-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jio//Iqj/zCyy0bweMEZ3W9gPCauRM8cQrOQaurhzxC7hpbYc3iUwUCyVq59rKCd 1cXDCfnyLp4gviFKpnpAsQ== 0000950130-97-003950.txt : 19970912 0000950130-97-003950.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950130-97-003950 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19970904 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000355787 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 132991700 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-34017 FILM NUMBER: 97675051 BUSINESS ADDRESS: STREET 1: 45 ROCKEFELLER PLZ STREET 2: STE 3201 CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2127575600 MAIL ADDRESS: STREET 1: 45 ROCKEFELLER PLAZA STREET 2: SUITE 3201 CITY: NEW YORK STATE: NY ZIP: 10020 S-4/A 1 AMENDMENT #2 TO FORM S-4 As filed with the Securities and Exchange Commission on September 4, 1997 Registration No. 333-34017 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 2 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- PRICE COMMUNICATIONS CORPORATION PRICE HOLDINGS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW YORK 4832 13-2991700 (PRIMARY STANDARD (I.R.S. EMPLOYER (STATE OR OTHER INDUSTRIAL IDENTIFICATION JURISDICTION OF CLASSIFICATION NO.) INCORPORATION OR CODE NUMBER) ORGANIZATION) ---------------- 45 ROCKEFELLER PLAZA NEW YORK, NEW YORK 10020 (212) 757-5600 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ROBERT PRICE PRICE COMMUNICATIONS CORPORATION 45 ROCKEFELLER PLAZA NEW YORK, NEW YORK 10020 (212) 757-5600 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- COPIES TO: PETER G. SAMUELS, ESQ. PROSKAUER ROSE LLP 1585 BROADWAY NEW YORK, NEW YORK 10036 (212) 969-3000 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED MAXIMUM AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING PRICE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1)(2) (1)(3) FEE(4) - --------------------------------------------------------------------------------------- Common Stock, $.01 par value...................... 10,000,000 $7.625 $76,250,000 $23,106.06
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1)Estimated solely for the purpose of calculating the registration fee. (2)Based on the average of high and low prices reported on August 18, 1997. (3) Represents the number of shares to be registered multiplied by the market price of the securities being cancelled in the transaction, as determined in accordance with Rule 457(f)(1). (4) Previously paid. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PRICE COMMUNICATIONS CORPORATION CROSS-REFERENCE SHEET TO FORM S-4 ITEM OF FORM S-4 CAPTION IN PROXY STATEMENT AND PROSPECTUS A.INFORMATION ABOUT THE TRANSACTION 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus....... Facing Page; Cross Reference Sheet; Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus...... Available Information 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information.............. Summary; Risk Factors 4. Terms of the Transaction....... Summary; Background of the Offer; The Offer; Description of Price Common Stock; Market for Price Common Stock 5. Pro Forma Financial Unaudited Pro Forma Condensed Information.................... Consolidated Financial Statements 6. Material Contacts with the Company Being Acquired......... The Acquisition 7. Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters................ Not Applicable 8. Interests of Named Experts and Legal Matters; Experts Counsel........................ 9. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.................... N/A B. INFORMATION ABOUT THE REGISTRANT 10. Information with Respect to S- 3 Registrants.................. Not Applicable 11. Incorporation of Certain Information by Reference....... Not Applicable 12. Information with Respect to S- 2 or S-3 Registrants........... Not Applicable 13. Incorporation of Certain Information by Reference....... Not Applicable 14. Information with Respect to Registrants Other than S-3 or S-2 Registrants................ Not Applicable I-1 ITEM OF FORM S-4 CAPTION IN PROXY STATEMENT AND PROSPECTUS C.INFORMATION ABOUT THE COMPANY BEING ACQUIRED 15. Information with Respect to S- 3 Companies.................... Not Applicable 16. Information with Respect to S- 2 or S-3 Companies............. Not Applicable 17. Information with Respect to Companies Other than S-3 or S- 2 Companies.................... Background of the Offer D.VOTING AND MANAGEMENT INFORMATION 18. Information if Proxies, Consents or Authorizations are to be Solicited................ Not Applicable 19. Information if Proxies, Consents or Authorizations are not to be Solicited or in an Exchange Offer................. Outside Front Cover Page; Summary; The Offer I-2 PROSPECTUS OFFER TO EXCHANGE UP TO 3,000,000 SHARES OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK OF PALMER WIRELESS, INC. FOR $18.00 OF COMMON STOCK OF PRICE COMMUNICATIONS CORPORATION THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT NEW YORK CITY TIME ON OCTOBER 2, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). SHARES WHICH ARE TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. Price Communications Corporation, a New York corporation ("Price") hereby offers, upon the terms and subject to the conditions set forth herein and in the related Letter of Transmittal (collectively, the "Offer"), to exchange $18.00 in shares of common stock, par value $0.01 per share, of Price ("Price Common Stock") for up to 3,000,000 outstanding shares of Class A common stock, par value $0.01 per share, and Class B common stock, par value $.01 per share (each, a "Palmer Share" and collectively the "Palmer Shares"), of Palmer Wireless, Inc., a Delaware corporation ("Palmer"). Each of the Palmer Shares validly tendered on or prior to the Expiration Date and not properly withdrawn will be entitled to receive that number of shares of Price Common Stock equal to the Exchange Ratio (as defined below) (the "Stock Consideration"), subject to proration in the event more than the 3,000,000 Palmer Shares sought in the Offer are tendered as described below. The term "Exchange Ratio" means the quotient (rounded to the nearest 1/100,000) determined by dividing $18.00 by the average of the closing prices of Price Common Stock on the American Stock Exchange (the "AMEX") (the "Price Communications Average Price") on each of the five consecutive trading days ending on September 17, 1997. The Price Common Stock is listed for trading under the symbol "PR" on the AMEX. On September 2, 1997, the closing price of Price Common Stock on the AMEX was $7.50. Based on such closing price, the Exchange Ratio would be 2.4 shares of Price Common Stock for each Palmer Share. The Exchange Ratio will change as the market price of the Price Common Stock changes. Holders of Palmer Shares (the "Palmer Stockholders") may call the Information Agent (888-881-0527) any time on or after the date hereof through the Expiration Date for the current Exchange Ratio calculated based on the then-current Price Communications Average Price for the five consecutive trading days ending with the trading day immediately preceding the date the call is placed. The actual Price Communications Average Price and Exchange Ratio will be calculated as of September 17, 1997, as described above, and a press release will be issued announcing the actual Exchange Ratio prior to the opening of the trading day on September 18, 1997. On May 23, 1997, Price, Price Communications Wireless, Inc., a wholly-owned subsidiary of Price ("PCW"), and Palmer entered into the Agreement and Plan of Merger (the "Palmer Merger Agreement"), which provides, among other things, for the merger of PCW with and into Palmer, with Palmer as the surviving corporation (the "Palmer Merger"). It is contemplated that the Offer will be consummated immediately prior to consummation of the Palmer Merger, so that (subject to proration as set forth below) Palmer Stockholders properly tendering and not withdrawing Palmer Shares in the Offer will receive $18.00 in Price Common Stock per Palmer Share pursuant to the Offer and Palmer Stockholders not tendering Palmer Shares (and not exercising appraisal rights in respect of the Palmer Merger under Delaware law) will receive $17.50 in cash per Palmer Share pursuant to the Palmer Merger (the "Merger Consideration"). Any Palmer Shares not taken up in the Offer as a result of proration will receive $17.50 in cash pursuant to the Palmer Merger. Palmer Stockholders will be deemed to have waived all rights to receive the Merger Consideration and to have forfeited any theretofore perfected appraisal rights with respect to all Palmer Shares properly tendered in the Offer and accepted for exchange by Price. A Palmer Stockholder who receives Common Stock in the Offer should not recognize gain or loss upon such exchange. See "The Offer-- Certain Federal Income Tax Consequences." The maximum number of Palmer Shares sought in the Offer is 3,000,000. A special meeting of the shareholders of Price has authorized the issuance of a maximum of 10,000,000 shares of Price Common Stock in the Offer. In the event the Exchange Ratio based upon the average closing price per share of Price Common Stock for the five trading days ending on September 17, 1997 could result in a requirement that Price issue more than the 10,000,000 shares of Price Common Stock in exchange for the Palmer Shares sought in the Offer (i.e., if the Price Communications Average Price were less than $5.40 per share), Price would amend the Offer by reducing the number of Palmer Shares sought in the Offer and/or by determining the Exchange Ratio on a basis different than that described above, or otherwise, so as to permit the Offer to be consummated without requiring the issuance of more than 10,000,000 shares of Price Common Stock. If the Offer is revised to change the number of Palmer Shares sought, or to amend the Exchange Ratio, the Offer will be extended to allow 10 business days to remain in the Offer. To the extent the aggregate number of Palmer Shares properly tendered by the Expiration Date and not withdrawn by Palmer Stockholders exceeds 3,000,000, the Palmer Shares so tendered will be taken up in the Offer pro rata based on the number of Palmer shares so tendered and not withdrawn by each such Palmer Stockholder. Price's obligation to exchange the Stock Consideration for Palmer Shares pursuant to the Offer is conditioned upon, among other things, the satisfaction or, where applicable, waiver of all of the conditions (including receipt of Federal Communications Commission approval) set forth in Article XIII of the Palmer Merger Agreement or waiver thereof by Price and the Palmer Merger Agreement not having been terminated pursuant to Article IX thereof and none of the parties to the Palmer Merger Agreement having asserted a right to terminate such agreement. (Such conditions and additional conditions described in "The Offer--Conditions of the Offer" are hereinafter collectively referred to as the "Offer Conditions"). Price expects to know whether all the conditions to the Palmer Merger have been satisfied or waived prior to the expiration of the Offer. See "The Offer--Conditions of the Offer." Price is unable to predict the amount of time necessary, among other things, to obtain the governmental and regulatory approvals and consents required to complete the Offer and the transactions contemplated herein. However, the time necessary to obtain such approvals and consents may extend beyond the Expiration Date, and Price reserves the right to extend the Offer from time to time in its sole discretion. SEE "RISK FACTORS" COMMENCING ON PAGE 19 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PALMER STOCKHOLDERS IN CONNECTION WITH THE OFFER. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. IMPORTANT ANY PALMER STOCKHOLDER DESIRING TO TENDER ALL OR ANY PORTION OF HIS OF HER PALMER SHARES SHOULD EITHER (A) COMPLETE AND SIGN THE LETTER OF TRANSMITTAL OR A FACSIMILE COPY THEREOF IN ACCORDANCE WITH THE INSTRUCTIONS IN THE LETTER OF TRANSMITTAL, AND MAIL OR DELIVER THE LETTER OF TRANSMITTAL OR SUCH FACSIMILE AND ANY OTHER REQUIRED DOCUMENTS TO HARRIS TRUST COMPANY OF NEW YORK (THE "EXCHANGE AGENT") AND EITHER DELIVER THE CERTIFICATES FOR SUCH PALMER SHARES TO THE EXCHANGE AGENT ALONG WITH THE LETTER OF TRANSMITTAL, DELIVER SUCH PALMER SHARES PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER SET FORTH HEREIN OR COMPLY WITH THE GUARANTEED DELIVERY PROCEDURES SET FORTH BELOW OR (B) REQUEST HIS OR HER BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO EFFECT THE TRANSACTION FOR SUCH PALMER STOCKHOLDER. A PALMER STOCKHOLDER HAVING PALMER SHARES REGISTERED IN THE NAME OF A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE IS URGED TO CONTACT SUCH BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE IF HE OR SHE DESIRES TO TENDER SUCH PALMER SHARES. A PALMER STOCKHOLDER THAT DESIRES TO TENDER PALMER SHARES AND WHOSE CERTIFICATES FOR SUCH PALMER SHARES ARE NOT IMMEDIATELY AVAILABLE OR WHO CANNOT COMPLY WITH THE PROCEDURES FOR BOOK-ENTRY TRANSFER ON A TIMELY BASIS OR WHO CANNOT DELIVER ALL REQUIRED DOCUMENTS TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE, MAY TENDER SUCH PALMER SHARES BY FOLLOWING THE PROCEDURE FOR GUARANTEED DELIVERY. QUESTIONS AND REQUESTS FOR ASSISTANCE MAY BE DIRECTED TO CORPORATE INVESTORS COMMUNICATIONS, INC. (THE "INFORMATION AGENT") AT THE ADDRESS AND TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS PROSPECTUS. REQUESTS FOR ADDITIONAL COPIES OF THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE INFORMATION AGENT OR TO BROKERS, DEALERS, COMMERCIAL BANKS OR TRUST COMPANIES. 2 TABLE OF CONTENTS
