge of all of the stock of
all existing or future subsidiaries of PCW, (ii) first-priority perfected
liens on all existing and after-acquired real property fee and leasehold
interests of PCW and the subsidiary guarantors, subject to customary
permitted liens (as defined in the Credit Agreement), (iii) a pledge by
Holdings of the stock of PCW and (iv) a negative pledge on all assets of
PCW and its subsidiaries, subject to exceptions.
The Credit Agreement contains customary covenants and restrictions on PCW's
ability to engage in certain activities, including, but not limited to: (i)
limitations on other indebtedness, liens, investments and guarantees, (ii)
restrictions on dividends and redemptions and payments on subordinated debt
and (iii) restrictions on mergers and acquisitions, sales of assets and
leases.
The Credit Agreement also contains financial covenants requiring PCW to
maintain a minimum total debt service coverage test, a minimum EBITDA test,
a minimum interest coverage test, a minimum fixed charge coverage test and
a maximum leverage test.
(b) In July 1997, PCW issued $175,000 of 11.75% Senior Subordinated Notes
("11.75% Notes") due July 15, 2007 with interest payable semi-annually
commencing January 15, 1998. The 11.75% Notes contain covenants that
restrict the payment of dividends, incurrence of debt and sale of assets.
The carrying value of the 11.75% Notes approximates fair value as of
December 31, 1997.
(c) In August 1997, Holdings issued 153,400 units, consisting of Notes and
warrants to purchase 824,525 shares of the Company (the "Warrants"), in
exchange for $80,000. The Notes accrete at a rate of 13.5%, compounded
semi-annually, to an aggregate principal amount of $153.4 million by August
1, 2002. Cash interest will not commence to accrue on the Notes prior to
F-13
<PAGE>
August 2, 2002. Commencing on February 1, 2003, cash interest on the Notes
will be payable at a rate of 13.5% per annum, payable semi-annually. The
Notes will be redeemable, under certain circumstances, at the option of the
Company, in whole or in part, at any time after August 1, 1998 in cash at
the redemption price as defined, plus accrued and unpaid interest, if any,
thereon to the redemption date. The Notes mature on August 1, 2007 and
contain covenants that restrict payments of dividends, incurrence of debt
and sale of assets. The Warrants have been assigned a value of $4,288,
which amount is accounted for as original issue discount, resulting in an
effective interest rate of 14.13% per annum. The fair value of the Notes
was estimated as $80,112 as of December 31, 1997.
The Company has entered into interest rate swap and cap agreements to reduce the
impact of changes in interest rates on its floating rate debt. At December 31,
1997, the Company had outstanding seven interest rate swap agreements and one
interest rate cap agreement having a total notional value of $370,000. These
interest rate swap and cap agreements effectively change the Company's interest
rate exposure on a quarterly basis on $370,000 deposit. The cap and swap
agreements are summarized as follows:
Maximum Notional
Type of agreement Maturity LIBOR Value
----------------- -------- ------- -----
Pay Later Cap (1) Jan. 12, 1998 8.50% $ 20,000
Participating Swap (2) Aug. 10, 1998 5.98% 15,000
Swap Aug. 6, 1999 6.36% 25,000
Swap Oct. 21, 1999 5.92% 185,000
Swap Aug. 7, 2000 6.09% 50,000
Swap Aug. 21, 2000 6.11% 25,000
Swap Oct. 10, 2000 6.10% 25,000
Swap Oct. 11, 2000 5.99% 25,000
--------
$370,000
--------
(1) When the three-month LIBOR rate is 8.5 percent or higher the Company
receives a quarterly payment of $98.
(2) When the six-month LIBOR rate is less than 5.98 percent the Company
participates in 45 percent of the difference.
The market value of the swap and cap agreements above, which has not been
reflected in the consolidated financial statements as of December 31, 1997, is a
loss of $1,076.
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.
The aggregate maturities of long-term debt are as follows:
December 31, Amount
------------ ------
1998 $ 2,812
1999 4,750
2000 12,875
2001 15,375
2002 17,875
Thereafter 639,425
--------
$693,112
--------
F-14
<PAGE>
9. INCOME TAXES
------------
Provision (benefit) for income taxes is approximately:
Year Ended December 31,
--------------------------------------
1997 1996 1995
---- ---- ----
Current:
Federal $ (2,406) $13,673 $ -
State and local (432) 10,219 447
-------- ------- ------
(2,838) 23,892 447
-------- ------- ------
Deferred:
Federal (2,090) 692 (560)
State and local (415) - (134)
-------- ------- ------
(2,505) 692 (694)
Adjustment to valuation reserve (166) - -
-------- ------- ------
Tax provision (benefit) $ (5,509) $24,584 $ (247)
-------- ------- ------
For the years ended December 31, 1997, 1996 and 1995, the provision for income
taxes differs from the amount computed by applying the federal income tax rate
(34%) because of the following items:
Year Ended December 31,
--------------------------------------
1997 1996 1995
---- ---- ----
Tax at federal income tax rates $ (4,916) $ 33,338 $ 3,808
State taxes, net of federal
income tax benefit (551) 7,487 291
Non deductible interest expense 155 - -
Benefits of utilization of operating
loss carryforwards - (33,729) (4,975)
Basis difference and goodwill on
sold properties - 17,088 -
Reversal of valuation reserve (166) - -
Other (31) 400 629
-------- -------- -------
$ (5,509) $ 24,584 $ (247)
-------- -------- -------
Deferred tax assets and liabilities and the principal temporary differences
from which they arise are:
December 31,
-----------------------
1997 1996
-----------------------
Deferred tax assets:
Accounts receivable, principally due to allowance
for doubtful accounts $ 327 $ 166
Inventory reserve 144 -
Deferred revenue 400 -
Non-deductible accruals 6,495 -
Net operating loss carryforwards 3,638 -
Reserve on long-term investments 490 350
-------- --------
Total 11,494 516
Less valuation allowance (3,560) (166)
-------- --------
Total deferred tax assets 7,934 350
-------- --------
F-15
<PAGE>
Deferred tax liabilities:
Accumulated depreciation 8,559 -
Licenses 302,306 -
Unrealized gain on marketable equity securities 1,156 1,043
-------- --------
Total deferred tax liabilities 312,021 1,043
-------- --------
Net deferred tax liabilities $304,087 $ 693
-------- --------
The net operating loss carryforwards, applicable to the operations of
subsidiaries of the Company, totaled approximately $8,900 at December 31, 1997
and expire in amounts ranging from approximately $300 to $1,100 through 2012.
For these carryforwards, utilization is limited to the subsidiary that generated
the carryforwards, unless the Company utilizes alternative tax planning
strategies.
10. OTHER INCOME (EXPENSE)
----------------------
Other income (expense) consists of the following:
Year Ended December 31,
----------------------------
1997 1996 1995
----------------------------
Gains on sales of properties, net (Note 4) $ - $94,998 $ -
Recovery on notes receivable, net (Note 5) 250 63 7,885
Loss on write-down of long-term investments (1,400) (1,000) -
and notes receivable
Loss on purchase of common stock (Note 11) - - (1,186)
Realized gain (loss) on marketable
securities, net 609 (794) (166)
Sale of intangibles 1,115 - -
Gain realized from withdrawal of license
application 250 - -
Other, net 576 (272) 581
------- ------- -------
$ 1,400 $92,995 $ 7,114
------- ------- -------
11. SHAREHOLDERS' EQUITY
--------------------
The Company currently has outstanding warrants on its common stock exercisable
for approximately 242,000 shares at an exercise price of $2.16 per share during
the five-year period ending September 30, 1998. The Company also had outstanding
warrants on its Common Stock exercisable for approximately 824,525 shares at an
exercise price of $0.01 per share. See note 8C.
In October 1994, the Company's Board of Directors enacted a Stockholders' Rights
Plan (the "Plan") designed to protect the interests of the Company's
shareholders in the event of a potential takeover for a price which does not
reflect the Company'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 the Company and its
shareholders. The Board has declared a dividend distribution of One Common
Stock Purchase Right on each outstanding share of Common Stock of the Company.
The Rights provide, in substance, that should any person or group acquire 20% or
more of the Company'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 $18.00 per share at any time prior to the
termination of the Plan. Unless a 20% acquisition has occurred, the Rights may
be redeemed by the Company at any time prior to the termination of the Plan.
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 the Company's Board of Directors. The Company paid
a premium over the daily quoted market price of approximately $1.2 million that
is recorded as other (income) expense on the Company's consolidated statement of
operations.
F-16
<PAGE>
In March 1995, at the Company's Annual Meeting, the shareholders authorized the
creation of 20 million shares of undesignated Preferred Stock for acquisitions
and other purposes. In May 1997, approximately 1,092,000 shares were issued to
the President of the Company (Note 12).
On April 8, 1995, the Company's Board of Directors approved a five-for -four
stock split of the Company's Common Stock, payable to shareholders of record as
of the close of business on March 27, 1995. The Company 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, the Company's Board of Directors authorized the repurchase by the
Company of up to 1,300,000 shares of its Common Stock. In February 1997, an
additional 3 million shares were authorized for repurchase. The Company 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. Approximately
2,468,000, 644,000 and 1,691,000 shares were purchased and retired in 1997, 1996
and 1995, respectively, under these new authorizations and previous
authorizations.
In June 1997, the Company entered into a transaction with NatWest Capital
Markets Limited ("NatWest"), whereby the Company issued to NatWest 1,129 units
(the "PIK Units") of PIK Preferred Stock and warrants ("PIK Warrants") in
exchange for 2,292,953 shares of Common Stock held by NatWest. On October 6,
1997, the Company repurchased the PIK Units.
In August 1997, in connection with the issuance, by a subsidiary of the Company,
of the 13.5% Senior Secured Discount Notes (Note 8), the Company issued Warrants
to purchase 659,620 shares of its Common Stock at an exercise price of $ 0.01
per share. The Warrants expire on August 1, 2007. During the year ended December
31, 1997, 79,100 shares of The Company's Common Stock were issued as a result of
Warrants being exercised.
On December 4,1997, the Company's Board of Directors approved a five-for -four
stock split of the Company's Common Stock to shareholders of record as of the
close of business on December 10,1997. The Company issued approximately 1.4
million shares of Common Stock. The stated par value of each share was not
changed from $.01. All presentations of amounts per share in years prior to
1997 have been restated to reflect the 1997 stock split.
12. REDEEMABLE PREFERRED STOCK
--------------------------
In May 1997, The Company's Board of Directors and Compensation Committee
authorized the issuance to Robert Price, President of the Company of
approximately 728,000 shares of the company's Series A Preferred Stock, in
respect of which, in the event of (i) a merger of the Company, the sale or
exchange of all or substantially all of the Company's assets or the occurrence
of any other transaction or events as a result of which the holders of Common
Stock receive at least $17.60 per share or (ii) the acquisition of more than 50%
of the voting power of the securities of the Company then outstanding by any
person, entity or group, provided the market value of the Common Stock of the
company at such time is at least $17.60 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 payments per each share of the Series A Preferred Stock which increase
as the Transaction Price per share increases.
F-17
<PAGE>
Each share of Series A Preferred Stock is entitled to 1.25 votes 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 1.25% of the dividends
and liquidation distributions payable with respect to a share of Common Stock.
The shares of Series A Preferred Stock will be repurchased by the Company upon
Mr. Price's request, provided that the trading price of the Company's Common
stock during any 10 consecutive trading days prior to such request was at least
$17.60 per share, for a purchase price equal to its then fair market value, as
determined by appraisal. The Company's repurchase obligation may be satisfied,
at the option of the Company's Board of Directors, with Common Stock of the
Company valued at its then trading price, provided that (i) the Company's total
indebtedness at such time is at least $200 million and (ii) such transaction is
a tax-free exchange to Mr. Price. The shares of Series A Preferred Stock will be
repurchased by the Company in the event of Mr. Price's death or termination of
employment prior to a transaction resulting in payment as aforesaid, under
certain conditions.
In May 1997, The Company's Board of Directors and Compensation Committee
authorized the issuance to Mr. Price of approximately 364,000 shares of the
Company's Series B Preferred Stock, in respect of which, in the event of (i) a
merger of the Company, the sale or exchange of all or substantially all of the
Company's assets or the occurrence of any other transaction or events as a
result of which the holders of Common Stock receive at least $12.00 per share or
(ii) the acquisition of more than 50% of the voting power of the securities of
the Company then outstanding by any person, entity or group, provided the market
value of the Common Stock of the company at such time is at least $12.00 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 "Series
B Transaction Price"), Mr. Price would receive a payment per each share of the
Series B Preferred Stock equal to the Series B Transaction Price per share over
$8.00. Each share of Series B Preferred Stock is entitled to .625 votes 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 1.25% of
the dividends and liquidation distributions payable with respect to a share of
Common Stock.
The shares of the Series B Preferred Stock will be repurchased by the Company
upon Mr. Price's request, provided that the trading price of the Company's
Common Stock during any period of 10 consecutive trading days prior to such
request was at least $12.00 per share, for a purchase price equal to its then
fair market value, as determined by appraisal. The Company's repurchase
obligation under the preceding sentence may be satisfied, at the option of the
Company's Board of directors, with Common Stock of the Company valued at its
then trading price, provided that (i) the Company's total indebtedness at such
time is at least $200 million and (ii) such transaction is a tax-free exchange
to Mr. Price. In addition, the shares of Series B Preferred Stock will be
repurchased by the Company in the event of Mr. Price's death or termination of
employment prior to the transaction resulting in the payment as set forth in the
preceding paragraph, under certain circumstances.
F-18
<PAGE>
Both the Series A Preferred Stock and the Series B Preferred Stock have been
shown outside of Shareholders' Equity as the redemption of these issues are
outside the control of the Company.
13. STOCK OPTION PLAN
-----------------
The Company has a long-term incentive plan (the "1992 Long-Term Incentive
Plan"), which provides for granting incentive stock options, as defined under
current law, and other stock-based incentives to key employees and officers.
The maximum number of shares of the Company that are subject to awards granted
under the 1992 Long Term Incentive Plan is 1,562,500. The exercise of such
options will be at a price not less than the fair market value on the date of
grant, for a period up to ten years.
In accordance with SFAS 123, the fair value of option grants is estimated on the
date of grant using the Black Scholes option pricing model for proforma footnote
purposes with the following assumptions used for grants; dividend yield of 0% in
all years; risk free interest rate of 5.85%, 5.8%, and 6% in 1997, 1996, and
1995, respectively; and an expected life of 7 years for all years. Expected
volatility was assumed to be 56.8%, 43.7%, and 47.8% in 1997, 1996, and 1995,
respectively.
A summary of plan transactions is presented in the table below:
<TABLE>
<CAPTION>
Number of Weighted Average Weighted Average
Shares Exercise Price Fair Value
------ -------------- ----------
<S> <C> <C> <C>
Outstanding at December 31, 1994 1,150,032 $ 2.88
Granted 227,734 $ 3.55 $ .98
Exercised (89,469) $ 1.38
---------
Outstanding at December 31, 1995 1,288,297 $ 3.10
Granted 34,375 $ 4.78 $ 1.52
Excercised (160,416) $ 1.38
Canceled (61,084) $ 3.60
---------
Outstanding at December 31, 1996 1,101,172 $ 3.15
Granted 1,243,750 $ 6.35 $ 3.16
Exercised (1,032,422) $ 2.00
Outstanding at December 31, 1997 1,312,500 $ 6.19
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
Weighted Weighted
Number Average Number Average
Range of Outstanding Remaining Exercisable Exercise
Exercise Price at 12/31/97 Life at 12/31/97 Price
- ----------------------------------------------- ---------------------------
$ 2.40 to $ 5.60 92,188 5 years 92,188 3.18
$ 5.84 601,563 7 years
$ 6.73 618,750 7 years
As permitted by FAS 123, the Company has chosen to continue accounting for stock
options at their intrinsic value. Accordingly, no compensation expense has been
recognized. Had the fair value method of accounting been applied, the tax-
effected impact would be as follows:
1997 1996 1995
Net (Loss) Income, as reported $ (8,949) $ 70,667 $ 11,126
Extimated fair value of the
years option grants, net of tax 372 50 186
Proforma
Net (Loss) income $ (9,321) $ 70,617 $ 10,940
Proforma basic (loss) earnings
per share $ (.95) $ 4.82 $ .70
Proforma diluted (loss) earnings
per share $ (.95) $ 4.76 $ .68
14. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company 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 the
Company's financial statements.
The Company has an employment agreement with its President covering base salary
and incentive compensation. The agreement has a term of three years expiring in
October 2000, at a base salary of $300, subject to adjustment, and can be
extended for periods of three years at the Company'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.
The Company 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 the Company's minimum rental
commitment for operating leases of real and personal property for each of the
five years subsequent to 1997 and in the aggregate.
Year ending December 31:
1998 $3,218
1999 2,803
2000 2,263
2001 1,587
2002 1,125
Thereafter 1,746
Rental expense, net of sublease income, for operating leases was approximately
$4,180, $158 and $187 for the years ended December 31, 1997, 1996 and 1995.
15. SUBSEQUENT EVENTS
-----------------
F-19
<PAGE>
In February 1998, the Company's Board of Directors authorized the purchase of up
to 500,000 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 the Company's shareholders, in addition to previous
authorizations.
In March, 1998, the Company's Board of Directors approved a five-for -four stock
split of the Company's Common Stock to shareholders of record as of the close of
business on March 19, 1998. The stated par value of each share was not changed
from $.01.
16. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
The following is supplemental disclosure cash flow information for the years
ended December 31, 1997, 1996 and 1995.
1997 1996 1995
------- ---- ------
Cash paid for:
Income taxes paid, net of refunds $ 136 $23,275 $ 340
Interest paid 25,150 713 1,534
Non-cash operating activities:
Trade/barter revenue - - 1,440
Trade/barter expense - - 1,440
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
Year Ended December 31, 1996
Total Revenue $ 2,962 $ - $ - $ - $ 2,962
Operating loss $ (326) $ (496) $ (596) $ (693) $ (2,111)
Net income(loss) $ 70,318 $ (275) $ 695 $ (71) $ 70,667
Net income (loss) per share:
Basic $ 4.71 $ (0.02) $ 0.05 $ (0.01) $ 4.82
Diluted $ 4.61 $ (0.02) $ 0.05 $ (0.01) $ 4.76
Year Ended December 31, 1997
Total revenue $ - $ - $ - $43,713 $ 43,713
Operating(loss) income $ (921) $ (433) $ (553) $ 6,526 $ 4,619
Net income (loss) $ 172 $ 437 $(2,332) $(7,226) $ (8,949)
Net income (loss) per share:
Basic and Diluted $ - $ 0.04 $ (0.30) $ (0.84) $ (0.91)
Financial data for the fourth quarter 1997, include results from the acquisition
of Palmer.
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Board of Directors and Shareholders of
Palmer Wireless Inc.:
We have audited the accompanying consolidated statement of operations,
stockholder's equity and cash flows of Palmer Wireless Inc. (a Delaware
Corporation) and subsidiaries for the nine-month period ended September 30,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of operations is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of operations. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the results of operations and cash flows of Palmer
Wireless Inc. and subsidiaries for the nine month period ended September 30,
1997 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
New York, New York
March 17, 1998
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Price Communications Wireless, Inc. (formerly Palmer Wireless, Inc.):
We have audited the accompanying consolidated balance sheet of Palmer Wireless,
Inc. and subsidiaries (Predecessor) as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the two-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Palmer Wireless,
Inc. and subsidiaries as of December 31, 1996 and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
Des Moines, Iowa
January 30, 1997
F-22
<PAGE>
Palmer Wireless, Inc. and Subsidiaries (Predecessor)
Consolidated Balance Sheet
($ in thousands)
December 31,
1996
------------
Assets
------
Current assets:
Cash and cash equivalents $ 1,698
Trade accounts receivable, net of allowance for doubtful
accounts of $1,791 18,784
Receivable from other cellular carriers 1,706
Prepaid expenses and deposits 2,313
Inventory 5,106
Deferred income taxes 830
------------
Total current assets 30,437
Property and equipment:
Land and improvements 5,238
Buildings and improvements 7,685
Equipment, communication systems, and furnishings 166,735
------------
179,658
Less accumulated depreciation and amortization 47,220
------------
Net property and equipment 132,438
Licenses and goodwill, net of accumulated amortization of $30,188 375,808
Other intangible assets and other assets, at cost less accumulated
amortization of $7,311 11,259
------------
Total assets $ 549,942
============
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
Palmer Wireless, Inc. and Subsidiaries (Predecessor)
Consolidated Balance Sheet
($ in thousands)
December 31,
1996
------------
Liabilities and Equity
----------------------
Current liabilities:
Current installments of long-term debt $ 5,296
Notes payable 1,366
Accounts payable 10,394
Accrued interest payable 2,341
Accrued salaries and employee benefits 2,432
Other accrued liabilities 3,626
Deferred revenue 3,929
Customer Deposits 757
------------
Total current liabilities 30,141
Long-term debt, excluding current installments 337,000
Deferred income taxes 11,500
Minority interests 6,371
Commitments and contingencies -
Stockholders' equity
Preferred stock par value $.01 per share; 10,000,000
shares authorized; none issued -
Class A Common Stock par value $.01 per share; 73,000,000
shares authorized; 11,119,681 shares issued
including shares in treasury and Class B Common
Stock par value $.01 per share; 18,000,000 shares
authorized 17,293,578 shares issued 284
Additional paid-in capital 166,975
Retained earnings 6,535
------------
173,794
Less Class A Common stock in treasury at
cost - 600,000 shares 8,864
------------
Total stockholders' equity 164,930
------------
Total liabilities and stockholders' equity $ 549,942
============
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
Palmer Wireless, Inc. and Subsidiaries (Predecessor)
Consolidated Statements of Operations
($ in thousands)
<TABLE>
<CAPTION>
For the year ended For the nine
December 31, months ended
------------------------------
1995 1996 September 30, 1997
------------- ------------ ------------------
<S> <C> <C> <C>
Revenue:
Service $ 96,686 $ 151,119 $ 134,123
Equipment sales and
installation 8,220 8,624 7,613
------------- ------------ ------------------
Total revenue 104,906 159,743 141,736
Operating expenses:
Engineering, technical
and other direct 18,184 28,717 23,301
Cost of equipment 14,146 17,944 16,112
Selling, general and
administrative 30,990 46,892 41,014
Depreciation and amortization 15,004 25,013 25,498
------------- ------------ ------------------
Total operating expenses 78,324 118,566 105,925
------------- ------------ ------------------
Operating income 26,582 41,177 35,811
------------- ------------ ------------------
Other income (expense):
Interest income 211 62 30
Interest expense (21,424) (31,524) (24,497)
------------- ------------ ------------------
Interest expense, net (21,213) (31,462) (24,467)
Other (expense) income, net (687) (429) 208
------------- ------------ ------------------
Total other expense (21,900) (31,891) (24,259)
------------- ------------ ------------------
Income before
minority interest
share of income and
income taxes 4,682 9,286 11,552
Minority interest share of income 1,078 1,880 1,310
------------- ------------ ------------------
Income before
income tax expense 3,604 7,406 10,242
Income tax expense 2,650 2,724 4,153
------------- ------------ ------------------
Net income $ 954 $ 4,682 $ 6,089
============= ============ ==================
Earnings per share:
Basic earnings per share $ 0.04 $ 0.18 $ 0.22
=========== =========== =================
Weighted average # shares
outstanding 22,179,000 25,983,000 27,826,000
=========== =========== =================
Diluted earnings per share $ 0.04 $ 0.18 $ 0.22
=========== =========== =================
Weighted average # shares
outstanding 22,327,000 26,132,000 27,826,000
=========== =========== =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
($ IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
CLASS A CLASS B ADDITIONAL
--------------------- -------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 706,422 $ 7 17,293,578 $ 173 $ 4,902 $ (167)
Partnership loss before
business combination -- -- -- -- (1,066) --
Public offering, net of issuance
costs of $8,114 5,369,350 54 -- -- 68,345 --
Exercise of stock options 20,000 -- -- -- 285 --
Net income -- -- -- -- -- 2,020
---------- -------- ----------- ---------- ---------- ----------
Balances at December 31, 1995 6,095,772 61 17,293,578 173 72,466 1,853
Public offering, net of issuance
costs of $5,826 5,000,000 50 -- -- 94,124 --
Exercise of stock options 6,666 -- -- -- 95 --
Employee and non-employee director
stock purchase plans 17,243 -- -- -- 290 --
Treasury shares purchased -- -- -- -- -- --
Net income -- -- -- -- -- 4,682
---------- -------- ----------- ---------- ---------- ----------
Balances at December 31, 1996 11,119,681 111 17,293,578 173 166,975 6,535
Exercise of stock options 70,000 1 -- -- 998 --
Net income -- -- -- -- -- 6,089
---------- -------- ----------- ---------- ---------- ----------
Balances at September 30, 1997 11,189,681 $ 112 17,293,578 $ 173 $ 167,973 $ 12,624
========== ======== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
TREASURY STOCK TOTAL
------------------------ STOCKHOLDERS'
SHARES AMOUNT EQUITY
------------ ----------- --------------
<S> <C> <C> <C>
Balances at December 31, 1994 -- $ -- $ 4,915
Partnership loss before
business combination -- -- (1,066)
Public offering, net of issuance
costs of $8,114 -- -- 68,399
Exercise of stock options -- -- 285
Net income -- -- 2,020
------------ ------------ ---------------
Balances at December 31, 1995 -- -- 74,553
Public offering, net of issuance
costs of $5,826 -- -- 94,174
Exercise of stock options -- -- 95
Employee and non-employee director
stock purchase plans -- -- 290
Treasury shares purchased 600,000 (8,864) (8,864)
Net income -- -- 4,682
------------ ------------ ---------------
Balances at December 31, 1996 600,000 (8,864) 164,930
Exercise of stock options -- -- 999
Net income -- -- 6,089
------------ ------------ ---------------
Balances at September 30, 1997 600,000 $ (8,864) $ 172,018
============ ============ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, FOR THE NINE
---------------------- MONTHS ENDED
1995 1996 SEPTEMBER 30, 1997
----------- -------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 954 $ 4,682 $ 6,089
Adjustments to reconcile net income to net cash ----------- -------- ------------------
provided by operating activities:
Depreciation and amortization 15,004 25,013 25,498
Minority interest share of income 1,078 1,880 1,310
Deferred income taxes 2,650 1,855 3,939
Interest deferred and added to long-term debt 607 355 -
Payment of deferred interest - (1,080) (1,514)
Changes in current assets and liabilities:
(Increase) decrease in trade accounts receivable (2,741) (1,561) 473
Decrease (increase) in inventory 4,076 (2,595) 2,800
Increase (decrease) in accounts payable 2,623 (841) (1,390)
(Decrease) in accrued interest payable (14) (167) (374)
Increase in accrued salaries and employee benefits 241 165 251
Increase (decrease) in other accrued liabilities 583 (507) 2,049
Increase in deferred revenue 658 912 4
(Decrease) increase in customer deposits (53) 134 (94)
Other 1,994 1,885 (250)
---------- ---------- --------------
Total adjustments 26,706 25,448 32,702
---------- ---------- --------------
Net cash provided by operating activities 27,660 30,130 38,791
---------- ---------- --------------
Cash flows from investing activities:
Capital expenditures (36,564) (41,445) (40,757)
Increase in other intangible assets and other assets (310) (2,180) (778)
Proceeds from sales of property and equipment 38 5 201
Purchase of cellular systems (158,397) (67,588) (31,469)
Collection of purchase price adjustment - 2,452 -
Purchases of minority interests (1,543) (1,854) (956)
---------- ---------- --------------
Net cash used in investing activities (196,776) (110,610) (73,759)
---------- ---------- --------------
Cash flows from financing activities:
Payment on advances from Palmer Communications Incorporated (1,650) - -
Increase (decrease) in short term notes payable - 1,366 (1,366)
Repayment of long-term debt (65,125) (108,319) (3,782)
Proceeds from long-term debt 171,000 100,000 41,000
Payment of debt issuance costs (4,803) - -
Public offering proceeds, net 71,144 95,000 -
Proceeds from stock options exercised 285 95 999
Payment of deferred offering costs (1,297) (826) -
Purchase of treasury stock - (8,864) -
Proceeds from sales under stock purchase plans - 290 -
---------- ---------- --------------
Net cash provided by financing activities 169,554 78,742 36,851
---------- ---------- --------------
Net increase (decrease) in cash and cash equivalents 438 (1,738) 1,883
Cash and cash equivalents at the beginning of period 2,998 3,436 1,698
---------- ---------- --------------
Cash and cash equivalents at the end of period $ 3,436 $ 1,698 $ 3,581
========== ========== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
($ IN THOUSANDS)
Supplemental Schedule of Noncash Investing and Financing Activities
During 1995, the Predecessor committed to purchase certain minority interests in
1996. This commitment totaling $451 was accrued in 1995 and paid in 1996.
During 1996, the Predecessor increased the purchase obligations related to the
final purchase price adjustment for the controlling interest in a non-wireline
cellular telephone system purchased in 1991. This increase amounted to $899 and
resulted in an increase in licenses.