PAGE ---- Available Information; Incorporation by Reference....................... 3 Prospectus Summary.................. 5 The Acquisition..................... 9 Risk Factors........................ 19 Unaudited Pro Forma Condensed Consolidated Financial Statements.. 25 The Offer........................... 33 Creation of a Holding Company For Price.............................. 48 Information Concerning Price........ 54 Principal Shareholders of Price..... 56 Security Ownership of Price's Man- agement............................ 57 Market for Price Common Stock....... 58
PAGE ---- Price Selected Consolidated Financial Data................................................... 59 Price Management's Discussion and Analysis of Financial Condition and Results of Operations.. 61 Information Concerning Palmer................................................................ 67 Market for Palmer Shares..................................................................... 76 Palmer Selected Consolidated Financial Data........................................................................................ 77 Palmer Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................................... 79 Legal Matters................................................................................ 88 Experts...................................................................................... 88
AVAILABLE INFORMATION Price and Palmer are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, file reports, proxy statements and other information with the Commission. The reports, proxy statements and other information filed by Price and Palmer with the Commission may be inspected and copied at the Commission's public reference room located at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the public reference facilities in the Commission's regional offices located at: 7 World Trade Center, 13th Floor, New York, New York 10048, and 500 West Madison Street, Suite 400 Chicago, Illinois 60661. Copies of such material may be obtained at prescribed rates by writing to the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. Price and Palmer are electronic filers with the Commission, which maintains a web site containing reports, proxy and other information statements at the following location: http://www.sec.gov. THIS PROSPECTUS DOES NOT CONTAIN ALL OF THE INFORMATION SET FORTH IN THE REGISTRATION STATEMENT ON FORM S-4 (THE "REGISTRATION STATEMENT") COVERING THE PRICE COMMON STOCK OFFERED HEREBY WHICH HAS BEEN FILED WITH THE COMMISSION. REFERENCE IS HEREBY MADE TO THE REGISTRATION STATEMENT FOR FURTHER INFORMATION WITH RESPECT TO PRICE, PALMER AND THE SECURITIES OFFERED HEREBY. STATEMENTS CONTAINED HEREIN CONCERNING ANY DOCUMENTS ARE NOT NECESSARILY COMPLETE AND, IN EACH INSTANCE, REFERENCE IS MADE TO THE COPIES OF SUCH DOCUMENTS FILED WHICH IN CERTAIN CASES ARE FILED AS EXHIBITS TO THE REGISTRATION STATEMENT. EACH SUCH STATEMENT IS QUALIFIED IN ITS ENTIRETY BY SUCH REFERENCE. The Prospectus incorporates documents by reference which are not presented herein or delivered herewith. These documents are available upon request from Ashley B. Dixon, Price Communications Corporation, 45 Rockefeller Plaza, New York, New York 10020, (212) 757-5600. In order to ensure timely delivery of the documents, any request should be made before September 19, 1997. The following documents filed with the Commission by Price (File No. 1-8309) are incorporated herein by reference: (a) Price's Annual Report on Form 10-K for the year ended December 31, 1996; and (b) Price's Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1997 and June 30, 1997. The following documents filed with the Commission by Palmer (File No. 0- 25588) are incorporated herein by reference: (a) Palmer's Annual Report on Form 10-K for the year ended December 31, 1996; and (b) Palmer's Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1997 and June 30, 1997. 3 All documents filed by either Price or Palmer pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the date the Offer is terminated or the Palmer Shares are accepted for exchange shall be deemed to be incorporated herein by reference and to be a part hereof from the date of such filing. Any statement contained herein or in a document incorporated or deemed to be incorporated herein by reference shall be deemed to be modified or superseded for purposes hereof to the extent that a statement contained herein or in any other subsequently filed document which also is, or is deemed to be, incorporated herein by reference modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed to constitute a part hereof, except as so modified or superseded. Not later than the date of commencement of the Offer, Price will file with the Commission a statement on Schedule 14D-1 pursuant to Rule 14D-3 under the Exchange Act furnishing certain information with respect to the Offer. Such schedule and any amendments thereto should be available for inspection and copying as set forth above (except that such schedule and any amendments thereto will not be available at the regional offices of the Commission). NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PRICE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. THE OFFER IS NOT BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF OF, HOLDERS OF PALMER SHARES IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. HOWEVER PRICE MAY, IN ITS SOLE DISCRETION, TAKE SUCH ACTION AS IT MAY DEEM NECESSARY TO MAKE THE OFFER IN ANY SUCH JURISDICTION AND EXTEND THE OFFER TO HOLDERS OF PALMER SHARES IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF PRICE OR PALMER SINCE THE DATE AS OF WHICH INFORMATION IS FURNISHED OR THE DATE HEREOF. 4 PROSPECTUS SUMMARY The information below is qualified in its entirety by the more detailed information and financial statements and notes thereto appearing elsewhere in this prospectus. As used in this prospectus, the term "Price" refers to Price Communications Corporation and, unless the context otherwise requires, its subsidiaries. The shareholders of Price have authorized the creation of a holding company ("Holdings"), which will become the parent of Price and change its name to Price Communications Corporation. Following the creation of such holding company, the term "Price" shall be deemed to refer to Holdings and the term "Price Common Stock" shall be deemed to refer to Holdings' common stock. See "Creation of a Holding Company for Price." The term "Palmer" refers to Palmer Wireless, Inc. and, unless the context otherwise requires, its subsidiaries. PRICE Price has historically been a nationwide communications company owning and then disposing of a number of television, radio, newspaper, cellular telephone and other communications and related properties. Price's business strategy is to acquire communications properties at prices it considers attractive, finance such properties on terms satisfactory to it, manage such properties in accordance with its operating strategy and dispose of them if and when Price determines such dispositions to be in its best interest. Price's principal executive offices are located at 45 Rockefeller Plaza, New York, New York 10020, and its telephone number is (212) 757-5600. PALMER Palmer is engaged in the construction, development, management and operation of cellular telephone systems in the southeastern United States. At June 30, 1997 (after giving effect to the Acquisition (as defined below)), Palmer provided cellular telephone service to 287,665 subscribers in Georgia, Alabama, Florida and South Carolina in a total of 17 licensed service areas composed of eight Metropolitan Statistical Areas ("MSAs") and nine Rural Service Areas ("RSAs"), with an aggregate estimated population of 3.5 million. Palmer sells its cellular telephone service as well as a full line of cellular products and accessories principally through its network of retail stores. Palmer markets all of its products and services under the CELLULAR ONE service mark. Palmer's principal executive offices are located at 12800 University Drive, Fort Myers, Florida 33907, and its telephone number is (941) 433-4350. RISK FACTORS Palmer Stockholders should carefully consider the factors set forth under the caption "Risk Factors" prior to tendering their Palmer Shares. REASONS FOR THE OFFER On May 23, 1997, Price, PCW, a wholly owned indirect subsidiary of Price, and Palmer entered into the Palmer Merger Agreement, which provides, among other things, for the merger of PCW with and into Palmer, with Palmer as the surviving corporation. Pursuant to the Palmer Merger Agreement, Price has agreed, among other things, to acquire each issued and outstanding Palmer Share for the Merger Consideration ($17.50 per share in cash). The purpose of the Offer is to provide Palmer Stockholders the opportunity to continue to participate in the ongoing business of Palmer by receiving shares of Price Common Stock valued at $18.00 per share in lieu of cash for at least a portion of their Palmer Shares. In addition, to the extent Palmer Shares are exchanged for shares of Price Common Stock in the Offer, the aggregate cash consideration to be paid by Price in the Acquisition will be correspondingly reduced. See "The Acquisition" and "The Offer". THE OFFER General Price hereby offers, upon the terms and subject to the conditions set forth herein and in the related Letter of Transmittal, to exchange $18.00 in shares of Price Common Stock for up to 3,000,000 outstanding Palmer Shares 5 validly tendered on or prior to the Expiration Date and not properly withdrawn. The Stock Consideration for a Palmer Share consists of that number of shares of Price Common Stock equal to the Exchange Ratio. The term "Exchange Ratio" means the quotient (rounded to the nearest 1/100,000) determined by dividing $18.00 by the average of the closing prices of Price Common Stock on the AMEX on each of the five consecutive trading days ending on September 17, 1997. On September 2, 1997, the closing price of Price Common Stock on the AMEX was $7.50. Based on such closing price the Exchange Ratio would be 2.4 shares of Price Common Stock for each Palmer Share. The Exchange Ratio will change as the market price of Price Common Stock changes. Palmer Stockholders may call the Information Agent (888-881-0527) any time on or after the date hereof through the Expiration Date for the current Exchange Ratio calculated based on the then- current Price Communications Average Price for the five consecutive trading days ending with the trading day immediately preceding the date the call is placed. The actual Price Communications Average Price and Exchange Ratio will be calculated as of September 17, 1997, as described above, and a press release will be issued announcing the actual Exchange Ratio prior to the opening of the trading day on September 18, 1997. The term "Expiration Date" shall mean 12:00 midnight, New York time on October 2, 1997, unless and until Price extends the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Price, shall expire. It is contemplated that the Offer will be consummated immediately prior to consummation of the Palmer Merger, so that (subject to proration) Palmer Stockholders properly tendering and not withdrawing Palmer Shares in the Offer will receive $18.00 in Price Common Stock per Palmer Share pursuant to the Offer and Palmer Stockholders not tendering Palmer Shares (and not exercising appraisal rights in respect of the Palmer Merger under Delaware law) will receive $17.50 in cash per Palmer Share pursuant to the Palmer Merger. Any Palmer Shares not taken up in the Offer as a result of proration will receive $17.50 in cash pursuant to the Palmer Merger. Palmer Stockholders will be deemed to have waived all rights to receive the Merger Consideration and to have forfeited any theretofore perfected appraisal rights with respect to all Palmer Shares properly tendered in the Offer and accepted for exchange by Price. The maximum number of Palmer Shares sought in the Offer is 3,000,000. A special meeting of the shareholders of Price has authorized the issuance of a maximum of 10,000,000 shares of Price Common Stock in the Offer. In the event the Exchange Ratio, based upon the average closing price per share of Price Common Stock for the five trading days ending on September 17, 1997, could result in a requirement that Price issue more than the 10,000,000 shares of Price Common Stock in exchange for the Palmer Shares sought in the Offer (i.e., if the Price Communications Average Price was less than $5.40 per share), Price would amend the Offer by reducing the number of Palmer Shares sought in the Offer and/or by determining the Exchange Ratio on a basis different than that described above, or otherwise, so as to permit the Offer to be consummated without requiring the issuance of more than 10,000,000 shares of Price Common Stock. If the Offer is revised to change the number of Palmer Shares sought, or to amend the Exchange Ratio, the Offer will be extended to allow 10 business days to remain in the Offer. To the extent the aggregate number of Palmer Shares properly tendered by the Expiration Date and not withdrawn by holders of Palmer Stockholders exceeds 3,000,000, the Palmer Shares so tendered will be taken up in the Offer pro rata based on the number of Palmer shares so tendered and not withdrawn by each such Palmer Stockholder. See "The Offer--General." Conditions of the Offer. Price's obligation to exchange the Stock Consideration for Palmer Shares pursuant to the Offer is conditioned upon, among other things, the satisfaction or, where applicable, waiver of each of the Offer Conditions including the satisfaction of all of the conditions (including receipt of Federal Communications Commission approval) set forth in Article XIII of the Palmer Merger Agreement or waiver thereof by Price and the Palmer Merger Agreement not having been terminated pursuant to Article IX thereof and none of the parties to the Palmer Merger Agreement having asserted a right to terminate such agreement. Price expects to know whether all conditions to the Palmer Merger have been satisfied or waived prior to the expiration of the Offer. 6 Subject to the applicable rules and regulations of the Commission, Price expressly reserves the right, in its sole discretion, at any time or from time to time, to delay acceptance for exchange or, regardless of whether such Palmer Shares were theretofore accepted for exchange, decline to exchange any Palmer Shares pursuant to the Offer or to amend or terminate the Offer and not to accept for exchange or exchange any Palmer Shares not theretofore accepted for exchange, or exchanged, upon the failure of any of the conditions of the Offer to be satisfied. Price reserves the absolute right to waive any defect or irregularity in the tender of any securities. See "The Offer--Conditions of the Offer." Waiver or amendment of certain conditions of the Offer may require an extension of the Offer. TIMING OF THE OFFER The Offer is scheduled to expire at 12:00 midnight, New York City time, on October 2, 1997. It is contemplated that the Offer will be consummated immediately prior to consummation of the Palmer Merger, so that (subject to proration) Palmer Stockholders properly tendering and not withdrawing Palmer Shares in the Offer will receive $18.00 in Price Common Stock per Palmer Share pursuant to the Offer. Palmer Stockholders not tendering Palmer Shares (and not exercising appraisal rights in respect of the Palmer Merger under Delaware law) will receive $17.50 in cash per Palmer Share pursuant to the Palmer Merger. Any Palmer Shares not taken up in the Offer as a result of proration will receive $17.50 in cash pursuant to the Palmer Merger. Palmer Stockholders will be deemed to have waived all rights to receive the Merger Consideration and to have forfeited any theretofore perfected appraisal rights with respect to all Palmer Shares properly tendered in the Offer and accepted for exchange by Price. It is Price's current intention to extend the Offer until all conditions have been either satisfied or waived. See "The Offer--Extension, Termination and Amendment." EXTENSION, TERMINATION AND AMENDMENT Price expressly reserves the right (but will not be obligated), in its sole discretion, at any time or from time to time, and regardless of whether any of the events set forth in the "Offer--Conditions of the Offer" shall have occurred or shall have been determined by Price to have occurred, (a) to extend the period of time during which the Offer is to remain open by giving oral or written notice of such extension to the Exchange Agent, which extension will be announced no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date, and (b) to amend the Offer in any respect (including without limitation, by decreasing or increasing the consideration offered in the Offer to holders of Palmer Shares and/or by increasing or decreasing the number of Palmer Shares being sought in the Offer) by giving oral or written notice of such amendment to the Exchange Agent. There can be no assurance that Price will exercise its right to extend the Offer. However, it is the Price's current intention to extend the offer until all conditions have been satisfied or waived. See "The Offer--Extension, Termination and Amendment." During any such extension, all Palmer Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering stockholder to withdraw his Palmer Shares. See "The Offer--Withdrawal Rights." EXCHANGE OF PALMER SHARES; DELIVERY OF PRICE COMMON STOCK Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Price will accept for exchange, and will exchange up to 3,000,000 outstanding Palmer Shares validly tendered and not withdrawn as promptly as practicable after the Expiration Date. See "The Offer--Exchange of Palmer Shares; Delivery of Price Common Stock." WITHDRAWAL RIGHTS Palmer Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for exchange and exchanged by Price for the Stock Consideration pursuant to the Offer, may also be withdrawn at any time after November 4, 1997. See "The Offer--Withdrawal Rights." 7 PROCEDURE FOR TENDERING PALMER SHARES For a Palmer Stockholder to validly tender Palmer Shares pursuant to the Offer, (i) a properly completed and duly executed Letter of Transmittal (or manually executed facsimile thereof), together with any required signature guarantees, or an Agent's Message (as hereinafter defined) in connection with a book-entry transfer, and any other required documents, must be transmitted to and received by the Exchange Agent at its address set forth on the back cover of this Prospectus and either certificates for tendered Palmer Shares must be received by the Exchange Agent at such address or such Palmer Shares must be tendered pursuant to the procedures for book-entry tender set forth under "The Offer--Procedure for Tendering" (and a confirmation of receipt of such tender received), in each case prior to the Expiration Date, or (ii) such Palmer Stockholder must comply with the guaranteed delivery procedures set forth under "The Offer--Procedure for Tendering." THE METHOD OF DELIVERY OF PALMER SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING PALMER STOCKHOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES A Palmer Stockholder who receives Common Stock in the Offer should not recognize gain or loss upon such exchange. Palmer Stockholders who receive cash in the Palmer Merger in exchange for their Palmer Shares will, in general, recognize gain or loss upon such exchange equal to the difference between the cash received and their tax basis in the Palmer Shares exchanged. In certain circumstances, some or all of the cash received pursuant to the Palmer Merger Agreement by a Palmer Stockholder who also participates in the Offer may be treated as dividend income (to the extent of applicable earnings and profits) rather than proceeds from the sale or exchange of a capital asset. All Palmer Stockholders should carefully read the summary of the federal income tax consequences of the Offer under "The Offer--Certain Federal Income Tax Consequences" and are urged to consult with their own tax advisors as to the federal, state, local and foreign tax consequences in their particular circumstances. THE EXCHANGE AGENT Harris Trust Company of New York has been appointed Exchange Agent in connection with the Offer. The Letter of Transmittal (or facsimile copies thereof) and certificates for Palmer Shares should be sent by each tendering Palmer Stockholder or his broker, dealer, bank or other nominee to the Exchange Agent at the address set forth on the back cover of this Prospectus. REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES Requests for information or assistance concerning the Offer may be directed to Corporate Investors Communications, Inc. (the "Information Agent") (888-881- 0527) at the address set forth on the back cover of this Prospectus. Requests for additional copies of this Prospectus and the Letter of Transmittal should be directed to the Information Agent. 8 THE ACQUISITION GENERAL On May 23, 1997, Price, PCW, a wholly-owned indirect subsidiary of Price, and Palmer entered into the Palmer Merger Agreement which provides, among other things, for the merger of PCW with and into Palmer, with Palmer as the surviving corporation. At or subsequent to the Palmer Merger, Palmer will change its name to "Price Communications Wireless, Inc." Pursuant to the Palmer Merger Agreement, Price has agreed to acquire each issued and outstanding Palmer Share for a purchase price of $17.50 per share in cash and to purchase outstanding options and rights under Palmer's employee and director stock purchase plans for an aggregate purchase price of $488.9 million. In addition, Price has agreed to repay the outstanding indebtedness of Palmer estimated to be up to approximately $389 million ("Palmer Existing Indebtedness"). In connection with this transaction, PCW has entered into an agreement to sell (subject to the satisfaction of certain conditions) at the effective time of the Palmer Merger, Palmer's Fort Myers, Florida MSA for $168 million (which will generate proceeds to Price of approximately $166.3 million) (the "Fort Myers Sale" and, together with the Palmer Merger, the "Acquisition"). The proceeds of the Fort Myers Sale will be used to fund a portion of the Acquisition. The purchaser of the Fort Myers MSA is Wireless One Network, L.P. ("Wireless One"), the operator of cellular telephone systems including three RSA's adjacent to the Fort Myers MSA. Wireless One, which had unsuccessfully sought to acquire Palmer shortly before Price entered into the Palmer Merger Agreement, made an unsolicited offer to Price to purchase the Fort Myers system. Price believes that in part because of the geographic importance of Fort Myers to Wireless One, it was able to achieve a high sales price for Fort Myers (approximately $440 per Pop in comparison to an average acquisition price of $198 per Pop paid by Price in the Acquisition). The consummation of the Acquisition is subject to the satisfaction of certain conditions contained in the Palmer Merger Agreement, including, among other things, Federal Communications Commission ("FCC") and Palmer Stockholder approval. Price also entered into an agreement with Palmer Communications Incorporated ("PCI"), which is the majority shareholder of Palmer, pursuant to which PCI has agreed to vote its Palmer Shares in favor of the Palmer Merger. Price expects the Acquisition to be consummated in October 1997. In order to fund the Acquisition and pay related fees and expenses, PCW issued $175 million aggregate principal amount of 11 3/4% Senior Subordinated Notes due 2007 (the "PCW Offering") and will enter into a syndicated senior loan facility providing for term loan borrowings in the aggregate principal amount of approximately $325 million and revolving loan borrowings of $200 million (the "New Credit Facility"). Although the PCW Offering has been consummated, the notes issued thereunder are subject to mandatory redemption if the Acquisition has not occurred by December 31, 1997 or if in the sole judgment of Price it appears that the Acquisition will not be consummated by December 31, 1997. At the effective time of the Palmer Merger, PCW is expected to borrow all term loans available under the New Credit Facility and approximately $100 million of revolving loans. The remaining revolving loans will, subject to a borrowing base and certain other conditions, be available to fund the working capital requirements of PCW. On July 2, 1997, Price received an executed commitment letter from a financial institution to provide the New Credit Facility. The commitment is subject to significant conditions, including the absence of material adverse change in the business of Palmer, and negotiation, execution and delivery of definitive documentation and consummation of the Fort Myers Sale (or arrangements satisfactory to the lenders under the New Credit Facility for short-term financing bridging such sale). An additional $47.5 million of the purchase price has been raised through an offering by Price Communications Cellular Holdings, Inc., a wholly-owned indirect subsidiary of Price and the direct parent of PCW ("Cellular Holdings"), of units (the "Cellular Holdings Units") consisting of 13 1/2% Senior Secured Discount Notes due 2007 and warrants (the "Unit Warrants") to purchase shares of Common Stock of Price (the "Cellular Holdings Offering"). The Unit Warrants enable the holders thereof to purchase up to 527,696 shares of the Price's Common Stock, or approximately 9% of the fully diluted common equity of Price as of August 8, 1997, at an exercise price of $0.01 per share. Although the Cellular Holdings Offering has been 9 consummated, the Cellular Holdings Units issued thereunder are subject to a special mandatory redemption if the Acquisition has not occurred by December 31, 1997 or if in the sole judgment of Cellular Holdings it appears that the Acquisition will not be consummated by December 31, 1997. To the extent Palmer Shares are exchanged for shares of Price Common Stock in the Offer, the aggregate cash consideration to be paid by Price in the Acquisition will be correspondingly reduced. Assuming 100% acceptance of the Offer, the cash consideration to be paid in the Palmer Merger would be reduced by $54.0 million, and Price's anticipated initial revolving loan borrowings under the New Credit Facility would be reduced from $97.1 million to $43.1 million. With 50% acceptance of the Offer, the cash savings in the Palmer Merger would be $27.0 million, and the anticipated initial revolving loan borrowings under the New Credit Facility would be $70.1 million. The actual cash savings in the Palmer Merger will vary with the average closing price for Price Common Stock for the five trading days ending on September 17, 1997 (which will determine the Exchange Ratio used in the Offer) and the acceptance level in the Offer. See "Unaudited Condensed Consolidated Pro Forma Financial Statements," and "Company Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The maximum number of Palmer Shares sought in the Offer is 3,000,000. A special meeting of the shareholders of Price has authorized the issuance of a maximum of 10,000,000 shares of Price Common Stock in the Offer. In the event the Exchange Ratio based upon the average closing price per share of Price Common Stock for the five trading days ending on September 17, 1997 could result in a requirement that Price issue more than the 10,000,000 shares of Price Common Stock in exchange for the Palmer Shares sought in the Offer (i.e., if the Price Communications Average Price were less than $5.40 per share), Price would amend the Offer by reducing the number of Palmer Shares sought in the Offer and/or by determining the Exchange Ratio on a basis different than that described herein, or otherwise, so as to permit the Offer to be consummated without requiring the issuance of more than 