Acquisitions of non-wireline cellular telephone systems in 1995, 1996 and 1997:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, FOR THE NINE
---------------------- MONTHS ENDED
1995 1996 SEPTEMBER 30, 1997
---------------------- --------------------
<S> <C> <C> <C>
Cash payment $158,397 $ 67,588 $ 31,469
=========== ========= ====================
Allocated to:
Fixed assets $ 22,846 $ 5,678 $ 3,197
Licenses and goodwill 136,940 61,433 27,738
Deferred income taxes (6,165) - -
Current assets and liabilities, net 4,776 477 534
----------- --------- --------------------
$158,397 $ 67,588 $ 31,469
=========== ========= ====================
</TABLE>
Supplemental disclosure of cash flow information
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, FOR THE NINE
------------------------ MONTHS ENDED
1995 1996 SEPTEMBER 30, 1997
------------ --------- ---------------------
<S> <C> <C> <C>
Income taxes paid (received), net $ - $ 1,591 $ (736)
============ ========= ===================
Interest paid $ 18,435 $ 29,733 $ 25,102
============ ========= ===================
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
PALMER WIRELESS, INC. AND SUBSIDIARIES (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND ACQUISITION
BASIS OF PRESENTATION
The consolidated financial statements reflect the historical cost of
assets and liabilities and results of operations of Palmer Wireless, Inc. and
Subsidiaries ("Palmer"). On October 6, 1997, Palmer was merged onto Price
Communications Wireless, Inc., an indirect wholly owned subsidiary of Price
Communications Corporation ("PCC").
CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Palmer after the elimination of significant intercompany accounts and
transactions.
F-29
<PAGE>
Palmer was a Delaware corporation and was incorporated on December 15, 1993
to effect an initial public offering of its Class A Common Stock. At December
31, 1996, Palmer Communications Incorporated ("PCI") owned 61 percent of the
Predecessor's outstanding stock and had 75 percent of its voting rights and
therefore the Predecessor was a subsidiary of PCI.
On March 21, 1995 and April 18, 1995, Palmer issued 5,000,000 and 369,350
shares respectively, of Class A Common Stock in an initial public offering
(the "Offering") for net proceeds of $68,399. In connection with the
Offering, on March 21, 1995, the Predecessor issued 704,755 shares of Class A
Common Stock and 17,288,578 shares of Class B Common Stock in exchange for
100 percent of the Partnership interests of Palmer Cellular Partnership (the
"Exchange"). The assets and liabilities received in the Exchange were
recorded at their historical cost to Palmer Cellular Partnership and not
revalued at fair value on the date of transfer. Since the Exchange was
between related parties it was accounted for in a manner similar to a pooling
of interests.
Losses in subsidiaries, attributable to minority stockholders and partners,
in excess of their capital accounts and cash capital call provisions are not
eliminated in consolidation.
OPERATIONS
Palmer 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 nine non-wireline cellular telephone systems in Rural Service Areas
in Georgia (eight) and Alabama (one).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows Palmer considers cash and
repurchase agreements with a maturity of three months or less to be cash
equivalents.
INVENTORY
Inventory consisting primarily of cellular telephones and telephone parts
is stated at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. 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). The excess of the total consideration over the amounts assigned
to identifiable assets is recorded as goodwill. Licenses and goodwill are
being amortized on a straight-line basis over a 40-year period.
F-30
<PAGE>
Subsequent to the acquisition of the licenses, Palmer 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. Palmer
utilizes projected undiscounted cash flows over the remaining life of the
licenses and sales of comparable businesses to evaluate the recorded value of
licenses. The assessment of the recoverability of the remaining balance of
the license rights will be impacted if projected cash flows are not achieved.
OTHER INTANGIBLE ASSETS
Other intangibles consist principally of deferred financing costs and
other items. These costs are being amortized by the interest or straight-
line method over their respective useful lives, which range from 5 to 10
years.
INCOME TAXES
Palmer 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.
INTEREST RATE SWAP AGREEMENTS
The differential to be paid or received in connection with interest rate
swap agreements is accrued as interest rates change and is recognized over
the life of the agreements.
REVENUE RECOGNITION
Service revenue includes local subscriber revenue and outcollect roaming
revenue.
Local subscriber revenue is earned by providing access to the cellular
network ("access revenue") or, as applicable, for usage of the cellular
network ("airtime revenue"). Access revenue is billed one month in advance
and is recognized when earned. Airtime revenue is recognized when the
service is rendered.
Outcollect roaming revenue represents revenue earned for usage of its
cellular network by subscribers of other cellular carriers. Outcollect
roaming revenue is recognized when the services are rendered.
Equipment sales and installation revenues are recognized upon delivery to
the customer or installation of the equipment.
OPERATING EXPENSES - ENGINEERING, TECHNICAL AND OTHER DIRECT
Engineering, technical and other direct operating expenses represent
certain costs of providing cellular telephone service to customers. These
costs include incollect roaming expense. Incollect roaming expense is the
result of subscribers using cellular networks of other cellular carriers.
Incollect roaming revenue is netted against the incollect roaming expense to
determine net incollect roaming expense.
PER SHARE DATA
In 1997, the Financial Accounting Standards Board issued statement No. 128,
"Earnings Per Share". SFAS No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Basic earnings per share excludes the dilutive effects of options, warrants
and convertible securities. Diluted earnings per share give effect to all
dilutive securities that were outstanding during the period. All earnings per
share amounts have been presented or restated to conform to SFAS No. 128
requirements. The only difference between basic and diluted earnings per
share of Palmer is the effect of dilutive stock options.
F-31
<PAGE>
STOCK OPTION PLANS
Prior to January 1, 1996, Palmer 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, Palmer 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. Palmer elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS
No. 123.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods and assumptions used to estimate the fair
value of financial instruments are set forth below:
For cash and cash equivalents, trade accounts receivable, receivable from
other cellular carriers, notes payable, accounts payable and accrued
expenses, the carrying amount approximates the estimated fair value due to
the short-term nature of those instruments.
Rates currently available for long-term debt with similar terms and
remaining maturities are used to discount the future cash flows to estimate
the fair value for long-term debt. Note 5 presents the fair value for long-
term debt and the related interest rate cap and swap agreements.
Fair value estimates are made as of a specific point in time, based upon
the relevant market information about the financial instruments. Because no
market exists for a majority of the financial instruments, fair value
estimates are based on judgments regarding current economic conditions and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of judgment and, therefore, cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.
(2) TRADE ACCOUNTS RECEIVABLE
Palmer granted credit to its customers. Substantially all of the customers
are residents of the local areas served. Generally, service is discontinued
to customers whose accounts are 60 days past due.
The activity in Palmer's allowance for doubtful accounts for the years
ended December 31, 1995, and 1996 and the nine months ended September 30,
1997 consisted of the following:
<TABLE>
<CAPTION>
Balance at Charged Allowance at Deductions,
beginning to dates of net of Balance at
of period expenses acquisitions recoveries end of period
----------- ---------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
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
========= ========= =========== ========== ===========
Nine months ended
September 30, 1997 $ 1,791 $ 3,614 $ 147 $ (4,212) $ 1,340
========= ========= =========== ========== ===========
</TABLE>
F-32
<PAGE>
(3) OTHER ACCRUED LIABILITIES
Other accrued liabilities at December 31, 1996 consisted of the following:
1996
----
Accrued telecommunications expenses $ 892
Accrued local taxes 913
Miscellaneous accruals 1,821
-----
$ 3,626
======
(4) ACQUISITIONS AND PURCHASE OF LICENSES
On December 1, 1995, Palmer purchased all of the outstanding
stock of Augusta Metronet, Inc. and Georgia Metronet, Inc., which own either
directly (or in the case of Georgia Metronet, Inc., through its 97.9 percent
interest in the Savannah Cellular Limited Partnership) the licenses to
operate the non-wireline cellular telephone systems in the Savannah and
Augusta, Georgia MSAs, respectively, for an aggregate purchase price of
$158,397. The acquisition was accounted for by the purchase method of
accounting. In connection with this acquisition, $136,940 of the purchase
price was allocated to licenses and goodwill.
On June 20, 1996, Palmer acquired the assets of and the license to operate
the non-wireline cellular telephone system serving the Georgia-1 RSA for an
aggregate purchase price of $31,616. The acquisition was accounted for by the
purchase method of accounting. In connection with the acquisition, $27,942 of
the purchase price was allocated to licenses.
On July 5, 1996, two of Palmer's majority-owned subsidiaries acquired the
assets of and the license to operate the non-wireline cellular telephone
system serving the Georgia-6 RSA for an aggregate purchase price of $35,972.
The acquisition was accounted for by the purchase method of accounting. In
connection with the acquisition, $33,491 of the purchase price was allocated
to licenses.
On January 31, 1997, a majority-owned subsidiary of Palmer acquired the
assets of and the license to operate the non-wireline cellular telephone
system serving the Georgia-13 RSA for an aggregate purchase price of $31,486.
The acquisition was accounted for by the purchase method of accounting. In
connection with the acquisition, $27,650 of the purchase price was allocated
to licenses.
(5) NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt, at December 31, 1996, consisted of the following:
Credit agreement $ 337,000(a)
Purchase obligations 5,296(b)
-----------------
342,296
F-33
<PAGE>
Less current installments 5,296
---------
Long-term debt, excluding
current installments $ 337,000
=========
(a) On December 1, 1995, Palmer entered into an amended and restated credit
agreement with 21 banks which provided for a revolving line of credit of up
to $500,000, subject to certain limitations through June 30, 2004. Interest
was payable at variable rates and under various interest rate options. The
interest rate at December 31, 1996 ranged from 7.42 to 8.88 percent before
the affect of the interest rate swap and cap agreements outlined below. The
credit agreement also provided for a commitment fee of .5 percent per year on
any unused amounts of the credit agreement. Amounts outstanding were secured
by the assets of the Palmer.
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:
MAXIMUM NOTIONAL
TYPE OF AGREEMENT MATURITY LIBOR(1) VALUE
----------------- -------- -------- -----
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
========
(1) The maximum interest rate is 2.5 percent over the LIBOR stated in the table
below. The 2.5 percent interest rate over such LIBOR decreases if certain
leverage ratios are met by the Company.
(2) On 36 percent ($5,400) the interest rate is set at 8.75 percent, the balance
is set at the three-month LIBOR up to a maximum 8.75 percent.
(3) When the three-month LIBOR is less than 8.29 percent the Company
participates in 50 percent of the difference.
(4) When LIBOR is below 8.5 percent the rate is 7.5 percent, when LIBOR is 8.5
percent or above the rate is 8.5 percent.
(5) When the three-month LIBOR rate is 8.5 percent or higher the Company
receives a quarterly payment of $98.
(6) When the six-month LIBOR is less than 5.98 percent the Company participates
in 45 percent of the difference.
Fees in the amount of $240 were incurred in connection with certain of the
cap agreements and are being amortized over the lives of the respective cap
agreements.
The market value of the swap and cap agreements above, which has not been
reflected in the consolidated financial statements as of December 31, 1996,
is a loss of $1,545.
The Company is exposed to interest rate risk in the event of nonperformance
by the other party to the interest rate swap and cap agreements. However,
the Company does not anticipate nonperformance by any of the banks.
(b) In connection with the purchase of controlling interest in a non-
wireline cellular telephone system in 1991, the Company incurred certain
purchase obligations. The obligations, were retired in July 1996 and January
1997.
The credit agreement provided for various compliance covenants and
restrictions, including items related to mergers or acquisition transactions,
the declaration or payment of dividends or other payments to stockholders,
capital expenditures and maintenance of certain financial ratios. At December
31, 1996 Palmer was in compliance with all but one financial ratio covenant.
This covenant was based on operating results for the year ended December 31,
1996. Palmer obtained a waiver of the noncompliance with this 1996 financial
ratio covenant. In connection with the acquisition of Palmer (see Note 1),
the Palmer credit agreement was refinanced.
(b) In connection with the purchase of controlling interest in a non-wireline
cellular telephone system in 1991, Palmer 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:
December 31, AMOUNT
------------ ------
1997 $ 5,296
1998 -
1999 -
2000 -
2001 72,000
Thereafter 265,000
--------
$342,296
========
(6) INCOME TAXES
Components of income tax expense consist of the following:
Federal State Total
------- ----- -----
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
====== ====== =======
Period ended September 30, 1997:
Current $ - $ 214 $ 214
Deferred 3,553 386 3,939
------ --- -------
$ 3,553 $ 600 $ 4,153
====== === =======
The consolidated effective tax rate differs from the statutory United
States federal tax rate for the following reasons and by the following
percentages:
F-34
<PAGE>
<TABLE>
<CAPTION>
Nine months
Year ended ended
December 31, September 30,
----------------------- -------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory United States federal
tax rate 34.0% 34.0% 34.0%
Partnership loss prior to corporate
status 10.1 - -
License amortization not deductible
for tax 7.7 32.5 -
Net operating loss carryforwards (59.0) (42.8) -
State taxes - 8.3 6.0
Recognition of deferred taxes
related to the difference between
financial statement and income tax
bases of certain assets and liabilities
in connection with the Exchange
73.5 - -
Other 7.2 4.8 1.0
---- --- -----
Consolidated effective tax rate 73.5% 36.8% 41.0%
==== ==== ====
</TABLE>
In 1997, Palmer recorded additional deferred tax liability and a
corresponding increase in licenses for timing differences attributable to pre-
1997 acquisitions. As of December 31, 1996, the components of the deferred
income tax assets and liabilities were as follows:
Deferred tax assets:
Allowance for doubtful accounts $ 609
Nondeductible accruals 221
Net operating loss carryforwards 4,100
-----
Total deferred tax assets 4,930
=====
Deferred tax liabilities:
Accumulated depreciation (7,415)
Licenses (8,185)
-------
Total deferred tax liabilities (15,600)
-------
Deferred tax liability, net $ (10,670)
=======
(7) COMMON STOCK AND STOCK PLANS
During 1994, Palmer amended its certificate of incorporation to increase
the number of authorized shares of common stock from 60,000,000 to 91,000,000
and to provide for Class A Common and Class B Common Stock. The Class A Common
Stock has one vote per share. The Class B Common Stock, which may be owned only
by PCI or certain successors of PCI and of which no shares may be issued
subsequent to the Offering, has five votes per share, provided, however, that,
so long as any Class A Common Stock is issued and outstanding, at no time will
the total outstanding Class B Common Stock
F-35
<PAGE>
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 Palmer; (iv) at the
end of 20 years from original issuance of those shares of Class B Common Stock;
or (v) if more than 50 percent of the equity interests in PCI become
beneficially owned by persons other than: (i) beneficial owners of PCI as of
December 29, 1994 ("Current PCI Beneficial Owners"); (ii) affiliates of Current
PCI Beneficial Owners; (iii) heirs or devisees of any individual Current PCI
Beneficial Owners, successors of any corporation or partnership which is a
Current PCI Beneficial Owner and beneficiaries of any trust which is a Current
PCI Beneficial Owner; and (iv) any relative, spouse or relative of a spouse of
any Current PCI Beneficial Owner.
Palmer 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. Palmer 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 Palmer. 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.
Palmer 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 Palmer determined compensation cost based on the net income
(loss) per share would have been reduced to the pro forma amounts indicated
below:
Year Ended December 31, Nine Months Ended
1995 1996 September 30, 1997
------ ------- -------------------
Net income-as reported $ 954 $4,682 $6,089
Net (loss) income-pro forma $(777) $2,850 $4,753
Basic Earnings Per Share $(0.4) $ .11 $ .17
Diluted Earnings Per Share $(0.4) $ .11 $ .17
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 ad 1996 were $11.04 and $13.36 per share,
respectively.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
($'s not in thousands)
Number Weighted Average
Of Shares Exercise Price
----------------------- ----------------
<S> <C> <C>
Balance December 31, 1994 - -
Granted 692,500 $14.25
Exercised (20,000) 14.25
-------
Balance December 31, 1995 672,500 14.25
Granted 72,500 17.25
Exercised (6,666) 14.25
-------
Balance December 31, 1996 738,334 14.54
Exercised (70,000) 14.25
-------
</TABLE>
F-36
<PAGE>
Balance September 30, 1997 668,334 14.60
=======
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $14.25 - $17.25 ($'s not
in thousands) and 8.3 years, respectively.
At December 31, 1996, the number of options exercisable was 250,000, and
the weighted average exerciseprice of those options was $14.34 ($'s not in
thousands).
Palmer 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 Palmer 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 Palmer. 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 $16.85 ($'s not
in thousands). Compensation cost computed under the provisions of SFAS No. 123
related to the shares issued under the Employee Stock Purchase Plan and the Non-
Employee Director Stock Purchase Plan is immaterial to the consolidated
financial statements.
(8) RELATED PARTY TRANSACTIONS
On January 1, 1997 Palmer purchased a building and certain towers from PCI
for $6,243. These assets were previously leased from PCI.
Concurrently with the Offering and the Exchange, Palmer and PCI entered
into both a transitional management and administrative services agreement and a
computer services agreement that extended each December 31 for additional one-
year periods unless and until either party notified the other. The fees from
these arrangements amounted to a total of $492, $534 and $88 for the years ended
December 31, 1995 and 1996 and the nine months ended September 30, 1997,
respectively, and are include as a reduction of selling, general and
administrative expenses.
Concurrently with the Offering and the Exchange, Palmer and PCI entered
into a tax consulting agreement that extended each December 31 for additional
one-year periods unless and until either party notified the other. The fees for
tax consulting services amounted to a total of $84, $120 and $97 for the years
ended December 31, 1995 and 1996 and the nine months ended September 30, 1997,
respectively, and are included in selling, general and administrative expenses.
PCI has a 401(k) plan with a noncontributory retirement feature and a
matching provision for employees who meet length of service and other
requirements. Palmer participated in this plan and was allocated 401(k)
retirement and matching expense of $493, $696, and $544 for the years ended
December 31, 1995, and 1996 and the nine months ended September 30, 1997,
respectively.
(9) COMMITMENTS AND CONTINGENCIES
LEASES
Palmer occupies certain buildings and uses certain tower sites, cell sites
and equipment under noncancelable operating leases which expire through 2013.
The operating leases for a building and certain tower sites and cell sites
are with related parties.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1996 are as follows:
Related parties Others
--------------- ------
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
------ --------
$ 636 $16,716
====== ========
F-37
<PAGE>
Rental expense was $2,487, $3,551, and $3,123 for the years ended December
31, 1995, 1996 and the nine months ended September 30, 1997, respectively of
which $269 and $278 was paid to related parties for 1995 and 1996,
respectively
CONTINGENCIES
Palmer 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
Palmer's consolidated financial statements.
(10) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Year Ended December 31, 1996 Quarter Quarter Quarter Quarter Total
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Total Revenue (a) $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
======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
First Second Third
Nine Months Ended September 30, 1997 Quarter Quarter Quarter
--------- -------- --------
<S> <C> <C> <C>
Total Revenue $44,683 $48,545 $48,508
======= ======== ========
Operating Income $ 9,805 $13,022 $12,984
======= ======= =======
Net Income $ 1,177 $ 2,523 $ 2,389
======= ======= =======
</TABLE>
(a) Certain reclassifications were made to conform to the current year
presentation.
F-38
<PAGE>
PRICE COMMUNICATIONS CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
<TABLE>
<CAPTION>
Balance Sheets
December 31, 1997 and 1996
($ in thousands)
1997 1996
---- ----
<S> <C> <C>
ASSETS:
- ------
Cash and cash equivalents $ 1,525 $ 83,357
Short-term investments 22,848 30,944
Prepaid expenses and other current assets 224 508
-------- --------
Total current assets 24,597 114,809
Investments in and receivables from subsidiaries* 33,851 --
Property and equipment 123 159
Other Assets 4,406 920
--------- --------
$ 62,977 $115,888
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable and accrued expenses $ 760 $ 2,755
Other current liabilities 1,256 4,354
-------- --------
Total current liabilities 2,016 7,109
Redeemable preferred stock 35 --
Shareholders' equity 60,926 108,779
-------- --------
$ 62,977 $115,888
======== ========
</TABLE>
* Eliminated in consolidation
F-39
<PAGE>
PRICE COMMUNICATIONS CORPORATION
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Statements of Operations
($ in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Corporate expenses $ 3,946 $ 2,373 $ 2,710
Other (income) expenses (908) (94,998) (6,836)
Interest (income) (2,183) (3,755) -
Interest expense 48 216 -
Depreciation and amortization 52 48 31
Realized loss on marketable securities (478) 794 166
Loss (Earnings) of unconsolidated subsidiaries 8,852 91 (7,223)
----------------- ------------------ ------------------
Income before income taxes (9,329) 95,251 11,152
Income tax benefit (expense) 380 (24,584) (26)
----------------- ------------------ ------------------
Net (loss) income $ (8,949) $ 70,667 $ 11,126
================= ================== ==================
Per share data:
Basic earnings (loss) per share $ (.91) $ 4.82 $ .72
Diluted earnings (loss) per share $ (.91) $ 4.76 $ .69
</TABLE>
F-40
<PAGE>
PRICE COMMUNICATIONS CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1997 1996 1995
--------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (8,949) $ 70,667 $ 11,126
--------------- -------------- -------------
Adjustments to reconcile net income to cash
(used in) operating activities:
Depreciation and amortization 52 49 31
Loss (Earnings) of unconsolidated subsidiaries 8,852 91 (7,223)
Change in assets and liabilities:
(Increase) decrease in prepaid expenses and other assets (3,281) (65) (175)
(Decrease) increase in accounts payable and accrued expenses (1,338) 480 (190)
Increase in other liabilities (790) - 525
Loss on purchase of common stock
and mark down of investments - - 1,186
Loss on sale of securities, net 791 1,937 166
Recovery on note receivable 250 - (7,547)
--------------- -------------- -------------
Total adjustments 4,536 2,492 (13,227)
--------------- -------------- -------------
Net cash used in operating activities (4,413) 73,159 (2,101)
--------------- -------------- -------------
Cash flows from investing activities:
Purchase of Palmer Wireless (44,015) - -
Cash received from subsidiaries* - - 14,031
Net sales (purchases) of marketable securities 6,087 14,626 (8,754)
Capital expenditures and other (387) (707) (5)
Advances to subsidiaries (25) - -
Proceeds from notes receivable - - 7,547
--------------- -------------- -------------
Net cash (used in) provided by investing activities (38,340) 13,919 12,819
--------------- -------------- -------------
Cash flows from financing activities:
Issuance of preferred stock 35 - -
Payment of PIK Preferred Stock dividend (1,176) - -
Issuance and exercise of warrants 4,288 - -
Issuance of common stock 6,047 - -
Repurchase of paid in kind
preferred stock (28,225) - -
Purchase of common stock (20,241) (5,103) (10,660)
Proceeds from stock options exercised 193 402 145
--------------- -------------- -------------
Net cash used in financing activities (39,079) (4,701) (10,515)
--------------- -------------- -------------
Net (decrease) increase in cash and cash equivalents (81,832) 82,377 203
Cash and cash equivalents at beginning of year 83,357 980 777
=============== ============== =============
Cash and cash equivalents at end of year $ 1,525 $ 83,357 $ 980
=============== ============== =============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes, net of refunds $ 872 $ 23,275 $ 340
=============== ============== =============
Interest $ 48 $ 713 $ 1,534
=============== ============== =============
</TABLE>
F-41
* Eliminated in consolidation
<PAGE>
PRICE COMMUNICATIONS CORPORATION
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Notes to Condensed Financial Statements
1. BASIS OF PRESENTATION
---------------------
In the parent company-only financial statements, the Company's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. The parent company-only financial
statements should be read in conjunction with the Company's consolidated
financial statements.