10,000,000 shares of Price Common Stock. To the extent the aggregate number of Palmer Shares properly tendered by the Expiration Date and not withdrawn by Palmer Stockholders exceeds 3,000,000, the Palmer Shares so tendered will be taken up in the Offer pro rata based on the number of Palmer shares so tendered and not withdrawn by each such Palmer Stockholder. Price has also purchased 1,677,700 shares of Class A Common Stock of Palmer in the open market, or approximately 16% of the outstanding shares of Class A Common Stock of Palmer. The majority of the purchases took place in June and July, 1997 and the aggregate purchase price was approximately $27.1 million. These purchases will reduce the aggregate amount of consideration paid in the Palmer Merger by approximately $29.4 million. Price has no plans for significant changes in Palmer or its management or operations after consummation of the Acquisition, and currently plans to continue Palmer's business on substantially the same basis as it is currently conducted. The Acquisition is being accounted for as a purchase. REASONS FOR THE ACQUISITION Price has historically been a nationwide communications company. Prior to 1995 Price owned a number of television, radio, newspaper, cellular telephone and other communications and related properties all of which were disposed of pursuant to the Price's long-standing policy of buying and selling communications properties at times deemed advantageous by Price's Board of Directors. On June 30, 1997, Price had no debt and held current assets consisting of approximately $54.4 million in cash and cash equivalents, and short-term investments. During the period following the disposition of its operating properties, Price reviewed numerous potential acquisitions and made various bids and offers in connection with possible acquisitions, but was unable to make an acquisition at a price it deemed prudent. The Board of Directors of Price believes that the Acquisition is in the best interests of Price and its shareholders. Among the factors taken into account by the Board in making such determination with respect to the Acquisition were the significant operating income before depreciation and amortization ("EBITDA") of Palmer; Palmer's strong EBITDA margin on service revenue; Palmer's record of growth in revenues, subscribers 10 and penetration rate (the number of subscribers per population); Palmer's excellent management team; and the strategic opportunity presented of permitting Price to re-enter the cellular telephone business. Price's decision to purchase Palmer was also influenced by the high prices prevailing in the broadcasting industry (one of its principal areas of past operations) which made potential broadcasting acquisitions unattractive to Price, Price's desire not to make investments in industries in which Price lacked expertise, and the significant experience of Price and its management in the cellular telephone business. In making a determination to purchase Palmer rather than other possible acquisition candidates, Price took into account that Palmer constituted a "pure" cellular business (i.e., it operated traditional cellular telephone systems only, rather than systems involving other technologies such as PCS which Price believes to be economically unproven in comparison to traditional cellular operations), that there are very few "pure" cellular business potentially available as acquisition candidates, and that Palmer's common stock was trading at a relatively low level in comparison to its historic trading prices (the reported closing sale price per share of Palmer Class A Common Stock on the NASDAQ National Market on May 22, 1997, the last trading day before the public announcement of the Acquisition, was $12.06; such stock traded in the range of $14.25 to $24.50 during 1995 and $10.25 to $22.50 during 1996). Among the factors taken into account by the Board of Directors in making such determination with respect to the Fort Myers Sale was the significant reduction in the need for financing for the Acquisition resulting from the anticipated proceeds of the Fort Myers Sale. See "Palmer Selected Consolidated Financial Data," "Palmer Management Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Condensed Consolidated Financial Statements," "Information Concerning the Company," "Risk Factors--Competition" and "Market for Palmer's Common Stock." In reaching its determinations, Price's Board of Directors did not assign any relative or specific weights to the factors considered. BACKGROUND OF THE ACQUISITION Early in 1997, PriCellular Corporation ("PriCellular"), a publicly traded corporation with respect to which Robert Price, Price's President then served as President and a director (and now serves as Chairman of the Board), was advised that Palmer was exploring means to maximize shareholder value, including the possible sale of Palmer. During early 1997, PriCellular expressed various indications of interest and made offers to acquire Palmer for consideration to consist in part of cash and in part of PriCellular securities which were rejected by Palmer because Palmer stated that it would only consider all cash offers. At a meeting held on May 14, 1997, the PriCellular Board of Directors determined not to pursue further the possible acquisition of Palmer, because of such Board's desire to effect any such acquisition with consideration consisting in part of PriCellular securities which it believed to be unacceptable to the Palmer Board as well as the PriCellular Board's desire to continue PriCellular's historic policy of purchasing relatively underdeveloped properties rather than a comparatively mature system such as Palmer. At the May 14, 1997 meeting, the PriCellular Board and PriCellular's counsel acknowledged that PriCellular's determination not to continue to pursue the possible acquisition of Palmer would leave Price free to pursue such an acquisition. In May 1997, Mr. Price wrote to Goldman Sachs & Co. ("Goldman Sachs"), Palmer's financial advisors, setting forth Price's offer of $17.50 per share for Palmer Shares. On May 15, 1997, counsel to Palmer provided the Price's counsel with a draft of the Palmer Merger Agreement, and negotiations between such respective counsel followed. During the period commencing May 15, 1997, Price and its counsel conducted business and legal due diligence with respect to Palmer, and the Price provided its directors with various information about Palmer and Price's's potential financing of an acquisition of Palmer and various informal conversations were held between Price's's management and its directors with respect to Palmer. On May 21, 1997, Price's Board of Directors held a special meeting at which the acquisition of Palmer was unanimously approved. On May 22, 1997, the Palmer Board of Directors unanimously approved the transaction. The definitive Palmer Merger Agreement was signed on May 23, 1997, providing for an all cash purchase price of $17.50 per share. 11 In June 1997, following execution of the Palmer Merger Agreement, certain institutional and individual holders of Palmer Shares approached Price to express an interest in receiving consideration consisting of Price's Common Stock (or in part the Price's Common Stock and in part cash) (the "Stock Alternative") as an alternative to the all cash consideration provided under the Palmer Merger Agreement. The holders explained that they were interested in maintaining an equity interest in the cellular telephone business and that there were very few other publicly traded companies whose businesses were focused solely on cellular telephone systems. While it would be possible for such holders to acquire Price Common Stock in the open market following the Palmer Merger, the number of outstanding shares of Price Common Stock is relatively small and the shares are relatively thinly traded. Accordingly, the holders expressed an interest in receiving shares of Price Common Stock directly in exchange for their Palmer Shares. Price thereupon informed Goldman Sachs that it was interested in providing the Stock Alternative to Palmer Stockholders. Goldman Sachs and certain members of Palmer management stated that so long as the Stock Alternative did not delay the closing or impair the Palmer Stockholders' ability to receive $17.50 in cash for their shares if they so desired, Palmer would have no objection if a Stock Alternative were presented directly by Price to Palmer Stockholders. Price did not suggest to Palmer amending the Palmer Merger Agreement to provide for the Stock Alternative because Price believed it could adequately present the Stock Alternative directly to Palmer Stockholders through the Offer. On August 8, 1997 the board of Palmer met and determined that it would express no position and remain neutral toward the Offer. TERMS OF THE PALMER MERGER AGREEMENT The following description of certain provisions of the Palmer Merger Agreement is only a summary and does not purport to be complete. This discussion is qualified in its entirety by reference to the complete text of the Palmer Merger Agreement, which is attached to this Prospectus as Annex I and incorporated by reference herein. The Palmer Merger On May 23, 1997, Price, PCW and Palmer executed the Palmer Merger Agreement, which provides, among other things, for the merger of PCW with and into Palmer, with Palmer as the surviving corporation (the "Surviving Corporation"). At or subsequent to the Palmer Merger, Palmer will change its name to "Price Communications Wireless, Inc." At the effective time of the Palmer Merger (the "Effective Time") , all of the issued and outstanding Palmer Shares will be converted into the right to receive $17.50 per share in cash, without interest. Price has also agreed to repay the Palmer Existing Indebtedness. In connection with this transaction, PCW has entered into an agreement to sell (subject to the satisfaction of certain conditions), at the Effective Time, Palmer's Fort Myers, Florida MSA for $168 million (which will generate approximately $166.3 million of proceeds to Price). The proceeds of the Fort Myers Sale will be used to fund a portion of the Acquisition. Conversion of Palmer Common Stock in the Palmer Merger At the Effective Time, all of the issued and outstanding Palmer Shares will be converted into the right to receive $17.50 per share in cash ("Per Share Amount"). All such Palmer Shares shall cease to be outstanding and shall automatically be canceled and retired. All shares of capital stock of Palmer owned, directly or indirectly, by Price, PCW or any subsidiary of Price, and all shares of capital stock of Palmer held in its treasury shall be canceled and extinguished without any conversion thereof and no cash shall be delivered or deliverable in exchange therefor. Each share of common stock, par value $.01 per share, of PCW issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one duly and validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation with the result that the Surviving Corporation will be an indirect wholly-owned subsidiary of Price. Certificate of Incorporation and Bylaws The Palmer Merger Agreement provides that the Certificate of Incorporation of PCW as in effect immediately prior to the Effective Time and as amended by the Certificate of Merger, shall be the certificate of 12 incorporation of the Surviving Corporation. The Bylaws of PCW, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation. Directors and Officers The directors of PCW shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation. The officers of Palmer shall continue as the officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified. Robert Price is the sole director of PCW. Regulatory Approval The consummation of the Acquisition is subject to FCC approval of the transfer of control of Palmer to Price. All such FCC approvals have been obtained and as of September 29, 1997, all such approvals are expected to be final (no longer subject to administrative or court review). Price has received early termination of the waiting period under the Hart- Scott-Rodino Antitrust Improvement Act of 1976 (the "HSR Act"). Effective Time The Effective Time of the Palmer Merger, at which time the closing of the Palmer Merger will occur and the conversion of the Palmer Shares will become effective, will be the time of the filing of a Certificate of Merger with the Secretary of State of the State of Delaware. This filing will occur as soon as practicable following the satisfaction or waiver of the closing conditions set forth in the Merger Agreement. The Effective Time is currently expected to take place in October 1997. See "--Termination Rights" and "--Conditions". Payment As of the Effective Time, Price shall, on behalf of PCW, deposit with a bank designated by Palmer and Price (the "Paying Agent"), for the benefit of the Palmer Stockholders holders of shares of common stock of Palmer, for payment through the Paying Agent, cash in an amount equal to the Per Share Amount multiplied by the number of Palmer Shares outstanding immediately prior to the Effective Time (excluding any shares owned by Price, PCW, or a subsidiary of Price, or shares held in the treasury) (such cash being hereinafter referred to as the "Payment Fund") to Palmer Stockholders. Price shall cause the Paying Agent to deliver cash out of the Payment Fund. Representations and Warranties The Palmer Merger Agreement contains various customary representations and warranties of Palmer relating to, among other things, organization and qualification, certificate of incorporation and bylaws, capitalization, authority to enter into the Palmer Merger Agreement, absence of conflicts between the Palmer Merger Agreement and other agreements and documents, receipt of required consents or approvals, documents filed with the SEC and the accuracy of information contained therein, financial statements, absence