2. ACQUISITION
-----------
In May 1997, the Company, through a wholly owned indirect subsidiary, entered
into an agreement to acquire Palmer Wireless, Inc. The transaction was
consummated on October 6, 1997. See Note 1 of Notes to Consolidated Financial
Statements.
F-42
<PAGE>
PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Additions Allowance at Dates Balance
Beginning Charged to of Acquisitions Deductions at End
Description of Period Expenses (Dispositions) Net of Recoveries of Period
- --------------------------------------- --------- ---------- ------------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997:
Allowance for doubtful accounts $474 $1,202 $1,134 $(1,992) $818
For the year ended December 31, 1996:
Allowance for doubtful accounts $295 $179 - $ - $474
For the year ended December 31, 1995:
Allowance for doubtful accounts $395 $ 84 - $184 $295
</TABLE>
F-43
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 and 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRICE COMMUNICATIONS CORPORATION
By: /s/ Robert Price
-------------------------
Robert Price,
President
Dated: April __, 1998
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated. Each person whose
signature appears below hereby authorizes and appoints Robert Price as his
attorney-in-fact to sign and file in his behalf individually and in each
capacity stated below any and all amendments to this Annual Report.
Dated: April __, 1998 By: /s/ Robert Price
-------------------
Robert Price, Director and President
(Principal Executive Officer,
Financial Officer and Accounting Officer)
Dated: April __, 1998 By: /s/ George H. Cadgene
------------------------
George H. Cadgene,
Director
Dated: April __, 1998 By: /s/ Robert F. Ellsworth
--------------------------
Robert F. Ellsworth,
Director
II-1
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------
2.1 Agreement and Plan of Merger with Palmer Wireless, Inc., incorporated
by reference to Registration Statement on Form S-4 of Price
Communications Wireless, Inc. ("Wireless") (File No. 333-36253)
3.1 Restated Certificate of Incorporation of the Registrant as filed with
the Secretary of State of the State of New York on December 29, 1992,
incorporated by reference to Exhibit 3(a) to Registrant's Form 10-K for
the year ended December 31, 1992
3.2 Certificate of Amendment of the Certificate of Incorporation of the
Registrant as filed with the Secretary of State of New York on
March 17, 1995, incorporated by reference to Exhibit 3(a)(2) to
Registrant's Form 10-K for the year ended December 31, 1996
3.3 Certificate of Amendment of the Certificate of Incorporation of the
Registrant as filed with the Secretary of State of New York on January
2, 1996, incorporated by reference to Exhibit 3(a)(2) to Registrant's
Form 10-K for the year ended December 31, 1996
3.4 Certificate of Amendment of the Certificate of Incorporation of the
Registrant as filed with the Secretary of State of New York on October
29, 1997
3.5 Certificate of Amendment of the Certificate of Incorporation of the
Registrant as filed with the Secretary of State of New York on January
12, 1998
3.6 Restated By-laws of the Registrant, incorporated by reference to Exhibit
3(a)(2) to Registrant's Form 10-K for the year ended December 31, 1996
4.1 Indenture to 13 1/2% Senior Secured Discount Notes due 2007 between
Price Communications Cellular Holdings, Inc. ("Holdings"), Price
Communications Cellular Inc. and Bank of Montreal Trust Company, as
Trustee (including form of Note), incorporated by reference to
Registration Statement on Form S-4 of Holdings (File No. 333-41227)
4.2 Guarantee (included in Exhibit 4.1)
4.3 Indenture to 11 3/4% Senior Subordinated Notes due 2007 between Wireless
and Bank of Montreal Trust Company, as Trustee (including form of Note),
incorporated by reference to Registration Statement on Form S-4 of
Wireless (File No. 333-36254)
E-1
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------ -------------------------------------------------------------------------
10.1 Credit Agreement dated as of September 30, 1997 among Holdings, Wireless,
the lenders listed therein, DLJ Capital Funding, Inc., as syndication
agent and Bank of Montreal, Chicago branch, as administrative agent,
incorporated by reference to Registration Statement on Form S-4 of
Wireless (File No. 333-36253)
10.2 Fort Myers Sale Agreement, incorporated by reference to Registration
Statement on Form S-4 of Wireless (File No. 333-36253)
10.3 Georgia Sale Agreement, incorporated by reference to Registration
Statement on Form S-4 of Wireless (File No. 333-36253)
10.4 Ryan Agreement, incorporated by reference to Registration Statement
on Form S-4 of Wireless (File No. 333-36253)
10.5 Wisehart Agreement, incorporated by reference to Registration
Statement on Form S-4 of Wireless (File No. 333-36253)
10.6 Meehan Agreement, incorporated by reference to Registration Statement
on Form S-4 of Wireless (File No. 333-36253)
10.7 The Registrant's 1992 Long Term Incentive Plan, incorporated by
reference to Exhibit 10(a) to Registrant's Form 10-K for the year ended
December 31, 1992
10.8 Warrant Agreement dated April 12, 1990 between Price Communications
Corporation and Warner Communications Investors, Inc., incorporated by
reference to Exhibit (4) to Registrant's Form 8-K filed to report an
event of April 12, 1990
10.9 Form of Amendment to Time Warner Warrant, incorporated by reference to
Exhibit 10(i) to Registrant's Form 10-K for the year ended December 31,
1992.
10.10 Employment Agreement, dated as of October 6, 1994, between the
Registrant and Robert Price, incorporated by reference to Exhibit 10(aa)
to the Registrant's Form 10-K for the year ended December 31, 1994
10.11 Employment Agreement, dated as of January 5, 1995, between the
Registrant and Kim Pressman, incorporated by reference to Exhibit
10(bb) to the Registrant's Form 10-K for the year ended December 31,
1994
10.12 Stock Option Agreement, dated as of February 10, 1994, between the
Registrant and Robert Price, incorporated by reference to Exhibit 10(cc)
to the Registrant's Form 10-K for the year ended December 31, 1994
E-2
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------ -------------------------------------------------------------------------
10.13 Rights Agreement dated as of October 6, 1994 between the Registrant 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
10.14 Amendment dated January 12, 1995 to Rights Agreement dated as of October
6, 1994 between the Registrant 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 January 12, 1995
10.15 Amendment dated April 7, 1995 to Rights Agreement dated as of October 6,
1994 between the Registrant and Harris Trust Company of New York
10.16 Amendment dated June 19, 1997 to Rights Agreement dated as of October 6,
1994 between the Registrant and Harris Trust Company of New York
10.17 Letter Agreement dated December 23, 1997 between Registrant and Robert
Price
10.18 Letter dated December 23, 1997 from Robert Price to Registrant
10.19 Warrant Agreement between Holdings, the Registrant and Bank of Montreal
Trust Company, as the Warrant Agent
11.1 Statement regarding computation of per share earnings (omitted;
computation can be clearly determined from material contained in the
Report).
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Public Accountants
23.2 Consent of Independent Public Accountants
24.1 The powers of attorney to sign amendments to this Report appear on the
signature page
27.1 Financial Data Schedule
E-3
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
PRICE CELLULAR CORPORATION
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: The name of the corporation is PRICE CELLULAR CORPORATION.
SECOND: The registered office of the corporation is to be located at
229 South State Street, in the City of Dover, in the County of Kent, in the
State of Delaware. The name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business or purposes to be conducted or
promoted is:
To engage in any lawful act or activity for which a corporation
may be organized under the General Corporation Law of Delaware.
FOURTH: The aggregate number of shares which the corporation shall
have authority to issue is Two Thousand (2,000) shares, of which One Thousand
(1,000) shares shall be Common Stock, par value one cent ($.01) per share, and
One Thousand (1,000) shares shall be Preferred Stock, par value one cent ($.01)
per share. The designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions of the Common Stock and the
Preferred Stock are as follows:
<PAGE>
A. Preferred Stock. The Preferred Stock may be issued from time to
---------------
time by the Board of Directors as shares of one or more series of Preferred
Stock and, subject to the provisions hereof and the limitations prescribed by
law, the Board of Directors is expressly authorized, prior to issuance, by
adopting resolutions providing for the issue of, or providing for a change in
the number of, shares of any particular series and by filing a certificate
pursuant to the General Corporation Law of the State of Delaware, to establish
or change the number of shares to be included in each such series and to fix the
designation and relative rights, preferences and limitations of the shares of
each such series. The authority of the Board of Directors with respect to each
series shall include determination of the following:
(i) the distinctive serial designation of such series and the
number of shares constituting such series (provided that the aggregate
number of shares constituting all series of Preferred Stock shall not
exceed 1,000);
(ii) the dividend rate and preference on shares of such series,
whether dividends shall be cumulative and, if so, from which date or
dates;
(iii) whether the shares of such series shall be redeemable and,
if so, the terms and conditions of such redemp tion, including the
date or dates upon and after which such shares shall be redeemable,
the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates, and
the manner of selecting shares for redemption if less than all shares
of such series are to be redeemed;
(iv) the obligation, if any, of the corporation to retire shares
of such series pursuant to a sinking fund;
(v) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes and,
if so, the terms and conditions of such conversion or
2
<PAGE>
exchange, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any;
(vi) whether the shares of such series shall have voting rights,
in addition to the voting rights provided by law and, if so, the terms
of such voting rights;
(vii) the rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation;
(viii) whether or not the holders of shares of such series shall
have any preemptive rights with respect to issuance or with respect to
the acquisition of treasury shares of any class of shares of the
corporation theretofore or thereafter authorized, with respect to the
granting by the corporation of rights or options to purchase its
shares of any class or the issuance of shares or other securities
convertible into or carrying rights or options to purchase, subscribe
to or acquire its shares of any class;
(ix) any other relative rights, preferences and limitations of
such series permitted by the General Corporation Law of the State of
Delaware.
B. Common Stock. Subject to all of the rights of the Preferred
------------
Stock, and except as may be expressly provided with respect to the Preferred
Stock herein, by law or by the Board of Directors pursuant to paragraph (A) of
this Article FOURTH:
(1) the entire voting power for the election of directors and in
any corporate proceeding and upon any matter or question whatever
appertaining to the corporation shall be vested exclusively in the
holders of the shares of Common Stock;
(2) dividends may be declared and paid or set apart for payment
upon the Common Stock out of any assets or funds of the corporation
legally available for the payment of dividends;
(3) upon the voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the net assets of the corporation shall
be distributed pro rata to the holders of the
3
<PAGE>
Common Stock in accordance with their respective rights and interests.
C. Preemptive Rights. The holders of the Common Stock of the
-----------------
corporation shall have no preemptive rights with respect to issuance of or with
respect to the acquisition of treasury shares of Common Stock or any other class
of shares of the corporation now or hereafter authorized, nor with respect to
the granting by the corporation of rights or options to purchase its shares of
any class or the issuance of shares or other securities convertible into or
carrying rights or options to purchase, subscribe to or acquire its shares of
any class.
FIFTH: The name and mailing address of the sole incorporator is:
Dawn E. Hollworth, Esq., 300 Park Avenue, New York, New York 10022.
SIXTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the corporation:
(1) The number of directors of the corporation shall be the number
from time to time fixed by, or in the manner provided in, the By-Laws. Election
of directors need not be by ballot unless the By-Laws so provide.
(2) In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors shall have power without the assent or vote of
the stockholders to make, alter, amend, change, add to or repeal the By-Laws of
the corporation; to fix and vary the amount to be reserved for any proper
purpose; to authorize and cause to be executed mortgages and liens upon
4
<PAGE>
all or any part of the property of the corporation; to determine the use and
disposition of any surplus or net profits; and to fix the times for the
declaration and payment of dividends.
(3) The directors in their discretion may submit any contract or act
for approval or ratification at any annual meeting of the stockholders or at any
meeting of the stockholders called for the purpose of considering any such
contract or act, and any contract or act that shall be approved or be ratified
by the vote of the holders of a majority of the stock of the corporation which
is represented in person or by proxy at such meeting and entitled to vote
thereat (provided that a lawful quorum of stockholders be there represented in
person or by proxy) shall be as valid and as binding upon the corporation and
upon all the stockholders as though it had been approved or ratified by every
stockholder of the corporation, whether or not the contract or act would
otherwise be open to legal attack because of directors' interest, or for any
other reason.
(4) In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this Certificate and to any By-Laws from time to time
made by the stockholders; provided, however, that no By-Laws so made shall
invalidate any prior act of the directors which would have been valid if such
By-Laws had not been made.
SEVENTH: A director of this corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director,
5
<PAGE>
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of Delaware or (iv) for any
transaction from which the director derived an improper personal benefit. The
corporation shall, to the fullest extent permitted by Section 145 of the General
Corporation Law of Delaware, as the same may be amended and supplemented,
indemnify any and all persons whom it shall have power to indemnify under said
section from and against any and all of the expenses, liabilities or other
matters referred to in or covered by said section and, as provided in said
section, shall advance expenses, including reasonable attorneys' fees, of any
and all such persons, and the indemnification and advancement of expenses
provided for herein shall not be deemed exclusive of any other rights to which a
person seeking indemnification or advancement of expenses may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.
EIGHTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stock holders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in
6
<PAGE>
dissolution or of any receiver or receivers appointed for this corporation under
the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all tie stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
NINTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors, officers or others are subject to this
reserved power.
IN WITNESS WHEREOF, I have hereunto set my hand, the 25th day of May,
1988.
--------------------------
Dawn E. Hollworth
Sole Incorporator
7
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
PRICE CELLULAR CORPORATION
_______________
(Under Section 242 of the General Corporation Law)
The undersigned, being President and Secretary of Price Cellular
Corporation, do hereby certify and set forth:
1. The name of the corporation is Price Cellular Corporation (the
"Corporation").
2. The Certificate of Incorporation was filed by the Secretary of
State on May 26, 1988.
3. Article FIRST of the Certificate of Incorporation of the
Corporation, which sets forth the name of the Corporation, is hereby amended to
read in its entirety as follows:
"FIRST: The name of the Corporation is PRICELLULAR CORPORATION."
4. The amendment effected herein was authorized by written consent
of the sole director followed by the written consent of the sole stockholder of
the Corporation.
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF PRICELLULAR CORPORATION
PriCellular Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY AND SET FORTH:
FIRST: That the sole director of said corporation, by unanimous
written consent, filed with the minutes of the Board, adopted a resolution
proposing and declaring advisable the following amendment to the Certificate of
Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of PriCellular
Corporation be amended by changing the FIRST ARTICLE thereof so that,
as amended, said Article shall be and read as follows: "FIRST: The
name of the Corporation is Price Communications Cellular Inc."
SECOND: That in lieu of a meeting and a vote the sole stockholder has
given unanimous written consent to said amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of sections 242 and 228 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said PriCellular Corporation has caused this
Certificate of Amendment to be signed by Robert Price, its President, and
attested by Alisa Diamond, its Assistant Secretary, this 14th day of February,
1990.
<PAGE>
EXHIBIT 3.2
B Y - L A W S
OF
PRICE CELLULAR CORPORATION
--------------------------
(now known as Price Communications Cellular Inc.)
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the
corporation shall be in New York, New York.
SECTION 2. OTHER OFFICES. The corporation may have such other
offices and places of business, within or without the State of New York, as
shall be determined by the directors.
ARTICLE II
SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the shareholders may be
held at such place or places, within or without the State of Delaware, as shall
be fixed by the di rectors and stated in the notice of the meeting.
SECTION 2. ANNUAL MEETING. The annual meeting of shareholders for
the election of directors and the transaction of such other business as may
properly come before the meeting shall be held, commencing in 1988, on the first
Monday in May at the time designated in the notice of the meeting.
SECTION 3. NOTICE OF ANNUAL MEETING. Notice of the annual meeting
shall be given to each shareholder entitled to vote, not less than ten (10) nor
more than sixty (60) days prior to the meeting.
SECTION 4. SPECIAL MEETINGS. Special meetings of the shareholders
for any purpose or purposes may be called by the President or Secretary and must
be called upon re ceipt by either of them of the written request of the holders
of twenty-five percent of the stock then outstanding and entitled to vote.
SECTION 5. NOTICE OF SPECIAL MEETING. Notice of a special
meeting, stating the time, place and purpose or purposes thereof, shall be given
to each shareholder en titled to vote, not less than ten (10) nor more than
sixty (60) days prior to the meeting. The notice shall also set forth at whose
direction it is being issued.
<PAGE>
SECTION 6. QUORUM. At any meeting of the shareholders, the
holders of a majority of the shares of stock then entitled to vote shall
constitute a quorum for all purposes, except as otherwise provided by law or by
the Certificate of Incorporation.
SECTION 7. VOTING. At each meeting of the shareholders, every
holder of stock then entitled to vote may vote in person or by proxy, and,
except as may be otherwise provided by law or by the Certificate of
Incorporation, shall have one vote for each share of stock registered in his
name.
SECTION 8. ADJOURNED MEETINGS. Any meeting of the shareholders
may be adjourned to a designated time and place by a vote of majority in
interest of the shareholders present in person or by proxy and entitled to vote,
even though less than a quorum is so present. No notice of such an adjourned
meeting need be given, other than by announce ment at the meeting, and any
business may be transacted which might have been transacted at the meeting as
originally called.
SECTION 9. ACTION WITHOUT MEETING. Whenever by any provision of
law or of the Certificate of Incorporation or of these By-Laws, the vote of
shareholders at a meeting thereof is required or permitted to be taken in
connection with any corporate action, including, without limitation, election of
directors, the notice, meeting and vote of shareholders may be dispensed with if
all the shareholders who would have been entitled to vote upon the action if
such meeting were held shall consent in writing to such corporate action being
taken.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER. The business of the corporation shall be
managed under the direction of its Board of Directors each of whom shall be at
least eighteen (18) years of age. The number of directors of the corporation
shall be such number, but not more than seven (7), as shall be determined from
time to time by resolution of the Board of Directors or shareholders. The
number of directors may be less than three (3) only when all the shares of the
corporation are owned by less than three (3) shareholders, but in such event the
number of directors may not be less than the number of shareholders. The number
of initial directors of the corporation shall be one (1). Each director shall
hold office for the term of one (1) year and until his successor is elected and
qualified. Directors need not be shareholders.
SECTION 2. POWERS. The Board of Directors shall exercise all of
the powers of the corporation except such as are by law or by the Certificate of
Incorporation or by these By-Laws conferred upon or reserved to the
shareholders.
SECTION 3. MEETINGS, QUORUM. Meetings of the Board may be held at
any place, either within or outside the State of New York, provided a quorum is
in attendance. Except as may be otherwise provided by law or by the Certificate
of Incorporation, if there are
2
<PAGE>
three or more directors, 40% of the directors in office shall constitute a
quorum at any meeting of the Board and the vote of a majority of a quorum of
directors shall constitute the act of the Board. If there are less than three
directors, all directors are necessary for a quorum .
The Board of Directors may hold an annual meeting, without notice,
immediately after the annual meeting of shareholders. Regular meetings of the
Board of Directors may be determined from time to time by the Board. The
Chairman of the Board (if any), the President or the Secretary may call, and, at
the request of any two directors, shall call, a special meeting of the Board of
Directors, on at least five (5) days' notice if given by mail or two (2) days'
notice if given personally or by telegraph or cable to each director specifying
the time and place thereof.
Any one or more members of the Board of Directors or any Committee
thereof may participate in a meeting of the Board or such Committee by means of
a conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time.
Participation by such means shall constitute presence in person at the meeting.
SECTION 4. ACTION WITHOUT MEETING. Any action required or
permitted to be taken by the Board of Directors or any Committee thereof may be
taken without a meeting if all members of the Board or such Committee sign a
written consent thereto, and the resolutions and the written consents are filed
with the minutes of the proceedings of the Board or such Committee.
SECTION 5. VACANCIES, REMOVAL. Except as otherwise provided in
the Certificate of Incorporation or in the following paragraph, vacancies
occurring in the membership of the Board of Directors, from whatever cause
arising (including vacancies occurring by reason of the removal of directors
with or without cause and newly-created director ships resulting from any
increase in the authorized number of directors), may be filled by a majority
vote of the remaining directors, though less than a quorum, or such vacancies
may be filled by the shareholders.
Except where the Certificate of Incorporation contains provisions
authorizing cumulative voting or the election of one or more directors by class
or their election by holders of bonds, or requires all action by shareholders to
be by a greater vote, any one or more of the directors may be removed, (a) for
or without cause, by vote of the shareholders holding a majority of the
outstanding stock of the corporation entitled to vote, present in person or by
proxy, at any regular or special meeting of the shareholders or, (b) for cause
by action of the Board of Directors at any regular or special meeting of the
Board.
SECTION 6. COMMITTEES. The Board of Directors, by resolution
adopted by a majority of the entire Board, may designate from its members an
Executive Committee or other committee or committees, each consisting of three
or more members, with such powers and authority (to the extent permitted by law)
as may be provided in said resolution.
3
<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. EXECUTIVE OFFICERS. The executive officers of the
corporation shall be a President, one or more Vice-Presidents, a Treasurer and a
Secretary, all of whom shall be elected by the Board of Directors and shall hold
office until removed or until the election and qualification of their respective
successors at the pleasure of the Board of Directors. In addition, the Board of
Directors may elect a Chairman of the Board. Except for the offices of
President and Secretary, any two offices or more may be held by one person,
provided, however, that when all of the issued and outstanding stock of the
corporation is owned by one person, such person may hold all or any combination
of offices. All vacancies occurring among any of the officers shall be filled
by the Board of Directors. Any officer may be removed at any time, with or
without cause, by the affirmative vote of a majority (unless the Certificate of
Incorporation requires a larger vote) of the directors present at a special
meeting of Board of Directors called for that purpose.
SECTION 2. OTHER OFFICERS. The Board of Directors may appoint
such other officers and agents with such powers and duties as it shall deem
appropriate.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors, if one is elected, shall preside at all meetings of the shareholders
and the Board of Directors and shall perform such other duties as shall from
time to time be assigned by the Board of Directors.
SECTION 4. PRESIDENT. The President, who may, but need not be a
director, shall, in the absence or non-election of a Chairman of the Board,
preside at all meetings of the shareholders and the Board of Directors. Subject
to the direction of the Board of Directors, the President shall have general
management and control of the business and affairs of the corporation.
SECTION 5. THE VICE-PRESIDENT. The vice-President, or if there be
more than one, the Senior Vice-President, as determined by the Board of
Directors, in the absence or disability of the President, shall exercise the
powers and perform the duties of the President and each Vice-President shall
exercise such other powers and perform such other duties as shall from time to
time be assigned by the Chairman of the Board (if any), President or Board of
Directors.
SECTION 6. TREASURER. The Treasurer shall have custody of all
funds, securities and evidences of indebtedness of the corporation; he shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositories as may be designated from time to time by the
Board of Directors; he shall receive and give receipts for moneys paid to the
corporation; he shall disburse the funds of the corporation on account of all
bills, payrolls, and other just debts of the corporation, of whatever nature,
upon maturity; he shall enter regularly, in books to be kept by him for that
purpose, full and accurate accounts of all moneys received and paid out by him
on account of the corporation; he shall render to the
4
<PAGE>
President and the Board of Directors at the regular meetings of the Board of
Directors, or whenever they may request it, an account of all his transactions
as Treasurer and of the financial condition of the corporation; and he shall
perform all other duties incident to the office of Treasurer and as may be
assigned by the Chairman of the Board (if any), President or Board of Directors.
SECTION 7. SECRETARY. The Secretary shall keep the minutes of all
proceedings of the directors and of the shareholders; he shall attend to the
giving and serving of all notices to the shareholders and directors or other
notice required by law or by these By-Laws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the Chairman of the Board (if any), the President,
directors or shareholders, upon whose requisition the meeting is called as
provided in these By-Laws; he shall affix the seal of the corporation to deeds,
contracts and other instruments in writing requiring a seal, when duly signed or
when so ordered by the directors; he shall have charge of the certificate books
and stock books and such other books and papers as the Board may direct; and he
shall perform all other duties incident to the office of Secretary and as may be
assigned by the Chairman of the Board (if any), President or Board of Directors.
SECTION 8. ADDITIONAL POWERS OF OFFICERS. In addition to the
powers specifically provided in these By-Laws, each officer (including officers
other than those referred to in these By-Laws) shall have such other or
additional authority and perform such duties as the Board of Directors may from
time to time determine.
SECTION 9. SALARIES. The salaries of all officers shall be fixed
by the Board of Directors, and the fact that any officer is a director shall not
preclude him from receiving a salary as an officer, or from voting upon the
resolution providing the same.
ARTICLE V
CAPITAL STOCK
SECTION 1. FORM AND EXECUTION OF CERTIFICATES. Certificates of
stock shall be in such form as required by the General Corporation Law of
Delaware and as shall be adopted by the Board of Directors. They shall be
numbered and registered in the order issued; shall be signed by the Chairman of
the Board (if any), President or Vice-President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer and may be sealed
with the corporate seal or a facsimile thereof. When such a certificate is
countersigned by a transfer agent or registered by a registrar, the signatures
of any such officers may be facsimile.
SECTION 2. TRANSFER. Transfer of shares shall be made only upon
the books of the corporation by the registered holder in person or by an
attorney, duly authorized, and upon surrender of the certificate or certificates
for such shares properly assigned for transfer.
5
<PAGE>
SECTION 3. LOST OR DESTROYED CERTIFICATES. The holder of any
certificate representing shares of stock of the corporation may notify the
corporation of any loss, theft or destruction thereof, and the Board of
Directors may thereupon, in its discretion, cause a new certificate for the same
number of shares to be issued to such holder upon satisfactory proof of such
loss, theft or destruction, and the deposit of indemnity by way of bond or
otherwise, in such form and amount and with such surety or sureties, if any, as
the Board of Directors may require, to indemnify the corporation against loss or
liability by reason of the issuance of such new certificate.
SECTION 4. RECORD DATE. In lieu of closing the books of the
corporation, the Board of Directors may fix, in advance, a date, not exceeding
fifty days, nor less than ten days, as the record date for the determination of
shareholders entitled to receive notice of, or to vote at, any meeting of
shareholders, or to consent to any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any
dividends, or allotment of any rights, or for the purpose of any other action.
SECTION 5. RESTRICTION ON OWNERSHIP, VOTING AND TRANSFER. In
accordance with the Federal Communications Act of 1934, as amended, and
regulations of the Federal Communications Commission, the Board of Directors may
prohibit the ownership or voting of more than 20% of the corporation's
outstanding capital stock by or for the account of aliens or their
representatives or by a foreign government or representative thereof or by any
corporation organized under the laws of a foreign country (collectively
"Aliens"), or by or for corporations of which any officer is an Alien, more than
one-fourth of its directors are Aliens, or of which more than one-fourth of its
capital stock is owned of record or voted by Aliens, or any transfer of the
corporation's stock which would cause the corporation to violate the above or
any other provision of the Federal Communications Act of 1934, as amended, or
Federal Communications Commission regulations.
SECTION 6. NO PREEMPTIVE RIGHTS. The holders of the Common Stock
of the corporation shall have no preemptive rights with respect to issuance of
Common Stock or any other class of equity shares of the corporation, nor with
respect to the granting by the corporation of rights or options to purchase its
equity shares of any class or the issuance of shares or other securities
convertible into or carrying rights or options to purchase its equity shares of
any class.
SECTION 7. CALLS FOR PAYMENT OF SUBSCRIPTIONS. The Board of
Directors may, from time to time, authorize and call for the payment, by
subscribers, for all shares of Common Stock of the corporation for which they
have subscribed. The Board of Directors, shall in its discretion, determine the
time of such calls and the amounts thereof. Calls for payment by the Board
shall be by written notice to subscribers specifying the amount thereof and
subscribers shall make payment to the corporation within 30 days of such notice.
SECTION 8. OBLIGATIONS UPON TRANSFER OF SHARES. Any transferee of
the corporation's stock must assume in writing all of the transferor's
obligations
6
<PAGE>
under such transferor's subscription agreement, if there be one, with the
corporation. Upon a transfer of the corporation's stock, the transferor will
remain obligated for the remaining purchase price of shares he has subscribed
for, in the event the transferee does not make payment on call.
ARTICLE VI
MISCELLANEOUS
SECTION 1. DIVIDENDS. The Board of Directors may declare
dividends from time to time upon the capital stock of the corporation from the
surplus or net profits available therefor.
SECTION 2. SEAL. The Board of Directors shall provide a suitable
corporate seal which shall be kept in the charge of the Secretary and shall be
used as authorized by these By-Laws.
SECTION 3. FISCAL YEAR. The fiscal year of the corporation shall
be determined by the Board of Directors.
SECTION 4. CHECKS, NOTES, ETC. Checks, notes, drafts, bills of
exchange and orders for the payment of money shall be signed or endorsed in such
manner as shall be determined by the Board of Directors.
The funds of the corporation shall be deposited in such depositories,
and checks drawn against such funds shall be signed in such manner, as may be
determined from time to time by the Board of Directors.
SECTION 5. NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required by these By-Laws to be given, personal notice shall not be necessary
unless expressly so stated, and any notice so required shall be deemed to be
sufficient if given by depositing the same in the United States mail, with
postage thereon prepaid, addressed to such shareholder, officer or director, at
such address as appears on the books of the corporation, and, unless otherwise
indicated herein, such notice shall be deemed to have been given on the day of
such mailing. Notice may also be given personally, against receipt, or by
telegram, telex or similar communication, and notice so given shall be deemed
given when so delivered personally or when delivered for transmission.
Any notice required to be given under the provisions of any law, or
under the provisions of the Certificate of Incorporation or these By-Laws, may
be waived by the person entitled thereto, in writing, or by telegram, telex or
similar communication, whether before or after the time such notice is required
to be given, and the presence of any person at a meeting shall constitute waiver
of notice thereof as to such person, unless such person appears solely to object
to the lack of notice.
7
<PAGE>
SECTION 6. CONSTRUCTION. Whenever used in these By-Laws, the
masculine pronoun shall include the feminine and the singular shall include the
plural, unless a different meaning is otherwise required by the context.
ARTICLE VII
AMENDMENTS
SECTION 1. BY SHAREHOLDERS. These By-Laws may be amended at any
shareholders' meeting by vote of the shareholders holding a majority (unless the
Certificate of Incorporation requires a larger vote) of the outstanding stock
having voting power, present either in person or by proxy, provided notice of
the amendment is included in the notice or waiver of notice of such meeting.
SECTION 2. BY DIRECTORS. The Board of Directors may also amend
these By-Laws at any regular or special meeting of the Board by a majority
(unless the Certificate of Incorporation requires a larger vote) vote of the
entire Board, but any By-Laws so made by the Board of Directors may be altered
or repealed by the shareholders.
SECTION 3. AMENDMENTS TO BE CONSISTENT WITH APPLICABLE LAW. Any
amendment of these By-Laws shall be consistent with the Certificate of
Incorporation of the corporation and provisions of applicable law then in
effect, including without limitation, the Federal Communications Act of 1934, as
amended, and the regulations of the Federal Communications Commission.
8
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
of
THE CERTIFICATE OF INCORPORATION
of
PRICE COMMUNICATIONS CORPORATION
(Under Section 805 of the New York Business Corporation Law)
---------------------------------------
It is hereby certified that:
1. The name of the corporation is PRICE COMMUNICATIONS
CORPORATION (the "Corporation").
2. The Certificate of Incorporation of the Corporation was
filed by the Department of State on August 1, 1979. The Amended and Restated
Certificate of Incorporation of the Corporation was filed by the Department of
State on December 29, 1992.
3. The amendment of the Corporation's Amended and Restated
Certificate of Incorporation effected hereby is as follows: an increase in the
number of shares of the Corporation's common stock, par value $.01 (the "Common
Stock"), which the Corporation shall have the authority to issue by 20,000,000
shares.
4. To accomplish the foregoing amendment, Paragraph A of
Article FOURTH of the Corporation's Amended and Restated Certificate of
Incorporation, relating to the number of authorized shares of Common Stock of
the Corporation, is hereby stricken out in its entirety, and the following new
Paragraph A of Article FOURTH is substituted in lieu thereof:
FOURTH
A.
The total number of shares of capital stock which the
Corporation shall have authority to issue is Eighty Million (80,000,000) shares,
of which Sixty Million (60,000,000) shares shall be common stock, par value $.01
per share (the "Common Stock"), and Twenty Million (20,000,000) shares shall be
preferred stock, par value $.01 per share (the "Preferred Stock"). Shares of
capital stock of the Corporation may be
<PAGE>
issued for such consideration, not less than the par value thereof, as shall be
fixed from time to time by the Board of Directors, and shares issued for such
consideration shall be fully paid and nonassessable.
5. The foregoing amendment of the Certificate of
Incorporation was authorized by vote of the Board of Directors of the
Corporation at a meeting thereof followed by the vote of the holders of at least
a majority of all of the outstanding shares of the Corporation's capital stock
entitled to vote on said amendment.
- 2 -
<PAGE>
IN WITNESS WHEREOF, we have subscribed this document on October
20, 1997 and do hereby affirm, under the penalties of perjury, that the
statements contained therein have been examined by us and are true and correct.
PRICE COMMUNICATIONS CORPORATION
By: /s/ Robert Price
--------------------------------
Robert Price
President
By: /s/ Ashley Dixon
--------------------------------
Ashley Dixon
Secretary
- 3 -
<PAGE>
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
PRICE COMMUNICATIONS CORPORATION
(Under Section 805 of the New York Business Corporation Law)
---------------------------------------
It is hereby certified that:
1. The name of the corporation is PRICE COMMUNICATIONS CORPORATION
(the "Corporation").
2. The Certificate of Incorporation of the Corporation was filed
by the Department of State on August 1, 1979.
3. The amendment of the Certificate of Incorporation effected
hereby is as follows: To amend the introductory paragraph of Section 4(b) and
Subsection (i) of Section 4(b) of Article FOURTH, Paragraph E, and Subsection
(i) of Section 4(b) of Article FOURTH, Paragraph F, of the Certificate of
Incorporation of the Corporation, pursuant to the authorization contained in the
Certificate of Incorporation of the Corporation.
4. To accomplish the foregoing amendment, Paragraphs E and F of
Article FOURTH of the Certificate of Incorporation of the Corporation, relating
to the Preferred Stock of the Corporation, are hereby stricken in their
entirety, and the following new Paragraphs E and F are hereby substituted in
lieu thereof:
E.
SERIES A PREFERRED STOCK
------------------------
Pursuant to the authority granted to and vested in the
Board of Directors in accordance with the provisions of the
Certificate of Incorporation, the Board of Directors has
authorized a separate series of the Corporation's Preferred Stock,
par value $.01 per share, and has stated the designation and
number of shares, and has fixed the relative rights, preferences,
privileges,
<PAGE>
powers and restrictions thereof as follows:
(1) Designation and Amount. The designation of this
----------------------
series, which consists of Seven Hundred Twenty-Eight Thousand One
Hundred Thirty-Three (728,133) shares of Preferred Stock, is
Series A Preferred Stock (the "Series A Preferred Stock").
(2) Rank. The Series A Preferred Stock shall rank (i)
----
senior to the Corporation's Common Stock, par value $.01 per share
(the "Common Stock") with respect to the Liquidation Preference
described in Section (8) below; (ii) pari passu with the
---- -----
Corporation's Common Stock as to dividends and (except as set
forth in clause (i) above) distributions of assets upon
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary; (iii) senior as to dividends and as to
distribution of assets upon liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, to any class
or series of capital stock established by the Corporation after
the date hereof, the terms of which specifically shall provide
that such shares rank junior to the Series A Preferred Stock (the
"Junior Securities"); (iv) junior as to dividends and as to
distribution of assets upon liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, to any class
or series of capital stock established by the Corporation after
the date hereof, the terms of which specifically shall provide
that such shares rank senior to the Series A Preferred Stock (the
"Senior Securities"); and (v) pari passu as to dividends and
---- -----
distribution of assets upon liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, with the
Corporation's Series B Preferred Stock and with any class or
series of capital stock established by the Corporation after the
date hereof that does not constitute Junior Securities or Senior
Securities (the "Pari Passu Securities").
---- -----
(3) Dividends. Other than dividends payable in respect of
---------
a Change of Control Event (as that term is defined below) in which
event the provisions of Section (4) below shall govern, the
holders of the Series A Preferred Stock shall receive dividends
paid in cash or property (excluding Common Stock of the
Corporation), at the rate of one percent (1% ) per share of Series
A Preferred Stock of the dividends that are payable with respect
to a share of the Corporation's Common Stock.
(4) Redemption.
----------
(a) The Corporation shall redeem all shares of
Series A Preferred Stock immediately upon the occurrence of a
"Change of Control Event," which defined term shall mean ( i) a
merger or consolidation of the
-2-
<PAGE>
Corporation, the sale or exchange of all or substantially all of
the Corporation'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 in cash, property and/or
securities; or (ii) the acquisition by any person, entity or group
(within the meaning of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) of voting securities of the Corporation
with the result that more than 50% of the voting power of the
securities of the Corporation then outstanding and entitled to
vote for directors of the Corporation is held by such person,
entity or group (the date on which the acquisition triggering this
clause (ii) occurs being herein referred to as the "Acquisition
Date"), provided the market value of the Common Stock of the
Corporation upon the Acquisition Date is at least $22.00 per share
(the amount per share received by holders of Common Stock in cash,
property and/or securities, with any such property or securities
being valued for purposes hereof at the fair market value thereof
as provided below, or the market price per share of Common Stock
described above being referred to as the "Transaction Price").
Upon the occurrence of a Change of Control Event, the Corporation
shall redeem all shares of Series A Preferred Stock and shall
immediately pay to each holder of Series A Preferred Stock, in
cash (or, in the event all or a portion of the amount received by
holders of Common Stock consists of securities or property, a pro
rata payment of such securities or property), a payment per each
share of the Series A 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.
(i) The fair market value of securities or
property received by holders of the Corporation's Common Stock as
a result of a transaction or event described in Section (4)(a)(i)
above shall be determined as follows: No later than 30 days (or as
soon thereafter as is practicable) before the effective date of
any such transaction or event, the Corporation shall notify the
holders of the Corporation's Series A Preferred Stock in writing
that (a) the Board of Directors of the Corporation wishes to make
the determination of the fair market value of such property or
securities, setting forth the estimate of the Board of Directors
of the fair market value of such property or securities; or (b)
the Board of Directors does not wish to determine such fair market
value, in which event the Corporation's notice shall contain the
name of a top-rank nationally recognized investment banking firm
which the Corporation proposes to determine such fair market value
by appraisal. The holders of the Series A Preferred Stock shall,
at any time on or before 15 days after such holders' receipt of
the Corporation's notice as aforesaid, provide the
-3-
<PAGE>
Corporation with written notice containing either (a) their
agreement that the Board of Directors shall determine the fair
market value of such property or securities, in which event the
determination of the Board of Directors of such fair market value
shall be final and binding; or (b) their agreement to the
determination of such fair market value by the investment banking
firm proposed by the Board of Directors of the Corporation, in
which event the determination of such firm shall be final and
binding; or (c) the name of a second top-rank nationally
recognized investment banking firm to perform such appraisal, in
which event the fair market value of such property or securities
shall be deemed to be the average of the fair market values
determined by such investment banking firms, which determination
shall be final and binding. If the Corporation shall fail to give
a notice as aforesaid, the fair market value of such property or
securities shall be determined by the investment banking firm
named by the holders of the Series A Preferred Stock; if such
holders fail to give a notice as aforesaid, such fair market value
shall be determined by the Board of Directors of the Corporation
or the investment banking firm named by the Corporation as
specified in the notice given by the Corporation. The
determination of the fair market value of such property or
securities shall be made at such time prior to the effectiveness
of the transaction or event described in Section (4)(a)(i) above
as the Board of Directors of the Corporation or the investment
banking firm or firms making such determination, as the case may
be, shall deem appropriate, based on the information reasonably
available at the time of such determination. The fees of such
investment banking firms shall be borne by the Corporation.
(ii) The market value of the Corporation's
Common Stock for purposes of Section (4)(a)(ii) above shall be the
higher of (a) the average Market Price (as defined below) of the
Corporation's Common Stock during any period of ten consecutive
trading days selected by the holders of the Series A Preferred
Stock during the 30 trading days immediately preceding the
Acquisition Date, or (b) the average fair market value per share
of the cash, securities and/or property paid by the acquiring
person, entity or group for the shares of the Corporation's Common
Stock. The fair market value of any property or securities paid as
all or part of the consideration by any such acquiring person,
entity or group shall be determined as follows: No later than 15
days after the date on which any such person, entity or group
becomes the holder of 50% or more of the voting power of the
voting securities of the Corporation as described in Section
(4)(a)(ii) above, the Corporation shall notify the holders of the
Series A Preferred Stock in writing that (a) the Board of
Directors of the Corporation has determined the fair market value
of such property or securities, setting forth the fair market
value so determined; or (b) the Board of Directors does not wish
to determine such fair market value, in which event the
Corporation's notice shall contain the name of a top-rank
-4-
<PAGE>
nationally recognized investment banking firm which the
Corporation proposes to determine such fair market value by
appraisal. The holders of the Series A Preferred Stock shall, at
any time on or before 15 days after such holders' receipt of the
Corporation's notice provide the Corporation with written notice
containing either (a) their agreement to the fair market value
determined by the Board of Directors, in which event such
determination shall be final and binding; or (b) their agreement
to the determination of such fair market value by the investment
banking firm proposed by the Board of Directors of the
Corporation, in which event the determination of such firm shall
be final and binding; or (c) the name of a second top-rank
nationally recognized investment banking firm to perform such
appraisal, in which event the fair market value of such property
or securities shall be deemed to be the average of the fair market
values determined by such investment banking firms, which
determination shall be final and binding. If the Corporation shall
fail to give a notice as aforesaid, the fair market value of such
property or securities shall be determined by the investment
banking firm named by the holders of the Series A Preferred Stock;
if such holders fail to give a notice as aforesaid, such fair
market value shall be determined by the Board of Directors of the
Corporation or the investment banking firm named by the
Corporation, as specified in the notice given by the Corporation.
The fees of such investment banking firms shall be borne by the
Corporation.
(iii) As referred to herein, the "Market Price"
of the Corporation's Common Stock shall mean, as of any date, the
mean between the high and low sales prices on the applicable date,
or if no sales price is available for such date, the mean between
the closing bid and asked prices for such date, of a share of
Common Stock (a) as reported by the principal national securities
exchange in the United States on which it is then traded, or (b)
if not traded on any such national securities exchange, as quoted
on an automated quotation system sponsored by the National
Association of Securities Dealers, or if the Common Stock shall
not have been reported or quoted on such date, on the first day
prior thereto on which the Common Stock was reported or quoted. If
the Common Stock is not readily tradeable on a national securities
exchange or any system sponsored by the National Association of
Securities Dealers, its Market Price shall be set by the Board of
Directors on the advice of a top-ranked nationally recognized
investment banking firm in good faith.
(b) The Corporation shall redeem any outstanding
shares of Series A Preferred Stock held by a holder of Series A
Preferred Stock employed by the Corporation (the "Employee")
immediately upon the written request of such Employee or the death
or termination of employment of such Employee (provided such
written request, death or termination of employment
-5-
<PAGE>
occurs prior to a Change of Control Event), in the following
manner:
(i) If (a) an Employee is terminated because of
death or disability (as such term is described in Section
(4)(b)(iv)(B) below); or (b) such Employee is terminated by the
Corporation not for cause (as such term is described in Section
(4)(b)(iv)(C) below); or (c) such Employee retires from the
Corporation at any time subsequent to any period of 10 consecutive
trading days at any time prior to such retirement during which
period the average Market Price of the Corporation's Common Stock
equals or exceeds $15.00 per share; or (d) such Employee delivers
a written request to the Corporation subsequent to any period of
10 consecutive trading days at any time prior to such request
during which period the average Market Price of the Corporation's
Common Stock equals or exceeds $22.00 per share, then, in any such
event, the Corporation shall immediately redeem the Series A
Preferred Stock held by such Employee at its fair market value at
the time of such termination of employment , as determined by
appraisal (as calculated in Section (4)(b)(iv)(A) below).
(ii) If the Employee's employment with the
Corporation terminates for any reason except as described in
Section (4)(b)(i) above, the Corporation shall immediately redeem
the Series A Preferred Stock held by such Employee at the lower of
the price paid to the Corporation for the shares of Series A
Preferred Stock upon the original issuance thereof or its fair
market value at the time of such termination of employment, as
determined by appraisal (as calculated in Article Section
(4)(b)(iv)(A) below).
(iii) Any shares of Series A Preferred Stock
held by any direct or indirect transferee of an Employee shall be
deemed held by such Employee for all purposes hereof, so that,
without limitation, the shares of Series A Preferred Stock held by
such transferee shall be redeemed upon the death or termination of
employment of such Employee as aforesaid.
(iv) For purposes of Sections (4)(b)(i) and
(4)(b)(ii) above, the following terms apply.
(A) Appraisal. The appraised fair
market value of the Series A Preferred Stock shall be determined
by a top-rank nationally recognized investment banking firm
mutually agreed upon by the Corporation and the holders of the
Series A Preferred Stock (or, in the event of death, any such
holder's representatives). In the event that such parties are
unable to
-6-
<PAGE>
agree upon such an investment banking firm within 30 days after
the Employee's termination of employment or, in the event of his
death, the qualification of his personal representatives, such
appraised fair market value shall be the average of the fair
market values of the Series A Preferred Stock determined by two
top-rank nationally recognized investment banking firms, one
selected by the Corporation and the other by the holders of Series
A Preferred Stock (or in the event of death, by such holder's
personal representatives), or if either party fails to make such
designation within 15 days after the aforesaid 30-day period, the
fair market value determined by the firm designated by the other
party. Any such determination by an investment banking firm or
firms as aforesaid shall be final and binding on the parties. The
fees of each such firm shall be borne by the Corporation.
(B) Disability. In the event the
Corporation and the Employee are unable to agree within 30 days
after the termination of employment of such holder whether such
termination of employment was by reason of the Employee's
disability, the question shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction
thereof.
(C) Cause. The Corporation's termination
of the Employee "for cause" shall mean the termination of the
Employee upon (i) Employee's commission of any felony or any
misdemeanor that involves fraud, moral turpitude or material loss
to the Corporation or any subsidiary thereof or its business or
reputation, (ii) Employee's embezzlement or misappropriation of
funds or property of the Corporation or any subsidiary thereof,
(iii) Employee's being sanctioned by state or federal authorities
for material violation of laws, rules or regulations applicable to
the Corporation's or any subsidiary's conduct of its business or
(iv) Employee's willful misconduct in the performance of his
reasonably assigned duties and obligations to the Corporation
which is materially adverse to the Corporation or any subsidiary
thereof or such Employee's unreasonable neglect or refusal to
perform reasonably assigned duties and obligations to the
Corporation (unless significantly changed without his consent). No
act, or failure to act, on Employee's part shall be considered
"willful" unless done, or omitted to be done, without good faith
and without reasonable belief that the action or omission was in
the best interest of the Corporation.
(c) Any redemption of the Series A Preferred Stock
by the Corporation under this Section (4) shall be made only out
of funds legally available therefor. In the event that a
redemption of the Series A Preferred Stock cannot be made in whole
or in part because of lack of funds legally
-7-
<PAGE>
available for such redemption, the Corporation shall redeem as
many shares of Series A Preferred Stock as possible, selected on a
pro rata basis among the holders of Series A Preferred Stock, at
the time provided for herein and the balance of the Series A
Preferred Stock shall be redeemed at the earliest time or times
that funds become legally available for such purpose. If funds are
not legally available to make any redemption required under
Section (4) above, the Corporation and the holders of Series A
Preferred Shares shall promptly agree in good faith upon
alternative means to provide the holders of Series A Preferred
Shares with substantially the same after-tax benefit which such
holders would have received if such redemption had been permitted.
Without limiting the provisions of the immediately preceding
sentence hereof, if the Corporation fails to provide payment of
the redemption price within 60 days after the date on which the
transaction or event triggering the redemption obligation occurs
(whether as a result of the lack of legally available funds or
otherwise, and without limiting the rights and remedies of the
holders of Series A Preferred Stock), (i) the redemption price
shall accrue interest at a rate of 6% per annum from the
expiration of such 60-day period, and (ii) the Corporation shall
be prohibited from paying any dividends on any Junior Securities
or Pari Passu Securities until such redemption payments have been
---- -----
made to the holders of Series A Preferred Stock as required under
Section 4.
(5) No Sinking Fund. The shares of Series A Preferred
---------------
Stock shall not be subject to the operation of a sinking fund.
(6) No Conversion. Holders of Series A Preferred Stock
-------------
shall not have any rights to convert their shares of Series A
Preferred Stock into Common Stock or any other securities of the
Corporation.
(7) Voting Rights. The holders of the shares of Series A
-------------
Preferred Stock shall be entitled to vote on all matters upon
which the holders of Common Stock are entitled to vote, with each
share of Series A Preferred Stock entitling the holder thereof to
one vote per share of Series A Preferred Stock held. Except as is
expressly provided by the Business Corporation Law of the State of
New York (the "BCL"), the holders of the Series A Preferred Stock
and the Corporation's Common Stock shall vote as a single class.
To the extent that under the BCL holders of the Series A
Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series A
Preferred Stock shall be entitled to a number of votes equal to
the number of shares of Series A Preferred Stock held. Holders of
the Series A Preferred Stock shall be entitled to notice of all
shareholder meetings or written consents (and copies of proxy
materials and other information sent to shareholders) with respect
to which they would be
-8-
<PAGE>
entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the BCL.
(8) Liquidation Preference.
----------------------
(a) If the Corporation shall commence a voluntary
case under the Federal bankruptcy laws or any other applicable
Federal or State bankruptcy, insolvency or similar law, or consent
to the entry of an order for relief in an involuntary case under
any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of
the Corporation or of any substantial part of its property, or
make an assignment for the benefit of its creditors, or admit in
writing its inability to pay its debts generally as they become
due, or if a decree or order for relief in respect of the
Corporation shall be entered by a court having jurisdiction in the
premises in an involuntary case under the Federal bankruptcy laws
or any other applicable Federal or State bankruptcy, insolvency or
similar law resulting in the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of
its property, or ordering the winding up or liquidation of its
affairs, and any such decree or order shall be unstayed and in
effect for a period of sixty (60) consecutive days and, on account
of any such event, the Corporation shall liquidate, dissolve or
wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up, no distribution shall be made to the holders of any
shares of capital stock of the Corporation (other than Senior
Securities) upon liquidation, dissolution or winding up unless
prior thereto, the holders of shares of Series A Preferred Stock,
shall have received the Liquidation Preference (as defined in
Section (8)(c) below) with respect to each share. If upon the
liquidation, dissolution or winding up of the Corporation the
assets and funds available for distribution among the holders of
the Series A Preferred Stock and holders of Pari Passu Securities
---- -----
shall be insufficient to permit the payment to such holders of the
Liquidation Amount payable thereon, then the entire assets and
funds of the Corporation legally available for distribution to the
Series A Preferred Stock and the Pari Passu Securities shall be
---- -----
distributed ratably among such shares in proportion to the ratio
that the Liquidation Amount payable on each such share bears to
the aggregate Liquidation Amount payable on all such shares.