of material adverse changes since December 31, 1996, litigation, governmental licenses and permits, compliance with laws, taxes, intellectual property, material contracts, employee benefit plans, title to and condition of properties and assets, labor relations, environmental matters, insurance, FCC matters, governmental matters, board approval of the Palmer Merger, the shareholders' vote required, opinion of the Palmer board's financial advisor, and broker's or finder's fees. 13 PCW and Price each have made various customary representations and warranties relating to, among other things, organization and qualification, certificate of incorporation and bylaws, authority to enter into the Palmer Merger Agreement, absence of conflicts between the Palmer Merger Agreement and other agreements, receipt of required consents or approvals, and the required vote of the shareholder of PCW. In addition, Price has made representations and warranties relating to financing of the Palmer Merger, qualification under the Communications Act of 1934, as amended, and FCC rules and regulations, the absence of a requirement of the vote of the shareholders of Price, litigation, broker's or finder's fees, documents filed with the SEC and the accuracy of information contained therein, financial statements, and absence of material adverse changes since March 31, 1997. Covenants and Obligations Palmer has agreed, among other things, that during the period from the date of the Palmer Merger Agreement until the Effective Time, Palmer shall: (i) operate the business of Palmer only in the ordinary course; (ii) use reasonable efforts to preserve its business organization, maintain its rights and franchises, retain the services of its respective principal officers and key employees and maintain its relationship with its respective principal customers and suppliers; (iii) use reasonable efforts to maintain its properties and assets; and (iv) use reasonable efforts to keep in full force and effect insurance comparable to that currently maintained. Palmer has also agreed that it will not during such period (i) increase the compensation of directors, executive officers or employees except for increases in the ordinary course of business and consistent with past practice, grant any severance or termination pay, or adopt or amend any employee benefit plan or arrangement; (ii) make any distributions or dividends; (iii) redeem or otherwise reacquire any share of its capital stock, effect any reorganization or recapitalization, or split, combine or reclassify any of its capital stock or issue or authorize any other securities for shares of its capital stock; (iv) sell any shares of, or any options, warrants, or other rights to acquire or convertible into any shares of, its capital stock, except for the issuance of shares upon the exercise of outstanding options and the issuance of shares under Palmer's stock purchase plans or amend the terms of such rights, warrants, or options in a manner inconsistent with the provisions of the Palmer Merger Agreement or to make such terms more favorable to the holders thereof; (v) acquire, merge or consolidate with, or purchase any equity interest in or a portion of the assets of any business corporation, partnership, association or other business organization or division, or make or commit any capital expenditures other than in the ordinary course of business consistent with past practice; (vi) sell, lease or otherwise dispose of any material assets except for the grant of purchase money security interests not to exceed $500,000 in the aggregate and dispositions in the ordinary course of business and consistent with past practice; (vii) amend its certificate of incorporation, bylaws or other governing documents in such a manner that would have an adverse impact on the consummation of the Palmer Merger or would be adverse to Price's interests; (viii) change its methods of accounting, make or rescind any election relating to taxes, settle or compromise any claim or suit relating to taxes (except where the amount in question does not exceed $500,000), or change its tax policies or procedures, except as may be required by law or to comply with generally accepted accounting principles; (ix) incur any obligation for borrowed money, other than purchase money indebtedness not to exceed $500,000, indebtedness incurred in the ordinary course of business under existing loan agreements, and capitalized leases not to exceed $1,000,000 in the aggregate; (x) enter into or modify any material contracts without the written consent of Price; or (xi) agree in writing or otherwise to do any of the foregoing. No Solicitation Palmer has agreed that it will not, and will not permit any of its officers, directors, employees, representatives, agents, or direct or indirect stockholders of Palmer, to directly or indirectly encourage or solicit any proposal that constitutes an Acquisition Proposal (as defined below), engage in any discussions or negotiations or provide any information to any person relating thereto or in furtherance thereof or accept any Acquisition Proposal; provided, however, that Palmer or its board of directors is permitted to make any disclosure to its stockholders that, in the judgment of its board of directors in accordance with, and based upon, the advice of outside counsel, is required under applicable law. For purposes of the Palmer Merger Agreement, 14 "Acquisition Proposal" means any offer to acquire (or meaningful indication of interest in the acquisition of) all or any substantial part of the business and properties or capital stock of Palmer, whether by merger, consolidation, sale of assets or stock, tender offer or similar transaction or series of transactions involving Palmer or its direct or indirect stockholders. Notwithstanding the foregoing, the board of directors of Palmer, in the exercise of and as required by its fiduciary duties as determined in good faith by the board of directors of Palmer in accordance with and based upon the advice of outside counsel, may (i) furnish information (including, without limitation, confidential information) concerning Palmer to a third party who makes an unsolicited request for such information for the purpose of making an Acquisition Proposal, provided that such third party executes and delivers a confidentiality agreement in a customary form, and (ii) engage in discussions or negotiations with a third party who submits in writing an interest in making an Acquisition Proposal that the board of directors believes, based on advice of its financial advisors, is reasonably capable of being consummated and is reasonably likely to be superior to the transactions contemplated by this Agreement from a financial point of view to all stockholders of Palmer, provided, however, that in the case of clause (i) or (ii) hereof, Palmer shall promptly notify Price in writing of such request for information or Acquisition Proposal, providing reasonable details with respect thereto, and shall keep Price informed as to the status of any discussions or negotiations referred to in clause (ii) above. Conditions The respective obligations of Price, PCW and Palmer to effect the Palmer Merger and the other transactions contemplated by the Palmer Merger Agreement are subject to the satisfaction at or prior to the Effective Time of the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by applicable law: (i) stockholder approval by the requisite vote of the stockholders of Palmer in accordance with applicable law; (ii) the absence of any action or proceeding which is then in effect and has the effect of prohibiting the Palmer Merger or any of the transactions contemplated thereby; (iii) termination of all applicable waiting periods under the HSR Act; and (iv) all consents, waivers, approvals and authorizations required to be obtained from the FCC (the "FCC Transfer Approvals"), and all filings or notices required to be made with the FCC by Price, PCW and Palmer prior to consummation of the transactions contemplated in the Palmer Merger Agreement. Each of the FCC Transfer Approvals shall have become a Final Order. For purposes of the Palmer Merger Agreement, "Final Order" shall mean an action by the FCC: (i) that is not reversed, stayed, enjoined, set aside, annulled or suspended within the deadline, if any, provided by applicable statute or regulation; (ii) with respect to which no request for stay, motion or petition for reconsideration or rehearing, application or request for review, or notice of appeal or other judicial petition for review that is filed within such period is pending, and (iii) as to which the deadlines, if any, for filing any such request, motion, petition, application, appeal or notice, and for the entry of orders staying, reconsidering, or reviewing on the FCC's own motion have expired. Price may, at its option, waive on behalf of the parties the requirement that the FCC Transfer Approvals shall have become a Final Order. The obligations of Price to effect the Palmer Merger and the other transactions contemplated in the Palmer Merger Agreement are also subject to the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by applicable law: (i) the representations and warranties of Palmer made in the Palmer Merger Agreement shall be true and correct in all material respects; (ii) the agreements and covenants of Palmer required to be performed on or before the Effective Time shall have been performed in all material respects; (iii) Price shall have received legal opinions in form and substance reasonably satisfactory to Price; (iv) the Dissenting Shares (as defined in "Dissenters and Appraisal Rights" below) shall constitute not greater than ten percent (10%) of the shares of Class A common stock outstanding on the Closing Date; and (v) since the date of the Palmer Merger Agreement, Palmer has experienced no material adverse change to its business. The legal opinions described in clause (iii) above will be delivered by Hogan & Hartson L.L.P., counsel to Palmer, and Lukas, McGowan, Nace & Gutierrez, Chartered, FCC counsel to Palmer, and will cover such customary matters as due authorization of the Palmer Merger Agreement by all necessary corporate action of Palmer, the absence of conflicting agreements or laws, compliance as to form with the Securities Exchange Act of 1934, as 15 amended, of the proxy statement to be submitted to Palmer stockholders in connection with the Palmer Merger Agreement, the absence of litigation, and compliance with FCC rules. The obligations of Palmer to effect the Palmer Merger and the other transactions contemplated in the Palmer Merger Agreement are also subject to the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by applicable law: (i) the representations and warranties of Price and PCW made in the Palmer Merger Agreement shall be true and correct in all material respects; (ii) the agreements and covenants of Price and PCW required to be performed on or before the Effective Time shall have been performed in all material respects; (iii) Palmer shall have received a legal opinion in form and substance reasonably satisfactory to Palmer. Indemnification The Palmer Merger Agreement provides that: (a) The certificate of incorporation and bylaws of the Surviving Corporation shall contain the provisions with respect to indemnification set forth in the certificate of incorporation and bylaws of Palmer on the date of the Palmer Merger Agreement, which provisions shall not be amended, repealed or otherwise modified for a period of six (6) years after the Effective Time in any manner that would adversely affect the right thereunder or persons who at any time prior to the Effective Time were identified as prospective indemnities under the certificate of incorporation or bylaws of Palmer in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by the Palmer Merger Agreement), unless such modification is required by applicable law. (b) From and after the Effective Time, the Surviving Corporation shall indemnify, defend and hold harmless the present and former officers, directors and employees of Palmer (collectively, the "Indemnified Parties") against all losses, expenses, claims, damages, liabilities or amounts that are paid in settlement of, with the approval of Price and the Surviving Corporation (which approval shall not be unreasonably withheld), or otherwise in connection with, any claim, action, suit, proceeding or investigation with respect to actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by the Palmer Merger Agreement). Dissenters and Appraisal Rights Notwithstanding any other provisions of the Palmer Merger Agreement to the contrary, Palmer Shares that are issued and outstanding immediately prior to the Effective Time and that are held by stockholders who shall not have voted in favor of the Palmer Merger or consented thereto in writing and who shall have demanded properly in writing appraisal for such shares in accordance with Section 262 of Delaware Law (collectively, the "Dissenting Shares") shall not be converted into or represent the right to receive the Per Share Amount. Such stockholders shall be entitled to receive payment of the appraised value of such Palmer Shares held by them in accordance with the provisions of such Section 262, except that all Dissenting Shares held by stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such Palmer Shares under such Section 262 shall thereupon be deemed to have been converted into and to have become exchangeable, as of the Effective Time, for the right to receive, without any interest thereon, the Per Share Amount, upon surrender of the certificate or certificates that formerly evidenced such shares of common stock. ANY DISSENTING SHARES EXCHANGED IN THE OFFER WILL BE DEEMED TO HAVE FORFEITED ANY THERETOFORE PERFECTED APPRAISAL RIGHTS. 