(b) The Liquidation Amount shall mean the greater of
(i) the amount payable pursuant to Section (4) above in the event
the liquidation, dissolution or winding up constitutes a Change of
Control Event, or (ii) the Liquidation Preference (as such term is
defined in Section (8)(c) below).
(c) For purposes hereof, the "Liquidation
Preference" with respect
-9-
<PAGE>
to the Series A Preferred Stock shall mean a liquidation
distribution at the rate of one percent (1%) per share of Series A
Preferred Stock of the liquidation distribution which would be
payable (but for the distribution to the holders of the Series A
Preferred Stock under this Section (8) and for the distribution to
the holders of the Corporation's Series B Preferred Stock) per
each share of Common Stock. Upon any liquidation, dissolution or
winding up of the Corporation, without limiting the provisions of
Section (8)(a) above, the holders of Series A Preferred Stock
shall be entitled to payment in full of the Liquidation Preference
prior to any distribution in respect of the Corporation's Common
Stock or Junior Securities.
(9) Antidilution. In the event of any reorganization,
------------
recapitalization, reclassification, stock dividend, stock split or
similar event affecting the Corporation's Common Stock, the Board
of Directors of the Corporation shall make an appropriate
adjustment in the dividend, redemption, voting and liquidation
rights regarding the Series A Preferred Stock referred to in
Sections (3), (4), (7) and (8) above.
(10) No Preemptive Rights. The holders of the Series A
--------------------
Preferred Stock of the Corporation shall have no preemptive rights
with respect to issuance of Common Stock or any other class of
equity shares of the Corporation, nor with respect to the granting
by the Corporation of rights or options to purchase its equity
shares of any class or the issuance of shares or other securities
convertible into or carrying rights or options to purchase its
equity shares of any class. Nothing in this Certificate of
Amendment purports to create preemptive rights in any other class
of securities authorized and issued by the Corporation.
(11) Protective Provisions.
(a) So long as shares of Series A Preferred Stock
are outstanding, the Corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by
the BCL) of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock:
(i) Alter or change the rights, preferences or
privileges of the Series A Preferred Stock so as to affect
adversely the Series A Preferred Stock;
(ii) Increase the authorized number of shares
of Series A Preferred Stock; or
(iii) Do any act or thing not authorized or
contemplated by
-10-
<PAGE>
this Certificate of Amendment which would result in taxation of
the holders of shares of the Series A Preferred Stock under
Section 305 of the Internal Revenue Code of 1986, as amended (or
any comparable provision of the Internal Revenue Code as hereafter
from time to time amended).
(b) Any determination or other action by the holders
of Series A Preferred Stock shall be made by the holders of at
least a majority of the then outstanding shares of Series A
Preferred Stock, which determination or action shall be final and
binding on all such holders.
F.
SERIES B PREFERRED STOCK
------------------------
Pursuant to the authority granted to and vested in the
Board of Directors in accordance with the provisions of the
Certificate of Incorporation, the Board of Directors has
authorized a separate series of the Corporation's Preferred Stock,
par value $.01 per share, and has stated the designation and
number of shares, and has fixed the relative rights, preferences,
privileges, powers and restrictions thereof as follows:
(1) Designation and Amount. The designation of this
----------------------
series, which consists of Three Hundred Sixty-Four Thousand
Sixty-Six (364,066) shares of Preferred Stock, is Series B
Preferred Stock (the "Series B Preferred Stock").
(2) Rank. The Series B Preferred Stock shall rank (i)
----
senior to the Corporation's Common Stock, par value $.01 per share
(the "Common Stock") with respect to the Liquidation Preference
described in Section (8) below; (ii) pari passu with the
---- -----
Corporation's Common Stock as to dividends and (except as set
forth in clause (i) above) distributions of assets upon
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary; (iii) senior as to dividends and as to
distribution of assets upon liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, to any class
or series of capital stock established by the Corporation after
the date hereof, the terms of which specifically shall provide
that such shares rank junior to the Series B Preferred Stock (the
"Junior Securities"); (iv) junior as to dividends and as to
distribution of assets upon liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, to any class
or series of capital stock established by the Corporation after
the date hereof, the terms of which specifically shall provide
that such shares rank senior to the Series B Preferred Stock (the
"Senior Securities"); and (v) pari passu as to dividends and
---- -----
distribution of assets upon liquidation, dissolution or winding up
of the Corporation, whether voluntary
-11-
<PAGE>
or involuntary, with the Corporation's Series A Preferred Stock
and with any class or series of capital stock established by the
Corporation after the date hereof that does not constitute Junior
Securities or Senior Securities (the "Pari Passu Securities").
---- -----
(3) Dividends. Other than dividends payable in respect of
---------
a Change of Control Event (as that term is defined below) in which
event the provisions of Section (4) below shall govern, the
holders of the Series B Preferred Stock shall receive dividends
paid in cash or property (excluding Common Stock of the
Corporation), at the rate of one percent (1% ) per share of Series
B Preferred Stock of the dividends that are payable with respect
to a share of the Corporation's Common Stock.
(4) Redemption.
----------
(a) The Corporation shall redeem all shares of
Series B Preferred Stock immediately upon the occurrence of a
"Change of Control Event," which defined term shall mean ( i) a
merger or consolidation of the Corporation, the sale or exchange
of all or substantially all of the Corporation's assets or 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 in
cash, property and/or securities; or (ii) the acquisition by any
person, entity or group (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended) of voting
securities of the Corporation with the result that more than 50%
of the voting power of the securities of the Corporation then
outstanding and entitled to vote for directors of the Corporation
is held by such person, entity or group (the date on which the
acquisition triggering this clause (ii) occurs being herein
referred to as the "Acquisition Date"), provided the market value
of the Common Stock of the Corporation upon the Acquisition Date
is at least $15.00 per share (the amount per share received by
holders of Common Stock in cash, property and/or securities, with
any such property or securities being valued for purposes hereof
at the fair market value thereof as provided below, or the market
price per share of Common Stock described above being referred to
as the "Transaction Price"). Upon the occurrence of a Change of
Control Event, the Corporation shall redeem all shares of Series B
Preferred Stock and shall immediately pay to each holder of Series
B Preferred Stock, in cash (or, in the event all or a portion of
the amount received by holders of Common Stock consists of
securities or property, a pro rata payment of such securities or
property), a payment per each share of the Series B Preferred
Stock equal to 100% of the excess of the Transaction Price per
share over $10.00.
(i) The fair market value of securities or
property received by
-12-
<PAGE>
holders of the Corporation's Common Stock as a result of a
transaction or event described in Section (4)(a)(i) above shall be
determined as follows: No later than 30 days (or as soon
thereafter as is practicable) before the effective date of any
such transaction or event, the Corporation shall notify the
holders of the Corporation's Series B Preferred Stock in writing
that (a) the Board of Directors of the Corporation wishes to make
the determination of the fair market value of such property or
securities, setting forth the estimate of the Board of Directors
of the fair market value of such property or securities; or (b)
the Board of Directors does not wish to determine such fair market
value, in which event the Corporation's notice shall contain the
name of a top-rank nationally recognized investment banking firm
which the Corporation proposes to determine such fair market value
by appraisal. The holders of the Series B Preferred Stock shall,
at any time on or before 15 days after such holders' receipt of
the Corporation's notice as aforesaid, provide the Corporation
with written notice containing either (a) their agreement that the
Board of Directors shall determine the fair market value of such
property or securities, in which event the determination of the
Board of Directors of such fair market value shall be final and
binding; or (b) their agreement to the determination of such fair
market value by the investment banking firm proposed by the Board
of Directors of the Corporation, in which event the determination
of such firm shall be final and binding; or (c) the name of a
second top-rank nationally recognized investment banking firm to
perform such appraisal, in which event the fair market value of
such property or securities shall be deemed to be the average of
the fair market values determined by such investment banking
firms, which determination shall be final and binding. If the
Corporation shall fail to give a notice as aforesaid, the fair
market value of such property or securities shall be determined by
the investment banking firm named by the holders of the Series B
Preferred Stock; if such holders fail to give a notice as
aforesaid, such fair market value shall be determined by the Board
of Directors of the Corporation or the investment banking firm
named by the Corporation as specified in the notice given by the
Corporation. The determination of the fair market value of such
property or securities shall be made at such time prior to the
effectiveness of the transaction or event described in Section
(4)(a)(i) above as the Board of Directors of the Corporation or
the investment banking firm or firms making such determination, as
the case may be, shall deem appropriate, based on the information
reasonably available at the time of such determination. The fees
of such investment banking firms shall be borne by the
Corporation.
(ii) The market value of the Corporation's
Common Stock for purposes of Section (4)(a)(i) above shall be the
higher of (a) the average Market Price (as defined below) of the
Corporation's Common Stock during any period of ten consecutive
trading days selected by the holders of the Series
-13-
<PAGE>
B Preferred Stock during the 30 trading days immediately preceding
the Acquisition Date, or (b) the average fair market value per
share of the cash, securities and/or property paid by the
acquiring person, entity or group for the shares of the
Corporation's Common Stock. The fair market value of any property
or securities paid as all or part of the consideration by any such
acquiring person, entity or group shall be determined as follows:
No later than 15 days after the date on which any such person,
entity or group becomes the holder of 50% or more of the voting
power of the voting securities of the Corporation as described in
Section (4)(a)(ii) above, the Corporation shall notify the holders
of the Series B Preferred Stock in writing that (a) the Board of
Directors of the Corporation has determined the fair market value
of such property or securities, setting forth the fair market
value so determined; or (b) the Board of Directors does not wish
to determine such fair market value, in which event the
Corporation's notice shall contain the name of a top-rank
nationally recognized investment banking firm which the
Corporation proposes to determine such fair market value by
appraisal. The holders of the Series B Preferred Stock shall, at
any time on or before 15 days after such holders' receipt of the
Corporation's notice provide the Corporation with written notice
containing either (a) their agreement to the fair market value
determined by the Board of Directors, in which event such
determination shall be final and binding; or (b) their agreement
to the determination of such fair market value by the investment
banking firm proposed by the Board of Directors of the
Corporation, in which event the determination of such firm shall
be final and binding; or (c) the name of a second top-rank
nationally recognized investment banking firm to perform such
appraisal, in which event the fair market value of such property
or securities shall be deemed to be the average of the fair market
values determined by such investment banking firms, which
determination shall be final and binding. If the Corporation shall
fail to give a notice as aforesaid, the fair market value of such
property or securities shall be determined by the investment
banking firm named by the holders of the Series B Preferred Stock;
if such holders fail to give a notice as aforesaid, such fair
market value shall be determined by the Board of Directors of the
Corporation or the investment banking firm named by the
Corporation, as specified in the notice given by the Corporation.
The fees of such investment banking firms shall be borne by the
Corporation.
(iii) As referred to herein, the "Market Price"
of the Corporation's Common Stock shall mean, as of any date, the
mean between the high and low sales prices on the applicable date,
or if no sales price is available for such date, the mean between
the closing bid and asked prices for such date, of a share of
Common Stock (a) as reported by the principal national securities
exchange in the United States on which it is then traded, or (b)
if not traded on any such national securities exchange, as quoted
on an
-14-
<PAGE>
automated quotation system sponsored by the National Association
of Securities Dealers, or if the Common Stock shall not have been
reported or quoted on such date, on the first day prior thereto on
which the Common Stock was reported or quoted. If the Common Stock
is not readily tradeable on a national securities exchange or any
system sponsored by the National Association of Securities
Dealers, its Market Price shall be set by the Board of Directors
on the advice of a top-ranked nationally recognized investment
banking firm in good faith.
(b) The Corporation shall redeem any outstanding
shares of Series B Preferred Stock held by a holder of Series B
Preferred Stock employed by the Corporation (the "Employee")
immediately upon the written request of such Employee or the death
or termination of employment of such Employee (provided such
written request, death or termination of employment occurs prior
to a Change of Control Event), in the following manner:
(i) If (a) an Employee is terminated because of
death or disability (as such term is described in Section
(4)(b)(iv)(B) below); or (b) such Employee is terminated by the
Corporation not for cause (as such term is described in Section
(4)(b)(iv)(C) below); or (c) such Employee retires from the
Corporation at any time subsequent to any period of 10 consecutive
trading days at any time prior to such retirement during which
period the average Market Price of the Corporation's Common Stock
equals or exceeds $15.00 per share; or (d) such Employee delivers
a written request to the Corporation subsequent to any period of
10 consecutive trading days at any time prior to such request
during which period the average Market Price of the Corporation's
Common Stock equals or exceeds $15.00 per share, then, in any such
event, the Corporation shall immediately redeem the Series B
Preferred Stock held by such Employee at its fair market value at
the time of such termination of employment, as determined by
appraisal (as calculated in Section (4)(b)(iv)(A) below).
(ii) If the Employee's employment with the
Corporation terminates for any reason except as described in
Section (4)(b)(i) above, the Corporation shall immediately redeem
the Series B Preferred Stock held by such Employee at the lower of
the price paid to the Corporation for the shares of Series B
Preferred Stock upon the original issuance thereof or its fair
market value at the time of such termination of employment, as
determined by appraisal (as calculated in Article Section
(4)(b)(iv)(A) below).
(iii) Any shares of Series B Preferred Stock
held by any direct or indirect transferee of an Employee shall be
deemed held by such Employee for all purposes hereof, so that,
without limitation, the shares of
-15-
<PAGE>
Series B Preferred Stock held by such transferee shall be redeemed
upon the death or termination of employment of such Employee as
aforesaid.
(iv) For purposes of Sections (4)(b)(i) and
(4)(b)(ii) above, the following terms apply.
(A) Appraisal. The appraised fair
market value of the Series B Preferred Stock shall be determined
by a top-rank nationally recognized investment banking firm
mutually agreed upon by the Corporation and the holders of the
Series B Preferred Stock (or, in the event of death, any such
holder's representatives). In the event that such parties are
unable to agree upon such an investment banking firm within 30
days after the Employee's termination of employment or, in the
event of his death, the qualification of his personal
representatives, such appraised fair market value shall be the
average of the fair market values of the Series B Preferred Stock
determined by two top-rank nationally recognized investment
banking firms, one selected by the Corporation and the other by
the holders of Series B Preferred Stock (or in the event of death,
by such holder's personal representatives), or if either party
fails to make such designation within 15 days after the aforesaid
30-day period, the fair market value determined by the firm
designated by the other party. Any such determination by an
investment banking firm or firms as aforesaid shall be final and
binding on the parties. The fees of each such firm shall be borne
by the Corporation.
(B) Disability. In the event the
Corporation and the Employee are unable to agree within 30 days
after the termination of employment of such holder whether such
termination of employment was by reason of the Employee's
disability, the question shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction
thereof.
(C) Cause. The Corporation's termination
of the Employee "for cause" shall mean the termination of the
Employee upon (i) Employee's commission of any felony or any
misdemeanor that involves fraud, moral turpitude or material loss
to the Corporation or any subsidiary thereof or its business or
reputation, (ii) Employee's embezzlement or misappropriation of
funds or property of the Corporation or any subsidiary thereof,
(iii) Employee's being sanctioned by state or federal authorities
for material violation of laws, rules or regulations applicable to
the Corporation's or any subsidiary's conduct of its business or
(iv) Employee's willful misconduct in the performance of his
reasonably assigned duties and obligations to the Corporation
which is materially adverse to the Corporation
-16-
<PAGE>
or any subsidiary thereof or such Employee's unreasonable neglect
or refusal to perform reasonably assigned duties and obligations
to the Corporation (unless significantly changed without his
consent). No act, or failure to act, on Employee's part shall be
considered "willful" unless done, or omitted to be done, without
good faith and without reasonable belief that the action or
omission was in the best interest of the Corporation.
(c) Any redemption of the Series B Preferred Stock
by the Corporation under this Section (4) shall be made only out
of funds legally available therefor. In the event that a
redemption of the Series B Preferred Stock cannot be made in whole
or in part because of lack of funds legally available for such
redemption, the Corporation shall redeem as many shares of Series
B Preferred Stock as possible, selected on a pro rata basis among
the holders of Series B Preferred Stock, at the time provided for
herein and the balance of the Series B Preferred Stock shall be
redeemed at the earliest time or times that funds become legally
available for such purpose. If funds are not legally available to
make any redemption required under Section (4) above, the
Corporation and the holders of Series B Preferred Shares shall
promptly agree in good faith upon alternative means to provide the
holders of Series B Preferred Shares with substantially the same
after-tax benefit which such holders would have received if such
redemption had been permitted. Without limiting the provisions of
the immediately preceding sentence hereof, if the Corporation
fails to provide payment of the redemption price within 60 days
after the date on which the transaction or event triggering the
redemption obligation occurs (whether as a result of the lack of
legally available funds or otherwise, and without limiting the
rights and remedies of the holders of Series B Preferred Stock),
(i) the redemption price shall accrue interest at a rate of 6% per
annum from the expiration of such 60-day period, and (ii) the
Corporation shall be prohibited from paying any dividends on any
Junior Securities or Pari Passu Securities until such redemption
---- -----
payments have been made to the holders of Series B Preferred Stock
as required under Section (4).
(5) No Sinking Fund. The shares of Series B Preferred
---------------
Stock shall not be subject to the operation of a sinking fund.
(6) No Conversion. Holders of Series B Preferred Stock
-------------
shall not have any rights to convert their shares of Series B
Preferred Stock into Common Stock or any other securities of the
Corporation.
(7) Voting Rights. The holders of the shares of Series B
-------------
Preferred Stock shall be entitled to vote on all matters upon
which the holders of Common Stock are entitled to vote, with each
share of Series B Preferred Stock entitling the holder thereof to
one-half vote per share of Series B
-17-
<PAGE>
Preferred Stock held. Except as is expressly provided by the
Business Corporation Law of the State of New York (the "BCL"), the
holders of the Series B Preferred Stock and the Corporation's
Common Stock shall vote as a single class.
To the extent that under the BCL holders of the Series B
Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series B
Preferred Stock shall be entitled to a number of votes equal to
the number of shares of Series B Preferred Stock held. Holders of
the Series B Preferred Stock shall be entitled to notice of all
shareholder meetings or written consents (and copies of proxy
materials and other information sent to shareholders) with respect
to which they would be entitled to vote, which notice would be
provided pursuant to the Corporation's bylaws and the BCL.
(8) Liquidation Preference.
----------------------
(a) If the Corporation shall commence a voluntary
case under the Federal bankruptcy laws or any other applicable
Federal or State bankruptcy, insolvency or similar law, or consent
to the entry of an order for relief in an involuntary case under
any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of
the Corporation or of any substantial part of its property, or
make an assignment for the benefit of its creditors, or admit in
writing its inability to pay its debts generally as they become
due, or if a decree or order for relief in respect of the
Corporation shall be entered by a court having jurisdiction in the
premises in an involuntary case under the Federal bankruptcy laws
or any other applicable Federal or State bankruptcy, insolvency or
similar law resulting in the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of
its property, or ordering the winding up or liquidation of its
affairs, and any such decree or order shall be unstayed and in
effect for a period of sixty (60) consecutive days and, on account
of any such event, the Corporation shall liquidate, dissolve or
wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up, no distribution shall be made to the holders of any
shares of capital stock of the Corporation (other than Senior
Securities) upon liquidation, dissolution or winding up unless
prior thereto, the holders of shares of Series B Preferred Stock,
shall have received the Liquidation Preference (as defined in
Section (8)(c) below) with respect to each share. If upon the
liquidation, dissolution or winding up of the Corporation the
assets and funds available for distribution among the holders of
the Series B Preferred Stock and holders of Pari Passu Securities
---- -----
shall be insufficient to permit the payment to such holders of the
Liquidation Amount payable
-18-
<PAGE>
thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series B Preferred Stock
and the Pari Passu Securities shall be distributed ratably among
---- -----
such shares in proportion to the ratio that the Liquidation Amount
payable on each such share bears to the aggregate Liquidation
Amount payable on all such shares.
(b) The Liquidation Amount shall mean the greater of
(i) the amount payable pursuant to Section (4) above in the event
the liquidation, dissolution or winding up constitutes a Change of
Control Event, or (ii) the Liquidation Preference (as such term is
defined in Section (8)(c) below).
(c) For purposes hereof, the "Liquidation
Preference" with respect to the Series A Preferred Stock shall
mean a liquidation distribution at the rate of one percent (1%)
per share of Series B Preferred Stock of the liquidation
distribution which would be payable (but for the distribution to
the holders of the Series B Preferred Stock under this Section (8)
and for the distribution to the holders of the Corporation's
Series A Preferred Stock) per each share of Common Stock. Upon any
liquidation, dissolution or winding up of the Corporation, without
limiting the provisions of Section (8)(a) above, the holders of
Series B Preferred Stock shall be entitled to payment in full of
the Liquidation Preference prior to any distribution in respect of
the Corporation's Common Stock or Junior Securities.
(9) Antidilution. In the event of any reorganization,
------------
recapitalization, reclassification, stock dividend, stock split or
similar event affecting the Corporation's Common Stock, the Board
of Directors of the Corporation shall make an appropriate
adjustment in the dividend, redemption, voting and liquidation
rights regarding the Series B Preferred Stock referred to in
Sections (3), (4), (7) and (8) above.
(10) No Preemptive Rights. The holders of the Series B
--------------------
Preferred Stock of the Corporation shall have no preemptive rights
with respect to issuance of Common Stock or any other class of
equity shares of the Corporation, nor with respect to the granting
by the Corporation of rights or options to purchase its equity
shares of any class or the issuance of shares or other securities
convertible into or carrying rights or options to purchase its
equity shares of any class. Nothing in this Certificate of
Amendment purports to create preemptive rights in any other class
of securities authorized and issued by the Corporation.
(11) Protective Provisions.
---------------------
(a) So long as shares of Series B Preferred Stock
are outstanding,
-19-
<PAGE>
the Corporation shall not, without first obtaining the approval
(by vote or written consent, as provided by the BCL) of the
holders of at least a majority of the then outstanding shares of
Series B Preferred Stock:
(i) Alter or change the rights, preferences or
privileges of the Series B Preferred Stock so as to affect
adversely the Series B Preferred Stock;
(ii) Increase the authorized number of shares
of Series B Preferred Stock; or
(iii) Do any act or thing not authorized or
contemplated by this Certificate of Amendment which would result
in taxation of the holders of shares of the Series B Preferred
Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code
as hereafter from time to time amended).
(b) Any determination or other action by the holders
of Series B Preferred Stock shall be made by the holders of at
least a majority of the then outstanding shares of Series B
Preferred Stock, which determination or action shall be final and
binding on all such holders.
5. The manner in which the foregoing amendment of the
Certificate of Incorporation was authorized is as follows: The Board of
Directors of the Corporation authorized the amendment under the authority vested
in said Board under the provisions of the Certificate of Incorporation and of
Section 502 of the Business Corporation Law, and such amendment was approved by
the affirmative written consent of all of the issued and outstanding shares of
Series A and Series B Preferred Stock of the Corporation.
-20-
<PAGE>
IN WITNESS WHEREOF, we have subscribed this document on
December 23, 1997 and do hereby affirm, under the penalties of perjury, that the
statements contained therein have been examined by us and are true and correct.
PRICE COMMUNICATIONS CORPORATION
By:/s/
----------------------------
Robert Price
President
By:/s/
----------------------------
Kim I. Pressman
Secretary
-21-
<PAGE>
EXHIBIT 10.15
SECOND AMENDMENT TO RIGHTS AGREEMENT
SECOND AMENDMENT TO RIGHTS AGREEMENT, dated as of April 7,
1995, between Price Communications Corporation and Harris Trust Company of New
York, as Rights Agent.
The parties hereby agree as follows:
1. That certain Rights Agreement dated as of October 6, 1994
between the parties hereto, as heretofore amended (the "Agreement"), is hereby
further amended as provided in paragraphs (a) and (b) below:
(a) Section 11(a)(i) of the Agreement is amended to read in
its entirety as follows:
11(a)(i). In the event the Corporation
shall at any time after the date of this
Agreement (A) declare a dividend on the
Common Shares payable in Common Shares, (B)
subdivide the outstanding Common Shares, (C)
combine the outstanding Common Shares into a
smaller number of Common Shares or (D) issue
any shares of its capital stock in a
reclassification of the Common Shares
(including any such reclassification in
connection with a consolidation or merger in
which the Corporation is the continuing or
surviving corporation), except as otherwise
provided in this Section 11(a) and Section
7(e) hereof, the Purchase Price in effect at
the time of the record date for such dividend
or of the effective date of such subdivision,
combination or reclassification, and the
number and kind of shares of capital stock
issuable on such date, shall be
proportionately adjusted so that the holder
of any Right exercised after such time shall
be entitled to receive the aggregate number
and kind of shares of capital stock which, if
such Right had been exercised immediately
prior to such date and at a time when the
<PAGE>
Common Shares transfer books of the
Corporation were open, such holder would have
owned upon such exercise and been entitled to
receive by virtue of such dividend,
subdivision, combination or reclassification;
provided, however, that in no event shall the
consideration to be paid upon the exercise of
any Right be less than the aggregate par
value of the shares of capital stock of the
Corporation issuable upon exercise of such
Right. Notwithstanding anything to the
contrary in the preceding sentence, in the
event that any time after the date of this
Agreement and prior to the Distribution Date
the Corporation shall take any action
described in clause (A), (B) or (C) of the
preceding sentence, then in any such case no
adjustment shall be made pursuant to the
immediately preceding sentence and (i) the
number of Common Shares receivable after such
event upon exercise of any Right shall be
adjusted by multiplying the number of Common
Shares so receivable immediately prior to
such event by a fraction, the numerator of
which shall be the number of Common Shares
outstanding immediately prior to such event
and the denominator of which shall be the
number of Common Shares outstanding
immediately after such event (except that in
the case of the declaration of a stock
dividend the denominator shall be the number
of shares outstanding immediately after
payment of such dividend, excluding any
shares issued after the record date other
than in connection with such dividend), and
(ii) each Common Share outstanding
immediately after such event shall have
associated with respect to it that number of
Rights that each Common Share outstanding
immediately prior to such event had
associated with respect to it. If an event
occurs which would require an adjustment
under both Section 11(a)(i) and Section
11(a)(ii), the adjustment provided for in
this Section 11(a)(i) shall be in addition
to, and shall be made prior to, any
adjustment required pursuant to Section
11(a)(ii).
2
<PAGE>
(b) Section 12 is hereby amended to read in its
entirety as follows:
Section 12. Certificate of Adjusted
-----------------------
Purchase Price or Number of Shares. Whenever
----------------------------------
an adjustment is made as provided in Section
11 or 13 hereof, the Corporation shall
promptly (a) prepare a certificate setting
forth such adjustment, and a brief statement
of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each
transfer agent for the Common Shares a copy
of such certificate and (c) mail a brief
summary thereof to each holder of a Right
Certificate in accordance with Section 26
hereof, provided, however, that in the event
that at any time prior to the Distribution
Date the Company shall take any action
described in clause (A), (B) or (C) of
Section 11(a)(i), then the Company shall not
be required to satisfy the obligations set
forth in clauses (a), (b) and (c) above. The
Rights Agent shall be fully protected in
relying on any such certificate and on any
adjustment therein contained and shall not be
deemed to have knowledge of such adjustment
unless and until it shall have received such
certificate. Notwithstanding anything in the
foregoing to the contrary, prior to the
earlier to occur of the Distribution Date and
the Share Acquisition Date, the Company may,
in its discretion, satisfy the obligation set
forth in clause (c) above by including such
summary in its next regular report to
shareholders.
3
<PAGE>
2. Except as aforesaid, the Agreement shall remain in
full force and effect and unchanged.
PRICE COMMUNICATIONS CORPORATION
By:_____________________________
Robert Price, President
HARRIS TRUST COMPANY OF NEW YORK,
as Rights Agent
By:_____________________________
Brian R. Sahlin, Assistant
Vice President
4
<PAGE>
EXHIBIT 10.16
THIRD AMENDMENT TO SHAREHOLDER RIGHTS AGREEMENT
That certain Shareholder Rights Agreement, between Price
Communications Corporation and Harris Trust Company, dated as of October 6,1994,
as heretofore amended as of January 12, 1995 and April 7, 1995, is hereby
further amended as of June 19, 1997, as follows:
1. The final unnumbered paragraph of Section 1(d) thereof is
hereby amended to read in its entirety as follows:
"Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, (i) the phrase 'then outstanding', when used with the
reference to a Person's Beneficial Ownership of securities of the
Corporation, shall mean the number of such securities then issued and
outstanding together with the number of such securities not then actually
issued and outstanding which (A) such Person would be deemed to own
beneficially hereunder and (B) any other Person has the right to acquire
from the Corporation (whether such right is exercisable immediately or
only after the passage of time) pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange rights,
rights (other than Rights), warrants or options, or otherwise; and (ii) a
Person shall not be deemed the 'Beneficial Owner' of and shall not be
deemed to 'beneficially own' any securities solely by virtue of the entering
into by such Person of any agreement to purchase such securities provided
that such agreement provides such Person's rights under such agreement
may be assigned to another Person or Persons and the actual purchaser of
such securities under such agreement is not an Acquiring Person."
2. The second sentence of Section 28 thereof is hereby
amended to read in its entirety as follows:
"Subject to clause (i)(B) of the final unnumbered paragraph of Section 1(d)
hereof, for all purposes of this Agreement, any calculation of the number
of Common Shares or other securities outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding Common Shares or any other securities of which any Person is
the Beneficial Owner, shall be made in accordance with the last sentence
of Rule 13d-3(d)(l)(i) of the General Rules and Regulations under the
Exchange Act as in effect on the date of this Agreement."
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed the
foregoing instrument on the date set forth above.
PRICE COMMUNICATIONS CORPORATION
By:________________________________
Robert Price, President
HARRIS TRUST COMPANY
By:________________________________
Authorized Signature
<PAGE>
EXHIBIT 10.17
December 23, 1997
Price Communications Corporation
45 Rockefeller Plaza
New York, New York 10020
Gentlemen:
I am pleased to confirm that in the event that I request a
redemption of my Series A Preferred Stock and/or Series B Preferred Stock
("Preferred Stock") of Price Communications Corporation (the "Company") under
subsection 4(b)(i)(d) of Paragraph E or Paragraph F, as the case may be, of
Article Fourth of the Certificate of Incorporation of the Company, the Board of
Directors may, provided that (i) the total indebtedness for borrowed money of
the Company and its subsidiaries (determined in accordance with generally
accepted accounting principles) on the date of such request equals or exceeds
$200 million and (ii) the exchange of the Company's Common Stock for my shares
of Preferred Stock contemplated by this letter is at this time of such request a
tax-free exchange to me, determine to satisfy the Company's obligation to
redeem the shares of Preferred Stock covered by such request by the issuance to
me of shares of Common Stock of the Corporation in exchange for such shares of
Preferred Stock, such Common Stock to be valued at the Market Price thereof (as
such term is defined in subsection 4(a)(iii) of Paragraph E or F, as the case
may be, of Article Fourth of the Company's Certificate of Incorporation) during
the ten consecutive trading days immediately preceding the date of my request.
If requested by me, the Company will use its best efforts to register under the
Securities Act of 1933, as amended, at the Company's expense, any shares of
Common Stock issued to me hereunder, in such fashion as I may reasonably
request. Except as set forth in this letter, the Company's obligations in
respect of my Preferred Stock shall remain in full force and effect and
unchanged.
Very truly yours,
Robert Price
AGREED:
PRICE COMMUNICATIONS CORPORATION
By: __________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.18
December 23, 1997
Price Communications Corporation
45 Rockefeller Plaza
New York, New York 10020
Gentlemen:
I am pleased to confirm that in the event I desire to sell or
otherwise transfer for value any of my shares of Series A Preferred Stock and/or
Series B Preferred Stock ("Preferred Stock") of Price Communications Corporation
(the "Company"), other than to a member of my family, I will give the Company at
least 20 days' advance written notice of such proposed transfer, including the
identity of the proposed transferee and the price and terms to be received by me
in respect of such transfer. The Company shall have a right of first refusal, if
desired by its Board of Directors, to purchase not less than all of the shares
of Preferred Stock proposed to be transferred by me at the same price and on
terms no less favorable to me than those of the proposed transfer. Such right of
first refusal may be exercised by written notice to me given at or before the
expiration of such 20-day period. The certificates representing shares of
Preferred Stock shall be appropriately legended to reflect the provisions of
this letter.
Very truly yours,
Robert Price
<PAGE>
EXHIBIT 10.19
WARRANT AGREEMENT
Dated as of
August 11, 1997
between
PRICE COMMUNICATIONS CELLULAR HOLDINGS INC.
PRICE COMMUNICATIONS CORPORATION
and
BANK OF MONTREAL TRUST COMPANY,
as the Warrant Agent
-----------------------------------------------------------
Warrants for
Common Stock of
Price Communications Corporation
-----------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I. Definitions.................................................... 2
SECTION 1.1 Definitions............................................... 2
SECTION 1.2 Other Definitions......................................... 5
SECTION 1.3 Rules of Construction..................................... 6
ARTICLE II. Warrant Certificates........................................... 6
SECTION 2.1 Form of Warrant Certificates.............................. 6
SECTION 2.2 Legends................................................... 7
SECTION 2.3 Execution and Delivery of Warrant
Certificates.................................. 8
SECTION 2.4 Loss or Mutilation........................................ 9
ARTICLE III. Exercise Terms................................................ 9
SECTION 3.1 Exercise Price............................................ 9
SECTION 3.2 Exercise Period........................................... 10
SECTION 3.3 Expiration................................................ 10
SECTION 3.4 Manner of Exercise........................................ 10
SECTION 3.5 Issuance of Warrant Shares................................ 11
SECTION 3.6 Fractional Warrant Shares................................. 11
SECTION 3.7 Reservation of Warrant Shares............................. 11
SECTION 3.8 Compliance with Law....................................... 12
ARTICLE IV. Antidilution Provisions........................................ 13
SECTION 4.1 Changes in Common Stock................................... 13
SECTION 4.2 Cash Dividends and Other Distributions.................... 13
SECTION 4.3 Rights Issue.............................................. 14
SECTION 4.4 Combination; Liquidation.................................. 15
SECTION 4.5 Other Events.............................................. 16
SECTION 4.6 Superseding Adjustment.................................... 17
SECTION 4.7 Minimum Adjustment........................................ 17
SECTION 4.8 Notice of Adjustment...................................... 18
SECTION 4.9 Notice of Certain Transactions............................ 18
SECTION 4.10 Adjustment to Warrant Certificate........................ 19
ARTICLE V. Transferability................................................ 19
SECTION 5.1 Transfer and Exchange of Warrants......................... 19
SECTION 5.2 Registration of Transfers and Exchanges................... 21
SECTION 5.3 Surrender of Warrant Certificates......................... 22
(i)
<PAGE>
Page
----
ARTICLE VI. Company's Special Right of Repurchase.......................... 23
SECTION 6.1............................................................ 23
ARTICLE VII. Warrant Agent................................................. 24
SECTION 7.1 Appointment of Warrant Agent............................. 24
SECTION 7.2 Rights and Duties of Warrant Agent....................... 24
SECTION 7.3 Individual Rights of Warrant Agent....................... 26
SECTION 7.4 Warrant Agent's Disclaimer............................... 26
SECTION 7.5 Compensation and Indemnity............................... 26
SECTION 7.6 Successor Warrant Agent.................................. 27
ARTICLE VIII. Miscellaneous................................................. 29
SECTION 8.1 Company Resales.......................................... 29
SECTION 8.2 SEC Reports and Other Information........................ 29
SECTION 8.3 Persons Benefitting...................................... 29
SECTION 8.4 Rights of Holders........................................ 29
SECTION 8.5 Amendment................................................ 29
SECTION 8.6 Notices.................................................. 30
SECTION 8.7 Governing Law............................................ 31
SECTION 8.8 Successors............................................... 31
SECTION 8.9 Multiple Originals....................................... 31
SECTION 8.10 Table of Contents........................................ 32
SECTION 8.11 Severability............................................. 32
SECTION 8.12 Further Assurances....................................... 32
(ii)
<PAGE>
WARRANT AGREEMENT (this "Agreement") dated as of August 8, 1997,
between PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. ("Holdings"), PRICE
COMMUNICATIONS CORPORATION, a New York corporation (together with its permitted
successors and assigns, the "Company"), and Bank of Montreal Trust Company, as
Warrant Agent (together with its permitted successors and assigns, the "Warrant
Agent").
WHEREAS, the Company, Holdings and Price Communications Cellular,
Inc. ("Cellular") have entered into a purchase agreement, dated July 31, 1997,
with NatWest Capital Markets Limited ("NatWest") and Wasserstein Perella
Securities, Inc. (together with NatWest, the "Purchasers"), in which Holdings
has agreed to sell to the Purchasers 153,400 Units each consisting of $1,000
aggregate principal amount at maturity of 13 1/2% Senior Secured Discount Notes
due 2007 (the "Notes") of Holdings and 3.44 Warrants (the "Warrants"), each
Warrant to purchase one share of Common Stock, par value $.01 per share (the
"Common Stock"), of the Company. The Notes will be issued under an indenture
dated as of August 11, 1997 (the "Indenture"), between Cellular, Holdings and
Bank of Montreal Trust Company, as trustee (the "Trustee"). Each Warrant
entitles the person in whose name the Warrant is registered (each a "Holder"),
upon exercise to receive from the Company, as adjusted as provided herein, one
fully paid and nonassessable share of Common Stock at the Exercise Price (as
defined in Section 3.1 herein); and
WHEREAS, the Notes will be detachable from the Warrants and upon
re-sale by the Purchasers will be immediately separated.
WHEREAS, the Company further desires the Warrant Agent to act on
behalf of the Company in connection with the issuances, division, transfer,
exchange, substitution and exercise of the Warrants, and the Warrant Agent is
willing to so act.
Each party agrees as follows for the benefit of the other party
and for the equal and ratable benefit of the holders of Warrants:
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<PAGE>
ARTICLE I.
Definitions
SECTION 1.1 Definitions. "Affiliate" of any specified Person
-----------
means (i) any other Person which, directly or indirectly, is controlling or
controlled by or under direct or indirect common control with such specified
Person, or (ii) any other Person who is a director or executive officer (A) of
such Person, (B) of any subsidiary of such specified Person, or (C) of any
Person described in clause (i) above. For purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. Affiliate shall also mean any beneficial owner of shares representing
10% or more of the total voting power of the Voting Stock (on a fully diluted
basis) of the Company or warrants to purchase such Voting Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Board" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board of Directors.
"Business Day" means each day that is not a Saturday, a Sunday or
a day on which banking institutions are not required to be open in New York City
or in the city where the Warrant Agent's principal corporate trust office is
located.
"Certificated Warrants" means certificated Warrants
in fully registered definitive form.
"Change of Control" shall have the meaning provided in the
Indenture provided that the Corporate Change shall not be deemed to be a Change
of Control.
"Combination" means an event in which the Company consolidates
with, merges with or into, or sells all or substantially all its property and
assets to another Person provided that the Corporate Change shall not be deemed
to be a Combination.
-2-
<PAGE>
"Common Stock" has the meaning ascribed thereto in
the preamble to this Agreement.
"Corporate Change" shall mean a corporate change, subject to
approval of the Company's shareholders, pursuant to which the Company would
become a wholly owned subsidiary of the Holding Company in a transaction in
which each share of capital stock and each option and warrant to purchase
capital stock of the Company (including the Warrants) outstanding immediately
prior to the consummation of such Corporate Change will be automatically
converted into a share of capital stock, option or warrant, as the case may be,
in each case with identical rights and an identical economic interest in the
Holding Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC pursuant thereto.
"Extraordinary Cash Dividend" means that portion, if any, of the
aggregate amount of all dividends or distributions (including by way of tender
or exchange offer to any of its equity holders) paid by the Company on its
Common Stock in any fiscal year that exceeds $1.0 million.
"Fair Market Value" means, with respect to any asset or property,
the price which could be negotiated in an arm's-length free market transaction,
for cash, between a willing seller and a willing buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair Market Value will
be determined, except as otherwise provided, (i) if such property or asset has a
Fair Market Value of less than $5 million, by any Officer of the Company or (ii)
if such property or asset has a Fair Market Value in excess of $5 million, by a
majority of the Board of Directors of the Company and evidenced by a Board
Resolution, dated within 30 days of the relevant transaction.
"Holding Company" shall mean a newly organized holding company
with a substantially identical certificate of incorporation, by-laws and capital
structure to those of the Company immediately prior to the consummation of the
Corporate Change.
"Institutional Accredited Investor" shall mean an institutional
"accredited investor" (as defined in rule
-3-
<PAGE>
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act.
"Issue Date" means the date on which Warrants are
initially issued.
"Market Value" means, in respect of one share of the Common Stock
of the Company (i) the average closing price per share for such Common Stock for
the thirty consecutive trading days immediately prior to the Triggering Date on
the New York Stock Exchange or such other United States national securities
exchange on which such Common Stock is listed and principally traded or, if such
securities are not listed on any national securities exchange, as reported by
the Nasdaq Stock Market, Inc. or, if not so reported by the Nasdaq Stock Market,
Inc., the average of the high bid and low asked quotations for one share of such
Common Stock as reported by the National Quotations Bureau Incorporated or
similar organization or (ii) if the closing price for such Common Stock cannot
be calculated in the manner specified in clause (i) at the relevant time, the
Fair Market Value of one share of such Common Stock (without giving effect to
any discount for lack of liquidity or to the fact that shares of such Common
Stock may not be registered under the Exchange Act) as of the Business Day
immediately preceding the Triggering Date as determined in an opinion letter
delivered and addressed to the Warrant Agent by an independent appraisal firm
appointed by the Company (or by a majority of the holders of the Warrants or
related Warrant Shares, as the case may be, if the Company fails to appoint one)
reasonably acceptable to the Warrant Agent.
"Merger" shall have the meaning provided in the Indenture.
"Officer" means the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Financial
Officer, any Executive Vice President or the Treasurer of the
Company.
"Parent" means any Person who beneficially owns, directly or
indirectly, all of the Voting Stock of the Company.
"Person" means any individual, corporation, company (including
any limited liability company), partnership, joint venture, trust,
unincorporated organization, government or any agency or political subdivision
thereof.
-4-
<PAGE>
"Redeemable Stock" means, with respect to any Person, any capital
stock that by its terms (or by the terms of any security into which it is
convertible or exchangeable) or otherwise (i) matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise, (ii) is or may
become redeemable or repurchasable at the option of the holder thereof, in whole
or in part, or (iii) is convertible or exchangeable for indebtedness.
"Repurchase Price" means $8.00 per Warrant, subject to adjustment
as provided herein.
"Restricted Warrant" means a Restricted Certificated Warrant.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Triggering Date" shall mean the date on which a holder exercises
any Warrant pursuant to Article III.
"Voting Stock" means all classes of capital stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Warrant Shares" means the Common Stock (and other securities)
issuable upon the exercise of the Warrants.
SECTION 1.2 Other Definitions.
-----------------
Defined in
Term Section
"Certificate Register"......................... 5.1
"Company" ................................. Recitals
"Exercise Price"............................... 3.1
"Expiration Date".............................. 3.2
"Holders" ................................. Recitals
"Repurchase Date".............................. 6.1
"Successor Company"............................ 4.4(a)
"Warrants"..................................... Recitals
"Warrant Agent"................................ Recitals
"Warrant Certificates"......................... 2.1
-5-
<PAGE>
SECTION 1.3 Rules of Construction. Unless the text otherwise
---------------------
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including, without limitation; and
(v) words in the singular include the plural and words in the
plural include the singular.
ARTICLE II.
Warrant Certificates
SECTION 2.1 Form of Warrant Certificates. Certificates
----------------------------
representing the Warrants (the "Warrant Certificates") shall be in registered
form only and substantially in the form attached hereto as Exhibit A. The
Warrant Certificates shall be dated the date on which countersigned by the
Warrant Agent and shall have such insertions as are appropriate or required or
permitted by this Agreement and may have such letters, numbers or other marks of
identification and such legends and endorsements typed, stamped, printed,
lithographed or engraved thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation pursuant thereto, or to
conform to usage. The Company shall approve the form of the Warrant Certificates
and any notation, legend or endorsement on them.
The terms and provisions contained in the form of the Warrant
Certificate annexed hereto as Exhibit A shall constitute, and are hereby
expressly made, a part of this Agreement.
The definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combina-
-6-
<PAGE>
tion of these methods, all as determined by the officer of the Company executing
such Warrant Certificates, as evidenced by such officer's execution of such
Warrant Certificates.
Pending the preparation of definitive Warrant Certificates,
temporary Warrant Certificates may be issued, which may be printed,
lithographed, typewritten, mimeographed or otherwise produced, and which will be
substantially of the tenor of the definitive Warrant Certificates in lieu of
which they are issued.
If temporary Warrant Certificates are issued, the Company will
cause definitive Warrant Certificates to be prepared without unreasonable delay.
After the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates to the Warrant Agent, without
charge to the Holder. Until so exchanged the temporary Warrant Certificates
shall in all respects be entitled to the same benefits under this Agreement as
definitive Warrant Certificates.
SECTION 2.2 Legends. Unless and until the Warrants and the
-------
Warrant Shares are included in an effective registration statement under the
Securities Act, each Warrant Certificate (and all Warrant Certificates issued in
exchange therefor or substitution thereof) and each certificate representing the
Warrant Shares shall bear a legend in substantially the following form (with any
appropriate modification for the Warrant Shares):
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN
THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT
AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A
BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED
INVESTOR") OR (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS SECURITY FOR
THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE
144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES
-7-
<PAGE>
ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE
TRANSFER OF THIS SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A)
TO PRICE COMMUNICATIONS CORPORATION (THE "COMPANY") OR ANY SUBSIDIARY THEREOF,
(B) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE
904 UNDER THE SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE, BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY), (D) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (E) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) AND, IN EACH CASE,
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
WARRANT AGREEMENT CONTAINS A PROVISION REQUIRING THE WARRANT AGENT TO REFUSE TO
REGISTER TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS.
SECTION 2.3 Execution and Delivery of Warrant Certificates.
----------------------------------------------
Warrant Certificates evidencing Warrants to purchase initially an aggregate of
up to 527,696 Warrant Shares may be executed, on or after the Issue Date, by the
Company and delivered to the Warrant Agent for countersignature, and the Warrant
Agent shall thereupon countersign and deliver such Warrant Certificates upon the
written order and at the direction of the Company to the purchasers thereof on
the date of issuance. The Warrant Agent is hereby authorized to countersign and
deliver Warrant Certificates as required by this Section 2.3 or by Section 2.4,
3.4, 5.3 or 5.4.
The Warrant Certificates shall be executed on behalf of the
Company by its President or any Executive Vice President or any Vice President,
either manually or by facsimile signature printed thereon. The Warrant
Certificates shall be countersigned manually by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. In case any officer of the
Company whose signature shall have been placed upon any of the Warrant
Certificates shall cease to be such officer of the Company before
counter-signature by the Warrant Agent and issuance and delivery thereof, such
Warrant Certificates may, nevertheless, be countersigned by the Warrant Agent
and issued and delivered
-8-
<PAGE>
with the same force and effect as though such person had not ceased to be such
officer of the Company.
SECTION 2.4 Loss or Mutilation. Upon receipt by the Company and
------------------
the Warrant Agent of evidence satisfactory to them of the ownership and the
loss, theft, destruction or mutilation of any Warrant Certificate and of
indemnity satisfactory to them and (in the case of mutilation) upon surrender
and cancellation thereof, then, in the absence of notice to the Company or the
Warrant Agent that the Warrants represented thereby have been acquired by a bona
fide purchaser, the Company shall execute and the Warrant Agent shall
countersign and deliver to the registered Holder of the lost, stolen, destroyed
or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new
Warrant Certificate of the same tenor and for a like aggregate number of
Warrants. Upon the issuance of any new Warrant Certificate under this Section
2.4, the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and other
expenses (including the reasonable fees and expenses of the Warrant Agent and of
counsel to the Company) in connection therewith. Every new Warrant Certificate
executed and delivered pursuant to this Section 2.4 in lieu of any lost, stolen
or destroyed Warrant Certificate shall constitute a contractual obligation of
the Company, whether or not the allegedly lost, stolen or destroyed Warrant
Certificates shall be at any time enforceable under applicable law, and shall be
entitled to the benefits of this Agreement equally and proportionately with any
and all other Warrant Certificates duly executed and delivered hereunder. The
provisions of this Section 2.4 are exclusive and shall preclude (to the extent
lawful) all other rights or remedies with respect to the replacement of
mutilated, lost, stolen or destroyed Warrant Certificates.
ARTICLE III.
Exercise Terms
SECTION 3.1 Exercise Price. Each Warrant shall initially entitle
--------------
the Holder thereof, subject to adjustment pursuant to the terms of this
Agreement, to purchase one share of Common Stock for an exercise price of $0.01
per share of Common Stock (the "Exercise Price"). The Exercise Price will be
payable at the Holder's' option by certified or cashier's check payable to the
order of the Company, or by any combination thereof. The Exercise Price may be
paid,
-9-
<PAGE>
without a payment in cash or check being required, for such number of Warrant
Shares equal to the product of (i) the number of Warrant Shares for which such
Warrant is exercisable as of the date of exercise (if the Exercise Price were
being paid in cash) and (ii) the Cashless Exercise Ratio. The Cashless Exercise
Ratio shall equal a fraction the numerator of which is the Market Value per
share of Common Stock on the date of exercise minus the Exercise Price per share
as of the date of exercise and the denominator of which is the Market Value per
share on the date of exercise.
SECTION 3.2 Exercise Period. (a) Subject to the terms and
---------------
conditions set forth herein, the Warrants will be exercisable upon the earlier
to occur of (i) the consummation of the Merger (provided that if the Merger does
not occur prior to December 31, 1997, the Warrants will be subject to special
redemption as provided in Section 6.1) and (ii) the occurrence of a Change of
Control (the "Exercise Date").
(b) No Warrant shall be exercisable after 5:00 p.m., New York
City time, on August 1, 2007 (the "Expiration Date").
SECTION 3.3 Expiration. A Warrant shall terminate and become void
----------
as of the earlier of (i) 5:00 p.m., New York City time on the Expiration Date or
(ii) the date such Warrant is exercised. The Company shall give notice not less
than 90, and not more than 120, days prior to the Expiration Date to the Holders
of all then outstanding Warrants to the effect that the Warrants will terminate
and become void as of the close of business on the Expiration Date; provided,
--------
however, that notwithstanding that the Company may fail to give notice as
- -------
provided in this Section 3.3, the Warrants will terminate and become void on the
Expiration Date.
SECTION 3.4 Manner of Exercise. Warrants may be exercised upon
------------------
surrender to the Warrant Agent of the Warrant Certificates, together with the
form of election to purchase Common Stock on the reverse thereof duly filled in
and signed by the Holder thereof. Subject to Section 3.2, the rights represented
by the Warrants shall be exercisable at the election of the Holders thereof
either in full at any time or from time to time in part and in the event that a
Warrant Certificate is surrendered for exercise in respect of less than all the
Warrant Shares purchasable on such exercise at any time prior to the expiration
of the Exercise Period a new Warrant Certificate exercisable for the remaining
Warrant Shares will be issued. The Warrant Agent shall countersign
-10-
<PAGE>
and deliver the required new Warrant Certificates, and the Company, at the
Warrant Agent's request, shall supply the Warrant Agent with Warrant
Certificates duly signed on behalf of the Company for such purpose.