16 Termination The Palmer Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the Palmer Merger Agreement by the stockholders of Palmer. Termination may occur on the following conditions: (a) by mutual written consent of each of Price and Palmer; (b) by either Price or Palmer if there is a material breach of any representation or warranty in the Palmer Merger Agreement on the part of the other which is not cured within thirty (30) business days following receipt by the breaching party of notice of such breach; (c) by either Price or Palmer if any decree, permanent injunction, judgment, order or other action by any court of competent jurisdiction or any governmental entity prohibiting consummation of the Palmer Merger shall have become final and nonappealable; (d) by either Price or Palmer if the Palmer Merger Agreement shall fail to receive the requisite vote for approval and adoption by the Palmer Stockholders at a special meeting of the Palmer Stockholders and the Palmer Merger shall not have been consummated within forty-five days (45) days thereafter; and (e) by either Palmer or Price if the Palmer Merger shall not have been consummated before December 31, 1997 (the "Termination Date"); provided, however, that the right to terminate the Palmer Merger Agreement shall not be available to any party whose failure to fulfill any obligation under the Palmer Merger Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before the Termination Date. Voting Agreement Concurrently with the execution of the Palmer Merger Agreement, Price entered into a Voting Agreement with Palmer Communications Incorporated ("PCI"), the majority shareholder of Palmer, pursuant to which PCI has agreed to vote its Palmer Shares in favor of the Palmer Merger. PCI owns beneficially or of record 17,293,578 Palmer Shares, which represent 75% of the combined voting power of the Palmer Shares. The approval of the majority of the votes cast by holders of Palmer Shares is required for the approval of the Palmer Merger Agreement. The Voting Agreement also provides that PCI shall not dispose of or encumber any Palmer Shares owned or acquired beneficially or of record by PCI, nor will PCI convert any shares of Class B common stock of Palmer into shares of Class A common stock. In addition, PCI granted to Price an option to purchase all of the Palmer Shares owned by PCI at the cash exercise price of $17.50 per share, which option is exercisable at any time prior to termination of the Voting Agreement if PCI fails to vote its shares as required by the Voting Agreement. Certain Expenses The Palmer Merger Agreement provides that each party will pay its own expenses. All FCC annual regulatory fees which are due and payable prior to Closing shall be paid by Palmer prior to Closing. Palmer shall pay Price a fee (the "Fee") of Fifteen Million Dollars ($15,000,000), if the Palmer Merger Agreement is (i) terminated either (A) by Price as a result of Palmer's material breach of its obligations under the Palmer Merger Agreement, (B) by Palmer or Price if the requisite stockholder approval of the Palmer Merger is not obtained and (ii) either (x) an Alternative Transaction (as defined below) has been publicly announced and has not been withdrawn at the time of such termination (in which event the Fee shall be paid simultaneously with such termination) or (y) an Alternative Transaction is consummated on or prior to the date that is one (1) year after the date of the Palmer Merger Agreement (in which event the Fee shall be paid simultaneously with such consummation). As used herein, an "Alternative Transaction" shall mean any transaction or proposed transaction or related series of transactions (including without limitation any merger, consolidation, sale of assets or stock, tender offer or other transaction) providing for the receipt by Palmer and/or the holders of more than fifty percent (50%) of its common stock of consideration equivalent to a value in excess of $17.50 per share of Palmer common stock. 17 CERTAIN FEDERAL INCOME TAX CONSEQUENCES Palmer Stockholders who receive cash in the Palmer Merger in exchange for their Palmer Shares will, in general, recognize gain or loss upon such exchange equal to the difference between the cash received and their tax basis in the Palmer Shares exchanged. A Palmer Stockholder who receives Common Stock in the Offer should not recognize gain or loss upon such exchange. In certain circumstances, some or all of the cash received pursuant to the Palmer Merger by a Palmer Stockholder who also participates in the Offer may be treated as dividend income (to the extent of applicable earnings and profits) rather than proceeds from the sale or exchange of a capital asset. See "The Offer--Certain Federal Income Tax Consequences." 18 RISK FACTORS In addition to the other matters described in this Prospectus, each Palmer Stockholder prior to determining to accept shares of Price Common Stock in lieu of (i) a cash payment pursuant to the Palmer Merger Agreement or (ii) a cash payment resulting from the perfection of appraisal rights, should consider the specific factors set forth below. This Prospectus contains statements which constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements appear in a number of places in this Prospectus and include statements regarding the intent, belief or current expectations of Price, its directors or its officers primarily with respect to the future operating performance of Price. Palmer Stockholders are cautioned that any such forward looking statements are not guarantees of future performance and may involve risks and uncertainties, and that actual results may differ from those in the forward looking statements as a result of factors, many of which are outside the control of Price. The accompanying information contained in this Prospectus, including without limitation the information set forth below and the information under the headings "Price Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Palmer Management's Discussion and Analysis of Financial Condition and Results of Operations", identifies important factors that could cause such differences. LEVERAGE AND LIQUIDITY Price will be highly leveraged upon consummation of the Acquisition. See "Unaudited Pro Forma Condensed Consolidated Financial Statements". Price's high degree of leverage could limit significantly its ability to make acquisitions, withstand competitive pressures or adverse economic conditions, obtain necessary financing or take advantage of business opportunities that may arise. Upon consummation of the Acquisition, Price's only committed source of liquidity is expected to be the New Credit Facility. While Price expects to have sufficient availability under the New Credit Facility to meet its liquidity needs, the terms of the New Credit Facility which determine the availability thereunder are still under negotiation. Although PCW has received a commitment to provide the New Credit Facility, the commitment is subject to significant conditions, including the absence of material adverse change, the negotiation, execution and delivery of definitive documentation, consummation of the Fort Myers Sale (or arrangements satisfactory to the lenders under the New Credit Facility for short-term financing bridging such sale), consummation of the Palmer Merger, the repayment of the Palmer Existing Indebtedness with the proceeds of the term loan to be provided under the New Credit Facility or other financing, the receipt by PCW of an equity contribution in cash or Palmer common stock from a subsidiary of Price and application to the Acquisition of the proceeds of the PCW Offering and a portion of proceeds from the Cellular Holdings Offering. Therefore, there can be no assurances that the New Credit Facility will be entered into. In addition, borrowings under the New Credit Facility will be subject to significant conditions, including compliance with certain financial ratios and the absence of any material adverse change. If the Fort Myers Sale is not consummated, Price will need to obtain $166.3 million of additional financing to consummate the acquisition of Palmer. There can be no assurances Price will be able to obtain such financing or as to the terms of any such financing, all of which could be additional indebtedness. Price's ability to meet its working capital and operational needs and to provide funds for debt service, capital expenditures and other cash requirements is dependent upon the availability of financing under the New Credit Facility. In addition, Price intends to pursue opportunities to acquire additional cellular telephone systems which, if successful, will require Price to obtain additional equity or debt financing to fund such acquisitions. There can be no assurances as to the availability or terms of any such financing or that the terms of the notes issued pursuant to the PCW Offering or the Cellular Holdings Offering (together, the "Notes") or the New Credit Facility will not restrict or prohibit any such debt financing. Price's ability to borrow is also limited by the terms of the outstanding Senior Payment-In-Kind Increasing Rate Preferred Stock ("PIK Preferred Stock"), which limits the ability of Price and its subsidiaries to incur 19 additional indebtedness and to make certain restricted payments, including investments. A portion of the proceeds of the Cellular Holdings Offering will be used to redeem the PIK Preferred Stock. Price's ability to meet its debt service requirements, including those represented by the Notes and the New Credit Facility, will require significant and sustained growth in Price's cash flow. There can be no assurance that Price will be successful in improving its cash flow by a sufficient magnitude or in a timely manner or in raising additional equity or debt financing to enable Price to meet its debt service requirements. LIMITATIONS ON ACCESS TO CASH FLOW OF SUBSIDIARIES Price does not have, and in the future may not have, any assets other than the common stock of its subsidiaries. The New Credit Facility, the Notes and other financing instruments to which Price's subsidiaries are or may in the future be a party impose, and in the future may impose, substantial restrictions on the ability of Price's subsidiaries to pay dividends to Price. Any payment of dividends to Price will be subject to the satisfaction of certain financial conditions set forth in the New Credit Facility, the Notes and other financing documents as well as restrictions under applicable state corporation law. Following the creation of a holding company, there will not be any contractual restrictions on the ability of Price to pay dividends to Holdings, although such dividends may be prohibited by the New York Business Corporation Law. Price has not in the past paid any dividends to its common shareholders, and does not expect Price to pay any dividends to common shareholders in the foreseeable future. The ability of Price and its subsidiaries to comply with the conditions of its financial obligations may be affected by events that are beyond the control of Price. The breach of any such conditions could result in a default under the New Credit Facility and/or other financing agreements, and in the event of any such default, the lenders under the New Credit Facility or the holders of certain other indebtedness could elect to accelerate the maturity of the loans under such facility or such other indebtedness. In the event of such acceleration, all such outstanding debt would be required to be paid in full before any cash could be distributed to Price. There can be no assurance that the assets of Price and its subsidiaries would be sufficient to repay all outstanding indebtedness or meet other financial obligations. NET LOSSES On a pro forma basis after giving effect to the Acquisition and the financing thereof, Price would have incurred net losses of approximately $26.0 million for the six months ended June 30, 1997 and, excluding the effect of the sale of Price's television station properties in 1996, Price would have incurred net losses of approximately $81.1 million for the year ended December 31, 1996. There can be no assurance that Price's future operations will generate sufficient earnings to pay its obligations. See "Unaudited Pro Forma Condensed Consolidated Financial Statements." ACQUISITION MAY NOT BE CONSUMMATED OR MAY NOT BE CONSUMMATED AS DESCRIBED The consummation of the Acquisition is subject to the satisfaction of certain conditions, including FCC approval. In addition, the consummation of the financing related to the Acquisition including the loans under the New Credit Facility, are subject to significant conditions. The failure of any such conditions to be met could result in the failure of Price to consummate the Acquisition. There can be no assurances that Price will be successful in consummating the Acquisition or in consummating the Acquisition in a timely manner or on the terms described in this Prospectus. If the Fort Myers Sale is not consummated, Price will need to obtain $166.3 million of additional financing to consummate the acquisition of Palmer. There can be no assurances that Price will be able to obtain such financing or as to the terms of any such financing, most or all of which could be additional indebtedness. If the Acquisition is not consummated because of insufficient financing, Price will be in breach of its obligations under the Palmer Merger Agreement and could be liable to Palmer for damages in connection with such breach. In addition, Price would be required to redeem the Notes and warrants issued in the PCW Offering and the Cellular Holdings Offering out of the amounts currently held in escrow pending the closing of the Palmer Merger. While the amounts held in escrow will be sufficient to cover the redemption price for these Notes and warrants, Price will have incurred substantial financing costs without reaping any related 20 benefits. The combined effect