SECTION 3.5 Issuance of Warrant Shares. Upon the surrender of
--------------------------
Warrant Certificates, as set forth in Section 3.4, the Warrant Agent will
requisition from the Company, and the Company shall issue and cause the transfer
agent for the Common Stock ("Stock Transfer Agent") to countersign and deliver
to or upon the written order of the Holder and in such name or names as the
Holder may designate, a certificate or certificates for the number of full
Warrant Shares so purchased upon the exercise of such Warrants or other
securities or property to which it is entitled, registered or otherwise, to the
Person or Persons entitled to receive the same, together with cash as provided
in Section 3.6 in respect of any fractional Warrant Shares otherwise issuable
upon such exercise. Such certificate or certificates shall be deemed to have
been issued and any Person so designated to be named therein shall be deemed to
have become a holder of record of such Warrant Shares as of the date of the
surrender of such Warrant Certificates and payment of the per share Exercise
Price, as aforesaid.
SECTION 3.6 Fractional Warrant Shares. The Company shall not be
-------------------------
required to issue fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be exercised in full at the same time by the same Holder,
the number of full Warrant Shares which shall be issuable upon such exercise
shall be computed on the basis of the aggregate number of Warrant Shares
purchasable pursuant thereto. If any fraction of a Warrant Share would, except
for the provisions of this Section 3.6, be issuable on the exercise of any
Warrant (or specified portion thereof), the Company shall pay an amount in cash
equal to the Market Value for one Warrant Share on the trading day immediately
preceding the date the Warrant is exercised, multiplied by such fraction,
computed to the nearest whole cent.
SECTION 3.7 Reservation of Warrant Shares. The Company shall at
-----------------------------
all times keep reserved out of its authorized shares of Common Stock, a number
of shares of Common Stock sufficient to provide for the exercise of all
outstanding Warrants. The registrar for the Common Stock (the "Registrar") shall
at all times until the expiration of the Exercise Period reserve such number of
authorized shares as shall be required for such purpose. The Company will keep a
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copy of this Agreement on file with its Stock Transfer Agent. The Company will
supply such Stock Transfer Agent with duly executed stock certificates for such
purpose and will itself provide or otherwise make available any cash which may
be payable as provided in Section 3.6. The Company will furnish to such Stock
Transfer Agent a copy of all notices of adjustments and certificates related
thereto transmitted to each Holder.
Before taking any action which would cause an adjustment pursuant
to Article IV to reduce the Exercise Price below the then par value (if any) of
the Common Stock, the Company shall take any and all corporate action which may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock at
the Exercise Price as so adjusted.
The Company covenants that all shares of Common Stock which may
be issued upon exercise of Warrants will, upon issue, be fully paid,
nonassessable, free of preemptive rights, free from all taxes and free from all
liens, charges and security interests, created by or through the Company, with
respect to the issue thereof.
SECTION 3.8 Compliance with Law. (a) Notwithstanding anything in
-------------------
this Agreement to the contrary, in no event shall a Holder be entitled to
exercise a Warrant, unless (i) a registration statement filed under the
Securities Act in respect of the issuance of the Warrant Shares is then
effective or (ii) in the opinion of counsel addressed to the Warrant Agent and
the Company an exemption from the registration requirements is available under
the Securities Act for the issuance of the Warrant Shares (and the delivery of
any other securities for which the Warrants may at the time be exercisable) at
the time of such exercise.
(b) If any shares of Common Stock required to be reserved for
purposes of exercise of Warrants require, under any other Federal or state law
or applicable governing rule or regulation of any national securities exchange,
registration with or approval of any governmental authority, or listing on any
such national securities exchange before such shares may be issued upon
exercise, the Company will in good faith and as expeditiously as possible
endeavor also to cause such shares to be duly registered or approved by such
governmental authority or listed on the relevant national securities exchange,
as the case may be.
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<PAGE>
ARTICLE IV.
Antidilution Provisions
SECTION 4.1 Changes in Common Stock. In the event that at any
-----------------------
time or from time to time the Company shall (i) pay a dividend or make a
distribution on its Common Stock in shares of its Common Stock or the right to
receive or convert into additional shares of Common Stock in each case, (ii)
subdivide its outstanding shares of Common Stock into a larger number of shares
of Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, or (iv) increase or decrease the
number of shares of Common Stock outstanding by reclassification of its Common
Stock, then the number of shares of Common Stock purchasable upon exercise of
each Warrant immediately prior to the happening of such event shall be adjusted
so that, after giving effect to such adjustment, the holder of each Warrant
shall be entitled to receive the number of shares of Common Stock upon exercise
of such Warrant that such holder would have owned or have been entitled to
receive had such Warrants been exercised immediately prior to the happening of
the events described above (or, in the case of a dividend or distribution of
Common Stock, immediately prior to the record date therefor). An adjustment made
pursuant to this Section 4.1 shall become effective immediately after the
effective date, retroactive to the record date therefor in the case of a
dividend or distribution in shares of Common Stock, and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
SECTION 4.2 Cash Dividends and Other Distributions. In case at
--------------------------------------
any time or from time to time the Company shall distribute to holders of Common
Stock (i) any dividend or other distribution (including any dividend or
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of cash, evidences of its indebtedness,
assets, shares of its capital stock or any other properties or securities or
(ii) any options, warrants or other rights to subscribe for or purchase any of
the foregoing (other than, in the case of clauses (i) and (ii) above, (x) any
dividend or distribution described in Section 4.1, (y) any rights, options,
warrants or securities described in Section 4.3 and (z) a cash dividend that is
not an Extraordinary Cash Dividend), then the number of shares of Common Stock
purchasable upon the exercise of each Warrant
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<PAGE>
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution shall be increased to a number
determined by multiplying the number of shares of Common Stock purchasable upon
the exercise of such Warrant immediately prior to such record date for any such
dividend or distribution by a fraction, the numerator of which shall be the
Market Value per share of Common Stock as of the record date for such
distribution plus the fair market value (as determined by the Board of Directors
of the Company acting in good faith, whose determination shall be evidenced by a
board resolution, dated within 30 days of the relevant record date) as of such
record date of such Extraordinary Cash Dividend, the evidences of indebtedness,
shares of capital stock or other assets, properties or securities, or any
options, warrants or rights to subscribe for or purchase any of the foregoing,
to be dividended or distributed in respect of one share of Common Stock, and the
denominator of which shall be such Market Value per share of Common Stock as of
such record date; and the Exercise Price shall be adjusted to a number
determined by dividing the Exercise Price immediately prior to such record date
by the above fraction. Such adjustments shall be made, and shall only become
effective, whenever any dividend or distribution is made; provided, however,
-------- -------
that the Company is not required to make an adjustment pursuant to this Section
4.2 if at the time of such distribution the Company makes the same distribution
to Holders of Warrants as it makes to holders of Common Stock pro rata based on
the number of shares of Common Stock for which such Warrants are exercisable
(whether or not currently exercisable). No adjustment shall be made pursuant to
this Section 4.2 which shall have the effect of decreasing the number of shares
of Common Stock purchasable upon exercise of each Warrant or increasing the
Exercise Price.
SECTION 4.3 Rights Issue. In the event that at any time or from
------------
time to time the Company shall issue rights, options or warrants to acquire, or
securities convertible or exchangeable into, Common Stock to all holders of
Common Stock, entitling such holders to subscribe for or purchase shares of
Common Stock at a price per share that is less than the Market Value per share
of Common Stock as of the record date for the determination of stockholders
entitled to receive such rights, options, warrants or securities, the number of
shares of Common Stock purchasable upon the exercise of each Warrant immediately
after such record date shall be determined by multiplying the number of shares
of Common Stock purchasable upon exercise of each Warrant immediately
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<PAGE>
prior to such record date by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding on a fully-diluted basis as of the
close of business on the record date for the issuance of such rights, options,
warrants or securities plus the number of additional shares of Common Stock
offered for subscription or purchase or into which such securities are
convertible or exchangeable, and the denominator of which shall be the number of
shares of Common Stock outstanding on a fully-diluted basis as of the close of
business on the record date for the issuance of such rights, options, warrants
or securities plus the total number of shares of Common Stock which the
aggregate consideration expected to be received by the Company upon the
exercise, conversion or exchange of such rights, options, warrants or securities
(as determined by the Board of Directors of the Company acting in good faith,
whose determination shall be evidenced by a board resolution) would purchase at
the Market Value per share of Common Stock as of the record date. In the event
of any such adjustment, the Exercise Price shall be adjusted to a number
determined by dividing the Exercise Price immediately prior to such date of
issuance by the aforementioned fraction. Such adjustment shall be made, and
shall only become effective, whenever such rights, options, warrants or
securities are issued. No adjustment shall be made pursuant to this Section 4.3
which shall have the effect of decreasing the number of shares of Common Stock
purchasable upon exercise of each Warrant or of increasing the Exercise Price.
Notwithstanding the foregoing no adjustment will be made pursuant to this
Section 4.3 on account of any dividend or interest reinvestment plan or any
employee stock purchase plan providing for the purchase of shares of Company
Common Stock at a discount from the Market Value; provided, however, that such
-------- -------
plans shall have a valid business purpose.
SECTION 4.4 Combination; Liquidation. (a) Except as provided in
------------------------
Section 4.4(b), in the event of a Combination, the Holders shall have the right
to receive upon exercise of the Warrants such number of shares of capital stock
or other securities or property which such Holder would have been entitled to
receive upon or as a result of such Combination had such Warrant been exercised
immediately prior to such event. Unless paragraph (b) is applicable to a
Combination or in the event the Corporate Change is consummated, the Company
shall provide that the surviving or acquiring Person (the "Successor Company")
in such Combination or Corporate Change will enter into an agreement with the
Warrant Agent confirming the Holders' rights pursuant to this Agreement and
providing for adjustments, which shall be as nearly equiv-
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<PAGE>
alent as may be practicable to the adjustments provided for in this Article IV.
The provisions of this Section 4.4(a) shall similarly apply to successive
Combinations involving any Successor Company.
(b) In the event of (i) a Combination where consideration to the
holders of Common Stock in exchange for their shares is payable solely in cash,
or (ii) the dissolution, liquidation or winding-up of the Company, then the
holders of the Warrants will be entitled to receive distributions on an equal
basis with the holders of Common Stock or other securities issuable upon
exercise of the Warrants, as if the Warrants had been exercised immediately
prior to such event.
In case of any Combination described in this Section 4.4(b), the
surviving or acquiring Person and, in the event of any dissolution, liquidation
or winding-up of the Company, the Company shall deposit promptly with the
Warrant Agent the funds, if any, necessary to pay to the holders of the Warrants
the amounts to which they are entitled as described above. After such funds and
the surrendered Warrant Certificates are received, the Warrant Agent shall make
payment to the Holders by delivering a check in such amount as is appropriate
(or, in the case of consideration other than cash, such other consideration as
is appropriate) to such Person or Persons as it may be directed in writing by
the holders surrendering such Warrants.
SECTION 4.5 Other Events. (a) If any event occurs as to which the
------------
foregoing provisions of this Article IV are not strictly applicable or, if
strictly applicable, would not, in the good faith judgment of the Board, fairly
and adequately protect the purchase rights of the Warrants in accordance with
the essential intent and principles of such provisions, then such Board shall
make such adjustments in the application of such provisions, in accordance with
such essential intent and principles, as shall be reasonably necessary, in the
good faith opinion of such Board, to protect such purchase rights as aforesaid,
but in no event shall any such adjustment have the effect of increasing the
Exercise Price or decreasing the number of shares or aggregate percentage of
Common Stock subject to purchase upon exercise of this Warrant.
(b) In the event the Corporate Change is consummated: (i) the
Holding Company will comply with the second sentence of Section 4.4(a) and will
enter into an agreement
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<PAGE>
with the Warrant Agent whereby it will expressly assume all of the obligations
of the Company in connection with the Warrants and this Agreement and (ii) the
Warrants will be automatically converted into warrants with identical rights and
an identical economic interest in the Holding Company.
SECTION 4.6 Superseding Adjustment. Upon the expiration of any
----------------------
rights, options, warrants or conversion or exchange privileges which resulted in
the adjustments pursuant to this Article IV, if any thereof shall not have been
exercised, the number of Warrant Shares purchasable upon the exercise of each
Warrant shall be readjusted as if (A) the only shares of Common Stock issuable
upon exercise of such rights, options, warrants, conversion or exchange
privileges were the shares of Common Stock, if any, actually issued upon the
exercise of such rights, options, warrants or conversion or exchange privileges
and (B) shares of Common Stock actually issued, if any, were issuable for the
consideration actually received by the Company upon such exercise plus the
aggregate consideration, if any, actually received by the Company for the
issuance, sale or grant of all such rights, options, warrants or conversion or
exchange privileges whether or not exercised and the Exercise Price shall be
readjusted inversely; provided, however, that no such readjustment shall (except
-------- -------
by reason of an intervening adjustment under Section 4.1) have the effect of
decreasing the number, or aggregate percentage, of Warrant Shares purchasable
upon the exercise of each Warrant or increasing the Exercise Price by an amount
in excess of the amount of the adjustment initially made in respect of the
issuance, sale or grant of such rights, options, warrants or conversion or
exchange privileges.
SECTION 4.7 Minimum Adjustment. The adjustments required by the
------------------
preceding Sections of this Article IV shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that no adjustment
of the Exercise Price or the number of shares of Common Stock purchasable upon
exercise of Warrants that would otherwise be required shall be made (except in
the case of a subdivision or combination of shares of Common Stock, as provided
for in Section 4.1) unless and until such adjustment either by itself or with
other adjustments not previously made increases or decreases by at least 1% of
the number of shares of Common Stock purchasable upon exercise of Warrants
immediately prior to the making of such adjustment. Any adjustment representing
a change of less than such minimum amount shall be carried forward and made as
soon as such adjustment, together
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<PAGE>
with other adjustments required by this Article IV and not previously made,
would result in a minimum adjustment. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date of its occurrence. In computing adjustments under this Article IV,
fractional interests in Common Stock shall be taken into account to the nearest
one-hundredth of a share.
SECTION 4.8 Notice of Adjustment. Whenever the Exercise Price or
--------------------
the number of shares of Common Stock and other property, if any, purchasable
upon exercise of Warrants is adjusted, as herein provided, the Company shall
deliver to the Warrant Agent a certificate of a firm of independent accountants
selected by the Board (who may be the regular accountants employed by the
Company) setting forth, in reasonable detail, the event requiring the adjustment
and the method by which such adjustment was calculated (including a description
of the basis on which the Board of Directors of the Company determined the fair
market value of any evidences of indebtedness, other securities or property or
warrants or other subscription or purchase rights), and specifying the Exercise
Price and the number of shares of Common Stock purchasable upon exercise of
Warrants after giving effect to such adjustment. The Company shall promptly
cause the Warrant Agent to mail a copy of such certificate to each Holder in
accordance with Section 8.6. The Warrant Agent shall be entitled to rely on such
certificate and shall be under no duty or responsibility with respect to any
such certificate, except to exhibit the same from time to time, to any Holder
desiring an inspection thereof upon reasonable notice during business hours. The
Warrant Agent shall not at any time be under any duty or responsibility to any
Holder to determine whether any facts exist which may require any adjustment of
the Exercise Price or the number of shares of Common Stock or other stock or
property, purchasable on exercise of the Warrants, or with respect to the nature
or extent of any such adjustment when made, or with respect to the method
employed in making such adjustment or the validity or value of any shares of
Common Stock.
SECTION 4.9 Notice of Certain Transactions. In the event that the
------------------------------
Company shall propose (a) to pay any dividend payable in securities of any class
to the holders of its Common Stock or to make any other distribution to the
holders of its Common Stock, (b) to offer the holders of its Common Stock rights
to subscribe for or to purchase any securities convertible into shares of Common
Stock or shares of stock of any class or any other securities, rights or
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<PAGE>
options, (c) to effect any capital reorganization, consolidation or merger
(including the Corporate Change) or (d) to effect the voluntary or involuntary
dissolution, liquidation or winding-up of the Company, the Company shall within
5 days send to the Warrant Agent and the Warrant Agent shall within 5 days send
the Holders a notice (in such form as shall be furnished to the Warrant Agent by
the Company) of such proposed action or offer, such notice to be mailed by the
Warrant Agent to the Holders at their addresses as they appear in the
Certificate Register, which shall specify the record date for the purposes of
such dividend, distribution or rights, or the date such issuance or event is to
take place and the date of participation therein by the holders of Common Stock,
if any such date is to be fixed, and shall briefly indicate the effect of such
action on the Common Stock and on the number and kind of any other shares of
stock and on other property, if any, and the number of shares of Common Stock
and other property, if any, purchasable upon exercise of each Warrant and the
Exercise Price after giving effect to any adjustment which will be required as a
result of such action. Such notice shall be given as promptly as possible and,
in the case of any action covered by clause (a) or (b) above, at least 20 days
prior to the record date for determining holders of the Common Stock for
purposes of such action and, in the case of any other such action, at least 30
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of Common Stock, whichever shall be the
earlier.
SECTION 4.10 Adjustment to Warrant Certificate. The form of
---------------------------------
Warrant Certificate need not be changed because of any adjustment made pursuant
to this Article IV, and Warrant Certificates issued after such adjustment may
state the same Exercise Price and the same number of shares of Common Stock as
are stated in the Warrant Certificates initially issued pursuant to this
Agreement. The Company, however, may at any time in its sole discretion make any
change in the form of Warrant Certificate that it may deem appropriate to give
effect to such adjustments and that does not affect the substance of the Warrant
Certificate, and any Warrant Certificate thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant Certificate or
otherwise, may be in the form as so changed.
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<PAGE>
ARTICLE V.
Transferability
SECTION 5.1 Transfer and Exchange of Warrants. The Warrant
---------------------------------
Certificates shall be issued in registered form only. The Warrant Agent shall
from time to time, subject to the limitations of Section 5.4, register the
transfer of any outstanding Warrants upon the records to be maintained by it
(the "Certificate Register") for that purpose, upon surrender thereof duly
endorsed or accompanied (if so required by it) by a written instrument or
instruments of transfer in form satisfactory to the Warrant Agent, duly executed
by the registered Holder or Holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney. Subject to the terms of
this Agreement, each Warrant Certificate may be exchanged for another
certificate or certificates entitling the Holder thereof to purchase a like
aggregate number of Warrant Shares as the certificate or certificates
surrendered then entitle each Holder to purchase. Any Holder desiring to
exchange a Warrant Certificate or Certificates shall make such request in
writing delivered to the Warrant Agent, and shall surrender, duly endorsed or
accompanied (if so required by the Warrant Agent) by a written instrument or
instruments of transfer in form satisfactory to the Warrant Agent, the Warrant
Certificate or Certificates to be so exchanged.
Upon registration of transfer, the Warrant Agent shall
countersign and deliver by certified mail a new Warrant Certificate or
Certificates to the persons entitled thereto. The Warrant Certificates may be
exchanged at the option of the Holder thereof, when surrendered at the office or
agency of the Company maintained for such purpose, which initially will be the
corporate trust office of the Warrant Agent in New York, New York for another
Warrant Certificate, or other Warrant Certificates of different denominations,
of like tenor and representing in the aggregate the right to purchase a like
number of Warrant Shares. All Warrant Certificates issued upon any registration
of transfer or exchange of Warrant Certificates shall be the valid obligations
of the Company, evidencing the same obligations, and entitled to the same
benefit under this Agreement, as the Warrant Certificates surrendered for such
registration of transfer or exchange.
To permit registrations of transfer and exchanges, the Company
shall, upon request of the Warrant Agent, make
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<PAGE>
available to the Warrant Agent a sufficient number of executed Warrant
Certificates to effect such registrations of transfers and exchanges. No service
charge shall be made for any exchange or registration of transfer of Warrant
Certificates, but the Company may require payment of a sum sufficient to cover
any stamp or other tax or other governmental charge that is imposed in
connection with any such exchange or registration of transfer.
SECTION 5.2 Registration of Transfers and Exchanges.
---------------------------------------
(a) Transfer and Exchange. When Warrant Certificates are
presented to the Warrant Agent with a request:
(i) to register the transfer of the Warrants
Certificates; or
(ii) to exchange such Warrant Certificates for an equal
number of Warrant Certificates of other authorized denominations, the
Warrant Agent shall register the transfer or make the exchange as
requested if the requirements under this Agreement as set forth in this
Section 5.2 for such transactions are met; provided, however, that the
-------- -------
Warrant Certificates presented or surrendered for registration of
transfer or exchange:
(I) shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Warrant Agent,
duly executed by the Holder thereof or his attorney duly
authorized in writing; and
(II) in the case of Warrants the offer and sale of which
have not been registered under the Securities Act of 1933, as
amended (the "Security Act"), such Warrants shall be accompanied
by the following additional information and documents, as
applicable:
(A) if such Warrant Certificates are being delivered to
the Warrant Agent by a holder for registration in
the name of such holder, without transfer, a
certification from such holder to that effect (in
substantially the form of Exhibit B hereto); or
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<PAGE>
(B) if such Warrant Certificates are being
transferred to an Institutional
Accredited Investor delivery of a certi-
fication to that effect (in substanti-
ally the form of Exhibit B hereto) and a
Transferee Certificate for Institutional
Accredited Investors in substantially
the form of Exhibit C hereto; or
(C) if such Warrant Certificates are being transferred
in reliance on Regulation S under the Securities
Act ("Regulation S"), delivery of a certification
to that effect (in substantially the form of
Exhibit B hereto) and a Transferee Certificate for
Regulation S Transfers in substantially the form of
Exhibit D hereto and an Opinion of Counsel
reasonably satisfactory to the Company to the
effect that such transfer is in compliance with the
Securities Act; or
(D) if such Warrant Certificates are being
transferred in reliance on another
exemption from the registration require-
ments of the Securities Act, a certifi-
cation to that effect (in substantially
the form of Exhibit B hereto) and an
opinion of counsel reasonably satisfac-
tory to the Company to the effect that
such transfer is in compliance with the
Securities Act.
(b) General. By its acceptance of any Warrants represented by a
Warrant Certificate bearing the legend in Section 2.2, each Holder of such
Warrants acknowledges the restrictions on transfer of such Warrants set forth in
this Agreement and in the legend and agrees that it will transfer such Warrants
only as provided in this Agreement. The Warrant Agent shall not register a
transfer of any Warrants unless such transfer complies with the requirements of
this Section 5.2.
(c) Records. The Warrant Agent shall retain copies of all
letters, notices and other written communications received pursuant to Section
5.1 hereof or this Section 5.2. The Company shall have the right to inspect and
make copies of all such letters, notices or other written communi-
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<PAGE>
cations at any reasonable time upon the giving of reasonable written notice to
the Warrant Agent.
SECTION 5.3 Surrender of Warrant Certificates. Any Warrant
---------------------------------
Certificate surrendered for registration of transfer, exchange, exercise or
repurchase of the Warrants represented thereby shall, if surrendered to the
Company, be delivered to the Warrant Agent, and all Warrant Certificates
surrendered or so delivered to the Warrant Agent shall be promptly canceled by
the Warrant Agent and shall not be reissued by the Company and, except as
provided in this Article V in case of an exchange or in Article III hereof in
case of the exercise or repurchase of less than all the Warrants represented
thereby or in case of a mutilated Warrant Certificate, no Warrant Certificate
shall be issued hereunder in lieu thereof. The Warrant Agent shall deliver to
the Company from time to time or otherwise dispose of such canceled Warrant
Certificates as the Company may direct in writing.
ARTICLE VI.
Company's Special Right of Repurchase
SECTION 6.1 If the Merger is not consummated on or before
December 31, 1997 or if it appears, in the sole judgment of Holdings, that the
Merger will not be consummated by December 31, 1997, then, on, or at any time
prior to, December 31, 1997, the Company shall have the right to repurchase the
Warrants by paying to the Warrant Agent for the benefit of the Holders of
Warrants the Repurchase Price. Upon such payment, all the Warrants shall be
cancelled.
(a) Notice of Warrant Repurchase. As promptly as practicable
following December 31, 1997 or, at any time prior thereto, the date Holdings
determines that the Merger will not be consummated by December 31, 1997 (in
either case the "Repurchase Date") Holdings on behalf of the Company shall give
notice of the terms of the Warrant Repurchase (a "Repurchase Notice") to each
Holder, as of the Repurchase Date, of then outstanding Warrants. Each Repurchase
Notice: (i) shall be given by Holdings on behalf of the Company directly to all
Holders of the Warrants, with a copy to the Warrant Agent and (ii) shall be
given within five Business Days after the Repurchase Date and shall specify (A)
the manner in which Warrants shall be surrendered to the Warrant Agent for
repurchase by the Company, (B) the Repurchase Price
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<PAGE>
at which the Warrants will be repurchased by the Company, and (C) that payment
of the Repurchase Price will be made by the Warrant Agent.
(b) Payment for Warrants. (i) To receive payment for any Warrants
pursuant to this Section 6.1, each Holder thereof shall, except as otherwise
provided herein, surrender to the Warrant Agent the Warrant Certificates
evidencing such Holder's Warrants.
(ii) As promptly as practicable (and in any event within 10 days)
following the Repurchase Date, the Company shall deposit with the Warrant Agent
funds sufficient to make payment for all unexercised Warrants. After receipt of
such deposit from the Company, the Warrant Agent shall make payment to each
Holder, by delivering a check in an amount equal to the Repurchase Price for
each Warrant surrendered by such Holder in accordance with this Section 6.1, to
such Person or Persons as it may be directed in writing by any Holder
surrendering Warrant Certificates, net of any transfer taxes required to be paid
in the event that the check is to be delivered to a Person other than the
Holder. Any funds not used to pay for Warrants within one year after the
Repurchase Date shall be promptly returned to the Company and the Holders
thereafter shall look solely to the Company for payment for their Warrants.