of these and other acquisition expenses and the potential liability to Palmer would have a material adverse effect on Price. Price would also be unable to redeem PIK Preferred Stock and the PIK Warrants out of the proceeds of the Cellular Holdings Offering. FRAUDULENT CONVEYANCE STATUTES Various laws enacted for the protection of creditors may apply to the incurrence of indebtedness and other obligations by Price and certain of its subsidiaries in connection with the Acquisition. If a court were to find in a lawsuit by an unpaid creditor or representative of creditors of Price or any such subsidiary that Price or such subsidiary did not receive fair consideration or reasonably equivalent value for incurring such indebtedness or other obligation and, at the time of such incurrence, Price or such subsidiary (i) was insolvent; (ii) was rendered insolvent by reason of such incurrence; (iii) was engaged in a business or transaction for which the assets remaining in Price or such subsidiary constituted unreasonably small capital; or (iv) intended to incur or believed it would incur obligations beyond its ability to pay such obligations as they mature, such court, subject to applicable statutes of limitation, could determine to invalidate, in whole or in part, such indebtedness and obligations as fraudulent conveyances or subordinate such indebtedness and obligations to existing or future creditors of Price or such subsidiary. The measure of insolvency for purposes of the foregoing will vary depending on the law of the jurisdiction which is being applied. Generally, however, Price or a subsidiary thereof would be considered insolvent at a particular time if the sum of its debts was then greater than all of its property at a fair valuation or if the present fair saleable value of its assets was then less than the amount that would be required to pay its probable liabilities on its existing debts as they become absolute and matured. On the basis of its historical financial information, its recent operating history and other factors, Price's management believes that, after giving effect to indebtedness incurred in connection with the Acquisition and the other related financings, Price and its subsidiaries will not be rendered insolvent, they will have sufficient capital for the businesses in which they will be engaged and they will be able to pay their debts as they mature; however, management has not obtained any independent opinion regarding such issues. There can be no assurances as to what standard a court would apply in making such determinations. To the extent that a subsidiary is deemed to have undertaken indebtedness or other obligations for the benefit of a parent corporation or shareholder, such indebtedness or other obligation also may be subject to review under relevant federal and state fraudulent conveyance and similar statutes in a bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of such subsidiary. In such case, the analysis set forth above would generally apply, except that the indebtedness or other obligation could also be subject to the claim that, since the indebtedness or other obligation was incurred for the benefit of the parent corporation or shareholder, the obligations of the subsidiary thereunder were incurred for less than reasonably equivalent value or fair consideration. A court could, among other things, avoid the subsidiary's obligation or subordinate the obligation to other indebtedness of the subsidiary. DILUTION The consummation of the Offer may result in substantial dilution of the Price Common Stock. The initial amount of such dilution will depend on the number of shares of Price Common Stock issued in the Offer. Assuming the issuance in the Offer of 10,000,000 shares, the total number of shares of Price Common Stock outstanding would be increased from 5,011,281 shares outstanding as of August 8, 1997 to 15,011,281 shares. A total of 1,109,808 and 704,750 shares, of Price Common Stock respectively, have been authorized for issuance under warrants and outstanding employee stock options. The issuance of shares of Price Common Stock in the Offer, in subsequent acquisitions or on the exercise of warrants or options could have a material adverse effect on market prices for the Price Common Stock. Depending on the number of Palmer Shares tendered in the Offer and the final exchange ratio in the Offer, former Palmer Stockholders could hold a substantial majority of the shares of Price Common Stock outstanding following completion of the Offer, potentially affecting future control of Price. 21 COMPETITION Although current policies of the FCC authorize only two licensees to operate cellular telephone systems in each cellular market, there is, and Price expects there will continue to be, competition from the other licensee authorized to serve each cellular market in which Palmer operates, as well as from resellers of cellular service. Competition for subscribers between cellular licensees is based principally upon the services and enhancements offered, the technical quality of the cellular telephone system, customer service, system coverage and capacity and price. Following consummation of the Acquisition, Price will compete with a wireline licensee in each of its cellular markets, some of which are larger and have access to more substantial capital resources than Price. Upon consummation of the Acquisition, Price will also face competition from other existing communications technologies such as conventional mobile telephone service, specialized mobile radio ("SMR") and enhanced specialized mobile radio ("ESMR") systems and paging services. ESMR is a "cellular-like" communications service supplied by converting analog SMR services into an integrated, digital transmission system providing for call hand-off, frequency reuse and wide call delivery networks. Price will also face limited competition from and may in the future face increased competition from PCS. It is expected that broadband PCS will involve a network of small, low-powered transceivers placed throughout a neighborhood, business complex, community or metropolitan area to provide customers with mobile and portable voice and data communications. PCS may be capable of offering, and PCS operators claim they will offer, additional services not offered by cellular providers. PCS subscribers could have dedicated personal telephone numbers and would communicate using small digital radio handsets that could be carried in a pocket or purse. There can be no assurances that Price will be able to provide nor that it will choose to pursue, depending on the economics thereof, such services and features. Price currently believes that traditional tested cellular is economically proven unlike many of these other technologies and therefore does not intend to pursue such other technologies. Although Price believes that the technology, financing and engineering of these other technologies is not as advanced as their publicity would suggest, there can be no assurance that one or more of the technologies currently utilized by Palmer in its business will not become obsolete at some time in the future. See "Information Concerning Palmer--Competition." After consummation of the Acquisition, Price will also face competition from "resellers." The FCC requires all cellular licensees to provide service to resellers. A reseller provides wireless service to customers but does not hold an FCC license or own facilities. Instead, the reseller buys blocks of wireless telephone numbers and capacity from a licensed carrier and resells service through its own distribution network to the public. POTENTIAL FOR REGULATORY CHANGES AND NEED FOR REGULATORY APPROVALS The licensing, construction, operation, acquisition, assignment and transfer of cellular telephone systems, as well as the number of licensees permitted in each market, are regulated by the FCC. Changes in the regulation of cellular activities could have a material adverse effect on Price's operations. In addition, all cellular licenses in the United States are granted for an initial term of up to 10 years and are subject to renewal for an additional term of up to 10 years each. Palmer's cellular licenses expire in the following years with respect to the following number of service areas: 1997 (four); 1998 (three); 2000 (two); 2001 (four); 2002 (three) and 2006 (one). While Price believes that each of these licenses will be renewed based upon FCC rules establishing a renewal expectancy in favor of licensees that have complied with their regulatory obligations during the relevant license period, there can be no assurance that all of Palmer's licenses will be renewed in due course. See "Information Concerning Palmer--Regulation." FLUCTUATIONS IN MARKET VALUE OF LICENSES After consummation of the Acquisition, a substantial portion of Price's assets will consist of its interests in cellular licenses. The assignment of interests in such licenses is subject to prior FCC approval and may also be subject to contractual restrictions, future competition and the relative supply and demand for radio spectrum. The 22 future value of Price's interests in its cellular licenses will depend significantly upon the success of Price's business. While there is a current market for such licenses, such market may not exist in the future or the values obtainable may be significantly lower than at present. As a consequence, in the event of the liquidation or sale of Price's assets, there can be no assurance that the proceeds would be sufficient to pay Price's obligations, and a significant reduction in the value of the licenses could require a charge to Price's results of operations. RELIANCE ON USE OF THIRD-PARTY SERVICE MARK Palmer currently uses the registered service mark CELLULAR ONE to market its services. Palmer's use of this service mark has historically been governed by five-year contracts between Palmer and Cellular One Group, the owner of the service mark. Palmer has recently renewed its contracts with Cellular One Group to use the CELLULAR ONE service mark. If for some reason beyond Price's or Palmer's control, the name CELLULAR ONE were to suffer diminished marketing appeal, Price's or Palmer's ability both to attract new subscribers and retain existing subscribers could be materially affected. AT&T Wireless Services, Inc., which has been the single largest user of the CELLULAR ONE service mark, has significantly reduced its use of the service mark as a primary service mark. There can be no assurance that such reduction in use by AT&T Wireless will not have an adverse effect on the marketing appeal of the brand name. DEPENDENCE ON KEY PERSONNEL Price's affairs are managed by a small number of key management and operating personnel, the loss of whom could have an adverse impact on Price. Robert Price, a Director, the President, Chief Executive Officer and Treasurer of Price, also serves as a Director and Chairman of PriCellular Corporation ("PriCellular"), another operator of cellular telephone systems. Price believes that Mr. Price's positions with Price and PriCellular complement one another and benefit both companies because the systems they operate are similar but do not directly compete with one another. Mr. Price's employment agreement with PriCellular provides that he may not be an employee of or have an ownership interest in any company engaged in the operation of cellular telephone systems in the United States other than PriCellular and that any such other company may not acquire any additional cellular telephone system within the United States, in each case, without the unanimous consent of the executive committee of the Board of Directors of PriCellular. The executive committee of the Board of Directors of PriCellular has approved the acquisition of Palmer by Price. Although Price and PriCellular historically have not imposed inconsistent demands on Mr. Price's availability, there can be no assurances that such conflicts will not arise in the future. Price expects that the executive officers of Palmer will continue as the executive officers of Price following the consummation of the Palmer Merger with the exception of Robert G. Engelhardt, Palmer's Executive Vice President, who is expected to retire prior to the consummation of the Palmer Merger. Price has entered into employment contracts with William J. Ryan and M. Wayne Wisehart to remain as officers following the consummation of the Palmer Merger and expects to enter into employment contracts with other key employees prior to the consummation of the Palmer Merger. The success of Price's operations and expansion strategy depends on its ability to retain and to expand its staff of qualified personnel in the future. RADIO FREQUENCY EMISSION CONCERNS Media reports have suggested that certain radio frequency ("RF") emissions from portable cellular telephones may be linked to certain types of cancer. In addition, recently a limited number of lawsuits have been brought, not involving Palmer, alleging a connection between cellular telephone use and certain types of cancer. Concerns over RF emissions and interference may have the effect of discouraging the use of cellular telephones, which could have an adverse effect upon Price's business. As required by the Telecom Act, in August 1996, the FCC adopted new guidelines and methods for evaluating RF emissions from radio equipment, including cellular telephones. While the new guidelines impose more restrictive standards on RF emissions from low power devices 23 such as portable cellular telephones, Price believes that all cellular telephones currently marketed and in use comply with the new standards. EQUIPMENT FAILURE; NATURAL DISASTER Although Palmer carries "business interruption" insurance, a major equipment failure or a natural disaster affecting any one of Palmer's central switching offices or certain of its cell sites could have a significant adverse effect on Price's operations. POTENTIAL ANTITAKEOVER EFFECT OF CLASS A AND CLASS B PREFERRED STOCK Although the Board of Directors and Compensation Committee of Price believe that the provisions of Price's Series A Preferred Stock and Series B Preferred Stock provide Price's President and Chief Executive Officer with incentive to maximize shareholder value by providing such officer with significant profit upon the consummation of various business combination transactions providing the holders of the Price Common Stock with a payment per share significant in excess of current trading prices, the Series A Preferred Stock and Series B Preferred Stock may be viewed as having the potential effect of discouraging a bidder's proposal to acquire control of or merge with Price in that such Preferred Stock would increase the cost to a bidder of certain of such transactions. In addition, the votes cast by such shares of Preferred Stock (a total of 910,166 votes, or 14.8% of the total votes cast by all outstanding shares of Price Common Stock and Preferred Stock as of August 8, 1997) would make it more difficult for a bidder to elect directors or enact shareholder proposals opposed by management of Price. See "Creation of a Holding Company for Price--Description of Capital Stock--Preferred Stock and Holdings Preferred Stock." WAIVER OF DISSENTERS RIGHTS Holders of Dissenting Shares that are issued and outstanding immediately prior to the consummation of the Palmer Merger shall have the right to receive the appraised value of such shares in accordance with Section 262 of the Delaware Law. See "The Acquisition--Dissenters and Appraisal Rights." Any Dissenting Shares accepted for exchange in the Offer will be deemed to have forfeited any theretofore perfected appraisal rights. 