(c) Compliance with Laws. Notwithstanding anything contained in
this Section 6.1, if Holdings or the Company is required to comply with laws or
regulations in connection with the making of the Warrant Repurchase, such laws
or regulations shall govern the making of such Warrant Repurchase. Holdings
shall immediately notify the Warrant Agent in writing if any such laws or
regulations shall require Holdings to supplement or amend this Agreement or to
modify or amend the procedures or manner of such repurchase or any other
provisions set forth herein and the Warrant Agent shall not be responsible or
liable for making any such determination, complying with any such laws or
regulations or for the failure of the Company to so notify the Warrant Agent.
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<PAGE>
ARTICLE VII.
Warrant Agent
SECTION 7.1 Appointment of Warrant Agent. The Company and
----------------------------
Holdings hereby appoint the Warrant Agent to act as agent for the Company and
Holdings in accordance with provisions of this Agreement and the Warrant Agent
hereby accepts such appointment.
SECTION 7.2 Rights and Duties of Warrant Agent. (a) Agent for the
----------------------------------
Company and Holdings. In acting under this Warrant Agreement and in connection
with the Warrant Certificates, the Warrant Agent is acting solely as agent of
the Company and Holdings and does not assume any obligation or relationship or
agency or trust for or with any of the Holders of Warrant Certificates or
beneficial owners of Warrants.
(b) Counsel. The Warrant Agent may consult with counsel
satisfactory to it, and the advice of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in accordance with the advice of such counsel.
(c) Documents. The Warrant Agent shall be protected and shall
incur no liability for or in respect of any action taken or thing suffered by it
in reliance upon any Warrant Certificate, notice, direction, consent,
certificate, affidavit, statement or other paper or document reasonably believed
by it to be genuine and to have been presented or signed by the proper parties.
(d) No Implied Obligations. The Warrant Agent shall be obligated
to perform only such duties as are herein and in the Warrant Certificates
specifically set forth and no implied duties or obligations shall be read into
this Agreement or the Warrant Certificates against the Warrant Agent. The
Warrant Agent shall not be under any obligation to take any action hereunder
which may tend to involve it in any expense or liability for which it does not
receive indemnity if such indemnity is reasonably requested. The Warrant Agent
shall not be accountable or under any duty or responsibility for the use by the
Company of any of the Warrant Certificates countersigned by the Warrant Agent
and delivered by it to the Holders or on behalf of the Holders pursuant to this
Agreement or for the application by the Company of the proceeds of
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<PAGE>
the Warrants. The Warrant Agent shall have no duty or responsibility in case of
any default by the Company in the performance of its covenants or agreements
contained herein or in the Warrant Certificates or in the case of the receipt of
any written demand from a Holder with respect to such default, including any
duty or responsibility to initiate or attempt to initiate any proceedings at law
or otherwise.
(e) Not Responsible for Adjustments or Validity of Stock. The
Warrant Agent shall not at any time be under any duty or responsibility to any
Holder to determine whether any facts exist that may require an adjustment of
the number of shares of Common Stock purchasable upon exercise of each Warrant
or the Exercise Price, or with respect to the nature or extent of any adjustment
when made, or with respect to the method employed, or herein or in any
supplemental agreement provided to be employed, in making the same. The Warrant
Agent shall not be accountable with respect to the validity or value of any
shares of Common Stock or of any securities or property which may at any time be
issued or delivered upon the exercise of any Warrant or upon any adjustment
pursuant to Article IV, and it makes no representation with respect thereto. The
Warrant Agent shall not be responsible for any failure of the Company or
Holdings to make any cash payment or to issue, transfer or deliver any shares of
Common Stock or stock certificates upon the surrender of any Warrant Certificate
for the purpose of exercise or upon any adjustment pursuant to Article IV, or to
comply with any of the covenants of the Company contained in Article IV.
SECTION 7.3 Individual Rights of Warrant Agent. The Warrant Agent
----------------------------------
and any stockholder, director, officer or employee of the Warrant Agent may buy,
sell or deal in any of the Warrants or other securities of the Company or
Holdings or its affiliates or become pecuniarily interested in transactions in
which the Company or its affiliates may be interested, or contract with or lend
money to the Company or its affiliates or otherwise act as fully and freely as
though it were not the Warrant Agent under this Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the Company or
for any other legal entity.
SECTION 7.4 Warrant Agent's Disclaimer. The Warrant Agent shall
--------------------------
not be responsible for and makes no representation as to the validity or
adequacy of this Agreement or the Warrant Certificates and it shall not be
responsible for any statement in this Agreement or the Warrant Certificates
other than its countersignature thereon.
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<PAGE>
SECTION 7.5 Compensation and Indemnity. The Company agrees to pay
--------------------------
the Warrant Agent from time to time reasonable compensation for its services and
to reimburse the Warrant Agent upon request for all reasonable out-of-pocket
expenses incurred by it, including the reasonable compensation and expenses of
the Warrant Agent's counsel. The Company shall indemnify the Warrant Agent
against any loss, liability or expense (including reasonable attorneys' fees and
expenses) incurred by it without negligence or bad faith on its part arising out
of or in connection with the acceptance or performance of its duties under this
Agreement. The Warrant Agent shall notify the Company promptly of any claim for
which it may seek indemnity. The Company need not reimburse any expense or
indemnify against any loss or liability incurred by the Warrant Agent through
willful misconduct, negligence or bad faith. The Company's payment obligations
pursuant to this Section 7.5 shall survive the termination of this Agreement.
To secure the Company's payment obligations under this Agreement,
the Warrant Agent shall have a lien prior to the Warrant Holders on all money or
property held or collected by the Warrant Agent.
SECTION 7.6 Successor Warrant Agent. (a) The Company To Provide
-----------------------
Warrant Agent. The Company agrees for the benefit of the Holders that there
shall at all times be a Warrant Agent hereunder until all the Warrants have been
exercised or are no longer exercisable.
(b) Resignation and Removal. The Warrant Agent may at any time
resign by giving written notice to the Company of such intention on its part,
specifying the date on which its desired resignation shall become effective;
provided, however, that such date shall not be less than 60 days after the date
- -------- -------
on which such notice is given unless the Company otherwise agrees. The Warrant
Agent hereunder may be removed at any time by the filing with it of an
instrument in writing signed by or on behalf of the Company and specifying such
removal and the date when it shall become effective, which date shall not be
less than 30 days after such notice is given unless the Warrant Agent otherwise
agrees. Any removal under this Section 7.6 shall take effect upon the
appointment by the Company as hereinafter provided of a successor Warrant Agent
(which shall be a bank or trust company authorized under the laws of the
jurisdiction of its organization to exercise corporate trust powers) and the
acceptance of such appointment by such successor Warrant Agent.
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<PAGE>
(c) The Company To Appoint Successor. In case at any time the
Warrant Agent shall resign, or shall be removed, or shall become incapable of
acting, or shall be adjudged a bankrupt or insolvent, or shall commence a
voluntary case under the Federal bankruptcy laws, as now or hereafter
constituted, or under any other applicable Federal or state bankruptcy,
insolvency or similar law or shall consent to the appointment of or taking
possession by a receiver, custodian, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Warrant Agent or its property or affairs, or
shall make an assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts generally as they become due, or shall take
corporate action in furtherance of any such action, or a decree or order for
relief by a court having jurisdiction in the premises shall have been entered in
respect of the Warrant Agent in an involuntary case under the Federal bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal or state
bankruptcy, insolvency or similar law; or a decree order by a court having
jurisdiction in the premises shall have been entered for the appointment of a
receiver, custodian, liquidator, assignee, trustee, sequestrator (or similar
official) of the Warrant Agent or of its property or affairs, or any public
officer shall take charge or control of the Warrant Agent or of its property or
affairs for the purpose of rehabilitation, conservation, winding up of or
liquidation, a successor Warrant Agent, qualified as aforesaid, shall be
appointed by the Company by an instrument in writing, filed with the successor
Warrant Agent. Upon the appointment as aforesaid of a successor Warrant Agent
and acceptance by the successor Warrant Agent of such appointment, the Warrant
Agent shall cease to be Warrant Agent hereunder; provided, however, that in the
-------- -------
event of the resignation of the Warrant Agent under this subsection (c), such
resignation shall be effective on the earlier of (i) the date specified in the
Warrant Agent's notice of resignation and (ii) the appointment and acceptance of
a successor Warrant Agent hereunder.
(d) Successor Expressly To Assume Duties. Any successor Warrant
Agent appointed hereunder shall execute, acknowledge and deliver to its
predecessor and to the Company an instrument accepting such appointment
hereunder, and thereupon such successor Warrant Agent, without any further act,
deed or conveyance, shall become vested with all the rights and obligations of
such predecessor with like effect as if originally named as Warrant Agent
hereunder, and such predecessor, upon payment of its charges and disbursements
-28-
<PAGE>
then unpaid, shall thereupon become obligated to transfer, deliver and pay over,
and such successor Warrant Agent shall be entitled to receive, all monies,
securities and other property on deposit with or held by such predecessor, as
Warrant Agent hereunder.
(e) Successor by Merger. Any Person into which the Warrant Agent
hereunder may be merged or consolidated, or any Person resulting from any merger
or consolidation to which the Warrant Agent shall be a party, or any Person to
which the Warrant Agent shall sell or otherwise transfer all or substantially
all of its corporate trust business; provided that it shall be qualified as
--------
aforesaid, shall be the successor Warrant Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto.
ARTICLE VIII.
Miscellaneous
SECTION 8.1 Company Resales. The Company hereby agrees with each
---------------
Holder, that the Company shall not resell any Warrants or Warrant Shares it
acquires, by purchase or otherwise, except pursuant to an effective registration
statement.
SECTION 8.2 SEC Reports and Other Information. Notwithstanding
---------------------------------
that the Company may not be subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, the Company shall, for all periods ending after
the date of this Warrant Agreement, file with the SEC and thereupon provide the
Warrant Agent and Holders with such annual reports and such information,
documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections, such
information, documents and other reports to be so filed and provided at the
times specified for the filing of such information, documents and reports under
such Sections.
SECTION 8.3 Persons Benefitting. Nothing in this Agreement is
-------------------
intended or shall be construed to confer upon any Person other than the Company,
the Warrant Agent and the Holders any right, remedy or claim under or by reason
of this agreement or any part hereof.
-29-
<PAGE>
SECTION 8.4 Rights of Holders. Except as expressly contemplated
-----------------
herein, Holders of unexercised Warrants are not entitled (i) to receive
dividends or other distributions, (ii) to receive notice of or vote at any
meeting of the stockholders, (iii) to consent to any action of the stockholders,
(iv) to exercise any preemptive right or to receive notice of any other
proceedings of the Company or (v) to exercise any other rights whatsoever as
stockholders of the Company.
SECTION 8.5 Amendment. This Agreement may be amended by the
---------
parties hereto without the consent of any Holder for the purpose of curing any
ambiguity, or of curing, correcting or supplementing any defective provision
contained herein or making any other provisions with respect to matters or
questions arising under this Agreement as the Company and the Warrant Agent may
deem necessary or desirable; provided, however, that the Company determines, and
-------- -------
the Warrant Agent may rely on such determination, that such action shall not
affect adversely the rights of the Holders. Any amendment or supplement to this
Agreement that has a material adverse effect on the interests of the Holders
shall require the written consent of the Holders of a majority of the then
outstanding Warrants. The consent of each Holder affected shall be required for
any amendment pursuant to which the Exercise Price would be increased or the
number of Warrant Shares purchasable upon exercise of Warrants would be
decreased (other than pursuant to adjustments provided in Article IV as of the
Issue Date of the Warrants). In determining whether the Holders of the required
number of Warrants have concurred in any direction, waiver or consent, Warrants
owned by the Company or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company shall
be disregarded and deemed not to be outstanding, except that, for the purpose of
determining whether the Warrant Agent shall be protected in relying on any such
direction, waiver or consent, only Warrants which the Warrant Agent knows are so
owned shall be so disregarded. Also, subject to the foregoing, only Warrants
outstanding at the time shall be considered in any such determination.
SECTION 8.6 Notices. Any notice or communication shall be in
-------
writing and delivered in Person or mailed by first-class mail addressed as
follows:
if to the Company:
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<PAGE>
Price Communications Corporation
45 Rockefeller Plaza, Suite 3200
New York, NY 10020
Attention: President
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Attention: Peter G. Samuels
if to the Warrant Agent:
The Bank of Montreal Trust Company
77 Water Street, 4th Floor
New York, New York 10005
Attention: Corporate Trust Administration
The Company or the Warrant Agent by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Holder shall be mailed to
the Holder at the Holder's address as it appears on the register in which the
Company shall provide for the registration of Warrants and Warrant Shares and of
transfers and exchanges of Warrants and Warrant Shares and shall be sufficiently
given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 8.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS
APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY, ON BEHALF OF
ITSELF, HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE FEDERAL AND NEW
YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY SUIT,
ACTION OR PROCEEDING RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS
CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY DEFENSE OF LACK OF PERSONAL
JURISDICTION AND IRREVOCABLY AGREES THAT ALL
-31-
<PAGE>
CLAIMS IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN ANY SUCH COURT. THE COMPANY, ON BEHALF OF ITSELF, IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
SECTION 8.8 Successors. All agreements of the Company in this
----------
Agreement and the Warrant Certificates shall bind its successors. All agreements
of the Warrant Agent in this Agreement shall bind its successors.
SECTION 8.9 Multiple Originals. The parties may sign any number
------------------
of copies of this Agreement. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Agreement.
SECTION 8.10 Table of Contents. The table of contents and
-----------------
headings of the Articles and Sections of this Agreement have been inserted for
convenience of reference only, are not intended to be considered a part hereof
and shall not modify or restrict any of the terms or provisions hereof.
SECTION 8.11 Severability. The provisions of this Agreement are
------------
severable, and if any clause or provision shall be held invalid, illegal or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
SECTION 8.12 Further Assurances. From time to time on and after
------------------
the date hereof, the Company shall deliver or cause to be delivered to the
Warrant Agent such further documents and instruments and shall do and cause to
be done such further acts as the Warrant Agent shall reasonably request (it
being understood that the Warrant Agent shall have no obligation to make such
request) to carry out more effectively the provisions and purposes of this
Agreement, to evidence compliance herewith or to assure itself that it is
protected hereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first written above.
PRICE COMMUNICATIONS CORPORATION
By:__________________________
Name:
Title:
PRICE COMMUNICATIONS CELLULAR
HOLDINGS INC.
By:__________________________
Name:
Title:
BANK OF MONTREAL TRUST COMPANY,
By:__________________________
Name:
Title:
-33-
<PAGE>
EXHIBIT A
---------
[FORM OF FACE OF WARRANT CERTIFICATE]
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN
THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT
AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A
BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED
INVESTOR") OR (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS SECURITY FOR
THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE
144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES
ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE
TRANSFER OF THIS SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A)
TO PRICE COMMUNICATIONS CORPORATION (THE "COMPANY") OR ANY SUBSIDIARY THEREOF,
(B) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE
904 UNDER THE SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE, BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY), (D) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (E) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) AND, IN EACH CASE,
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN,
THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
WARRANT AGREEMENT CONTAINS A PROVISION REQUIRING THE WARRANT AGENT TO REFUSE TO
REGISTER TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS.
No. [ ] Certificate for _______ Warrants
<PAGE>
EXHIBIT A
Page 2
WARRANTS TO PURCHASE COMMON STOCK OF
PRICE COMMUNICATIONS CORPORATION
THIS CERTIFIES THAT, [ ], or its registered
assigns, is the registered holder of the number of Warrants set forth above (the
"Warrants"). Each Warrant entitles the holder thereof (the "Holder"), at its
option and subject to the provisions contained herein and in the Warrant
Agreement referred to below, to purchase from Price Communications Corporation,
a New York corporation ("the Company"), one share of Common Stock, $0.01 par
value, of the Company (the "Common Stock") at the per share exercise price of
$0.01 (the "Exercise Price"). This Warrant Certificate shall terminate and
become void as of the close of business on August 1, 2007 (the "Expiration
Date") or upon the exercise hereof as to all the shares of Common Stock subject
hereto. The number of shares purchasable upon exercise of the Warrants and the
Exercise Price per share shall be subject to adjustment from time to time as set
forth in the Warrant Agreement.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of August 7, 1997 (the "Warrant Agreement"), between
the Company and The Bank of Montreal Trust Company (the "Warrant Agent," which
term includes any successor Warrant Agent under the Warrant Agreement), and is
subject to the terms and provisions contained in the Warrant Agreement, to all
of which terms and provisions the Holder of this Warrant Certificate consents by
acceptance hereof. The Warrant Agreement is hereby incorporated herein by
reference and made a part hereof. Reference is hereby made to the Warrant
Agreement for a full statement of the respective rights, limitations of rights,
duties and obligations of the Company, the Warrant Agent and the Holders of the
Warrants. Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Warrant Agreement. A copy of the Warrant Agreement may
be obtained for inspection by the Holder hereof upon written request to the
Warrant Agent at Bank of Montreal Trust Company, 77 Water Street, New York, New
York 10005, attention of Corporate Trust Administration.
<PAGE>
EXHIBIT A
Page 3
Subject to the terms of the Warrant Agreement, the Warrants may
be exercised in whole or in part by presentation of this Warrant Certificate.
As provided in the Warrant Agreement and subject to the terms and
conditions therein set forth, the Warrants shall be exercisable at any time or
from time to time on any Business Day only on or after the earlier to occur of
(i) the consummation of the Merger (as defined in the Warrant Agreement)
(provided that if the Merger does not occur prior to December 31, 1997, the
Warrants will be subject to the Company's special right of repurchase, as
provided in the Warrant Agreement) and (ii) the occurrence of a Change of
Control (as defined in the Warrant Agreement); provided, however, that no
-------- -------
Warrant shall be exercisable after August 1, 2007.
In the event the Company enters into a Combination (as defined in
the Warrant Agreement), the Holder hereof will be entitled to receive the shares
of capital stock or other securities or other property of such surviving entity
as the Holder would have received had the Holder exercised its Warrants
immediately prior to such Combination; provided, however, that in the event
-------- -------
that, in connection with such Combination, consideration to holders of Common
Stock in exchange for their shares is payable solely in cash or in the event of
the dissolution, liquidation or winding-up of the Company, the Holder hereof
will be entitled to receive cash distributions as the Holder would have received
had the Holder exercised its Warrants immediately prior to such Combination.
The Company may require payment of a sum sufficient to pay all
taxes, assessments or other governmental charges in connection with the transfer
or exchange of the Warrant Certificates pursuant to Section 5.2 of the Warrant
Agreement but not for any exchange or original issuance (not involving a
transfer) with respect to temporary Warrant Certificates, the exercise of the
Warrants or the Warrant Shares.
Upon any partial exercise of the Warrants, there shall be
countersigned and issued to the Holder hereof a new Warrant Certificate in
respect of the shares of Common Stock as to which the Warrants shall not have
been exercised. This Warrant Certificate may be exchanged at the office of the
<PAGE>
EXHIBIT A
Page 4
Warrant Agent by presenting this Warrant Certificate properly endorsed with a
request to exchange this Warrant Certificate for other Warrant Certificates
evidencing an equal number of Warrants. No fractional Warrant Shares will be
issued upon the exercise of the Warrants, but the Company shall pay an amount in
cash equal to the Market Value for one Warrant Share on the trading day
immediately preceding the date the Warrant is exercised, multiplied by the
fraction of a Warrant Share that would be issuable on the exercise of any
Warrant.
All shares of Common Stock issuable by the Company upon the
exercise of the Warrants shall, upon such issue, be duly and validly issued and
fully paid and nonassessable.
The Holder in whose name the Warrant Certificate is registered
may be deemed and treated by the Company and the Warrant Agent as the absolute
owner of the Warrant Certificate for all purposes whatsoever and neither the
Company nor the Warrant Agent shall be affected by notice to the contrary.
The Warrants do not entitle any holder hereof to any of the
rights of a stockholder of the Company.
<PAGE>
EXHIBIT A
Page 5
This Warrant Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Warrant Agent.
PRICE COMMUNICATIONS CORPORATION
By:__________________________
Title:
DATED:
Countersigned:
BANK OF MONTREAL TRUST COMPANY
By:_______________________________
Authorized Signatory
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to purchase
Common Stock (the "Securities"), of
Price Communications Corporation
-----------------------------------
This Certificate relates to __________ Securities held in the
form of Warrant Certificates by ____________ (the "Transferor").
The Transferor:*
/ / has requested that the Warrant Agent by written order to exchange or
register the transfer of a Warrant Certificate or Warrant Certificates.
In connection with such request and in respect of each such
Security, the Transferor does hereby certify that the Transferor is familiar
with the Warrant Agreement relating to the above captioned Securities and the
restrictions on transfers thereof as provided in Section 5 of such Warrant
Agreement, and that the transfer of these Securities does not require
registration under the Securities Act of 1933, as amended (the "Act") because*:
/ / Such Security is being acquired for the Transferor's own account,
without transfer.
/ / Such Security is being transferred to an institutional "accredited
investor" (within the meaning of subparagraphs (a)(1), (2), (3) or (7) of Rule
501 under the Act.
/ / Such Security is being transferred in reliance on Regulation S under
the Act.
/ / Such Security is being transferred in reliance on Rule 144 under the
Act.
<PAGE>
EXHIBIT B
Page 2
/ / Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act other than Rule
144A or Rule 144 or Regulation S under the Act to a person other than an
institutional "accredited investor."
--------------------------------
(INSERT NAME OF TRANSFEROR)
By:____________________________
(Authorized Signatory)
Date:
- ---------------------
*Check applicable box.
<PAGE>
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
[Date]
Bank of Montreal Trust Company
77 Water Street
New York, New York 10005
Attention: Corporate Trust Administration
Re: Price Communications Corporation
(the "Company") Warrants to purchase
Common Stock (the "Securities")
------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of Securities, of the Company,
we confirm that:
1. We have received such information as we deem necessary in order to
make our investment decision.
2. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Warrant
Agreement and the undersigned agrees to be bound by, and not to resell, pledge
or otherwise transfer the Securities except in compliance with, such
restrictions and conditions and the Securities Act of 1933, as amended (the
"Securities Act").
3. We understand that the offer and sale of the Securities have not been
registered under the Securities Act, and that the Securities may not be offered
or sold within the United States or to, or for the account or benefit of, U.S.
persons except as permitted in the following sentence. We agree, on our own
behalf-and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Securities, we will do so only (A) to the
Company or any subsidiary thereof, (B) inside the United States to an
institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
the Warrant Agent a signed letter substantially in the form hereof, (C) outside
the United States in accordance with Regulation S under the
<PAGE>
EXHIBIT C
Page 2
Securities Act, (D) pursuant to the exemption from registration provided by Rule
144 under the Securities Act (if available), or (E) pursuant to an effective
registration statement under the Securities Act, and we further agree to provide
to any person purchasing Securities from us a notice advising such purchaser
that resales of the Securities are restricted as stated herein.
4. We understand that, on any proposed resale of Securities, we will be
required to furnish to the Warrant Agent and the Company, such certification,
legal opinions and other information as the Warrant Agent and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Securities purchased by us will
bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or their investment, as the case may be.
6. We are acquiring the Securities purchased by us for our account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
(Name of Transferor)
By:______________________
(Authorized Signatory)
<PAGE>
EXHIBIT D
Form of Certificate to Be
Delivered in Connection
with Regulation S Transfers
[Date]
Bank of Montreal Trust Company
77 Water Street
New York, New York 10005
Attention: Corporate Trust Administration
Re: Price Communications Corporation
(the "Company") Warrants to purchase
Common Stock (the "Securities")
------------------------------------
Dear Sirs:
In connection with our proposed sale of ________ of the Securities, we
confirm that such sale has been effected pursuant to and in accordance with
Regulation S under the Securities Act of 1933, as amended (the "Securities
Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a
person in the United States;
(2) either (a) at the time the buy offer was originated, the transferee
was outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States, or (b)
the transaction was executed in, on or through the facilities of a designated
off-shore securities market and neither we nor any person acting on our behalf
knows that the transaction has been prearranged with a buyer in the United
States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S,
as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
<PAGE>
EXHIBIT D
Page 2
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
(Name of Transferor)
By:______________________
(Authorized Signatory)
<PAGE>
EXHIBIT 22.1
------------
Subsidiaries of the Registrant
------------------------------
Subsidiaries which, considered in the aggregate as a single subsidiary
would not constitute a significant subsidiary, have been omitted.
Subsidiary Jurisdiction of Incorporation
- ---------- -----------------------------
Price Communications Wireless, Inc. Delaware
Price Communications Cellular
Holdings, Inc. Delaware
Price Communications Cellular Inc. Delaware
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference of our report on Price Communications Corporation dated March 17, 1998
included in this Form 10-K into the Company's previously filed Registration
Statement, File Numbers 333-44089 and 33-62568.
/s/ ARTHUR ANDERSEN LLP
New York, New York
April 14, 1998
<PAGE>
EXHIBIT 23.2
The Board of Directors
Price Communications Wireless, Inc. (formerly Palmer Wireless, Inc.):
We consent to incorporation by reference in the registration statement No.
333-44089 on Form S-3 and the registration statement No. 33-62568 on Form S-8 of
Price Communications Corporation of our report dated January 30, 1997, relating
to the consolidated balance sheet of Palmer Wireless, Inc. and subsidiaries as
of December 31, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 1996, which report appears in the December 31, 1997,
annual report on Form 10-K of Price Communications Corporation.
KPMG Peat Marwick LLP
Des Moines, Iowa
April 14, 1998
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<INCOME-TAX> (5,509)
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<EXTRAORDINARY> 0
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<NET-INCOME> (8,949)
<EPS-PRIMARY> (.91)
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