24 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma condensed consolidated balance sheets of Price and Cellular Holdings as of June 30, 1997 give effect to the following transactions as if they occurred at that date and the related unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 1996 and the six month period ended June 30, 1997 give effect to the following transactions as if they occurred at the beginning of the relevant period: (a) the acquisition of Palmer; (b) the Fort Myers Sale (the proceeds of which will be used to pay Palmer Existing Indebtedness); (c) the issuance and sale of the Senior Subordinated Notes in the PCW Offering; (d) the financing under the New Credit Facility; (e) the issuance and sale of the Units in the Cellular Holdings Offering (f) the equity contribution of Palmer Shares from Price; (g) the issuance and redemption of the PIK Preferred Stock and the PIK Warrants; and (h) the issuance of 5,000,000 shares of Price Common Stock in exchange for 2,239,541 Palmer Shares in the Offer, immediately prior to the Palmer Merger. The Acquisition will be recorded pursuant to the purchase method of accounting. The Offer will be limited to no more than 3,000,000 Palmer Shares at an exchange ratio determined based on the average closing price of the Price Common Stock for the five trading days ending September 17, 1997. In the event the Exchange Ratio based upon the average closing price per share of Price Common Stock for the five trading days ending on September 17, 1997 could result in a requirement that Price issue more than the 10,000,000 shares of Price Common Stock in exchange for the Palmer Shares sought in the Offer (i.e., if the average closing price of the Price Common Stock determined as aforesaid were less than $5.40 per share). Price would amend the Offer by reducing the number of Palmer Shares sought in the Offer and/or by determining the Exchange Ratio on a basis different than that described above, or otherwise, so as to permit the Offer to be consummated without requiring the issuance of more than 10,000,000 shares of Price Common Stock. The pro forma financial information given below assumes that the average closing price during such period will be $8 1/16, and that a total of 2,239,541 Palmer Shares will be exchanged for 5,000,000 shares of Price Common Stock in the Offer. Based on these assumptions, the cash consideration required in the Palmer Merger would be $448.6 million, rather than the $488.9 million that would be required if the Offer were not consummated, and the anticipated initial revolving loan borrowings under the New Credit Facility would be $56.8 million, rather than the $97.1 million anticipated initial revolving loan borrowings that would be required if the Offer were not consummated. If 3,000,000 Palmer Shares were acquired in the Offer, the cash consideration required in the Palmer Merger would be $434.9 million, and the anticipated initial revolving loan borrowings under the New Credit Facility would be $40.3 million. If 1,500,000 Palmer Shares were acquired in the Offer, the cash consideration required in the Palmer Merger would be $461.9 million, and the anticipated initial revolving loan borrowings would be $70.1 million. The unaudited pro forma condensed consolidated financial statements have been prepared by Price's management. The unaudited pro forma data is not designed to represent and does not represent what Price's or Cellular Holdings's results of operations or financial position would have been had the above transactions been completed on or as of the dates assumed, and are not intended to project Price's or Cellular Holdings's results of operations for any future period or as of any future date. The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the audited and unaudited consolidated financial statements and notes of Price, included elsewhere in this Prospectus. 25 The Acquisition is not expected to be consummated prior to October 1997 and may occur as late as December 31, 1997. Accordingly, for the three to six month period after the closing of the Cellular Holdings Offering, and prior to the consummation of the Acquisition, Cellular Holdings will be incurring interest expense on the Notes but not be entitled to any of the cash flows or earnings of Palmer. The unaudited pro forma condensed consolidated financial statements do not reflect this additional interest expense or the accrued liability related thereto since the unaudited pro forma condensed consolidated statements of operations assume that such transactions were consummated on January 1, 1996 and the unaudited pro forma condensed consolidated balance sheet assumes that such transactions were consummated on June 30, 1997. In addition, the pro forma condensed consolidated financial statements assume the repayment of the $383.1 million of Palmer Existing Indebtedness and accrued interest on Palmer Existing Indebtedness as of June 30, 1997. As a result of the Palmer Merger, Price will assume all Palmer Existing Indebtedness. Price intends to refinance all of the Palmer Existing Indebtedness concurrently with the consummation of the Palmer Merger. Although the unaudited pro forma condensed balance sheet reflects a $56.2 million current tax payable attributable to the Fort Myers Sale, Price has a tax planning strategy which it believes will avoid the payment of such tax. While there can be no assurances that Price's position will prevail if challenged, Price has received a written opinion from a "big six" accounting firm other than Arthur Andersen LLP that, under existing laws, it is more likely than not that Price's position will prevail if challenged. This tax planning strategy (among others) would be eliminated, however, if certain proposals by the Joint Committee on Taxation were to be adopted by Congress. There can be no assurances that Price will be able to implement this tax planning strategy before any of such proposals are adopted or that Price's tax position would be "grandfathered" under any of such proposals if adopted. In addition, in order to effect this tax strategy, the partnership that owns the Fort Myers system will need to incur approximately $169.0 million on indebtedness. The partnership has no commitments for such financing and there can be no assurance it will be successful in obtaining such financing. In addition, the unaudited pro forma condensed consolidated financial statements do not reflect $1.4 million which will be immediately payable to William J. Ryan as a severance payment pursuant to his existing employment contract upon consummation of the Acquisition and approximately $2.6 million of severance payments which could become payable over several years pursuant to existing employment contracts between Palmer and its other executive officers. Price has entered into employment contracts with William J. Ryan and M. Wayne Wisehart to continue as officers after the consummation of the Acquisition and it expects to enter into employment contracts with other key employees prior to the consummation of the Acquisition. Except for $1.4 million payable to William J. Ryan, there can be no assurances as to the amount of payments that may be made to such officers, in recognition of such severance rights, whether or not they continue with Price after the consummation of the Acquisition. 26 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET JUNE 30, 1997 (IN THOUSANDS)
PRO FORMA PRO FORMA ADJUSTMENTS ADJUSTMENTS FOR FOR THE THE ACQUISITION PRO FORMA FT. SALE OF PALMER AS CELLULAR AND THE RELATED CELLULAR PALMER MYERS FT. MYERS ADJUSTED HOLDINGS FINANCINGS HOLDINGS PRICE -------- ------- ----------- --------- -------- --------------- ---------- ------- ASSETS Current assets: Cash and cash equivalents.... $ 1,740 $ 45 $166,320(a) $168,015 $ $(161,367)(d) $ 6,648 $35,989 Investments..... 19,378 Accounts receivable, net............ 22,718 2,220 20,498 20,498 Inventory....... 3,181 865 2,316 2,316 Prepaid expenses and other current assets......... 2,774 140 2,634 2,634 3,160 -------- ------- -------- -------- --- --------- ---------- ------- Total current assets........ 30,413 3,270 166,320 193,463 (161,367) 32,096 58,527 Property, plant and equipment, net............. 157,596 10,909 146,687 146,687 134 Cellular licenses, net... 398,845 7,408 391,437 412,444 (k) 803,881 Long-term investments..... 36,380 Deferred costs, net............. 8,621 8,621 15,029 (e) 23,650 Other ........... 1,727 84 1,643 1,643 920 -------- ------- -------- -------- --- --------- ---------- ------- Total assets... $597,202 $21,671 $166,320 $741,851 $ $ 266,106 $1,007,957 $95,961 ======== ======= ======== ======== === ========= ========== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses ...... $ 9,032 $ 194 $ $ 8,838 $ $ $ 8,838 $ 1,976 Notes payable... 2,321 2,321 (2,321)(d,i) Current tax payable........ 56,170(b) 56,170 56,170 Other current liabilities.... 16,770 1,191 15,579 (2,787)(d,h) 12,792 3,632 -------- ------- -------- -------- --- --------- ---------- ------- Total current liabilities.. 28,123 1,385 56,170 82,908 (5,108) 77,800 5,608 Long-term debt... 378,000 378,000 260,164 (f) 638,164 Deferred tax liability....... 15,326 15,326 169,102 (g) 184,428 Other long-term liabilities..... 7,123 (4,978) 12,101 12,101 -------- ------- -------- -------- --- --------- ---------- ------- Total liabilities... 428,572 (3,593) 56,170 488,335 424,158 912,493 5,608 Putable preferred stock............ 35 Stockholders' equity.......... 168,630 25,264 110,150(c) 253,516 (158,052)(j) 95,464 90,318 -------- ------- -------- -------- --- --------- ---------- ------- Total liabilities and stockholders' equity.. $597,202 $21,671 $166,320 $741,851 $ $ 266,106 $1,007,957 $95,961 ======== ======= ======== ======== === ========= ========== ======= PRO FORMA ADJUSTMENTS FOR ISSUANCE OF UNITS, THE ISSUANCE AND REDEMPTION OF THE PREFERRED STOCK AND WARRANTS TO PURCHASE THE PRICE COMMON STOCK AND CONTRIBUTION TO PRO FORMA CELLULAR HOLDINGS PRICE ----------------- ---------- ASSETS Current assets: Cash and cash equivalents.... $(42,384)(l) $ 253 Investments..... (19,378)(l) Accounts receivable, net............ 20,498 Inventory....... 2,316 Prepaid expenses and other current assets......... 5,794 ----------------- ---------- Total current assets........ (61,762) 28,861 Property, plant and equipment, net............. 146,821 Cellular licenses, net... 803,881 Long-term investments..... (18,238)(l) 18,142 Deferred costs, net............. 2,872 (n) 26,522 Other ........... 2,563 ----------------- ---------- Total assets... $(77,128) $1,026,790 ================= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses ...... $ $ 10,814 Notes payable... Current tax payable........ 56,170 Other current liabilities.... 16,424 ----------------- ---------- Total current liabilities.. 83,408 Long-term debt... 638,164 Deferred tax liability....... 184,428 Other long-term liabilities..... 12,101 ----------------- ---------- Total liabilities... 918,101 Putable preferred stock............ 35 Stockholders' equity.......... (77,128)(m) 108,654 ----------------- ---------- Total liabilities and stockholders' equity.. $(77,128) $1,026,790 ================= ==========
27 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS) For purposes of determining the pro forma effect of the transactions described above on Price condensed consolidated balance sheet as of June 30, 1997, the following adjustments have been made: (A) CASH AND CASH EQUIVALENTS Cash proceeds from the sale of Ft. Myers.................... $ 166,320 ========= (B) CURRENT TAX PAYABLE Tax payable resulting from gain on sale of Ft. Myers using a 39% effective tax rate (see the discussion on page 25 of Price's tax planning strategy to avoid the payment of such tax)........................................................ $ 56,170 ========= (C) STOCKHOLDERS' EQUITY Represents the proceeds on the sale of Ft. Myers, net of related tax payable on the gain............................. $ 110,150 ========= (D) CASH AND CASH EQUIVALENTS Proceeds from New Credit Facility........................... $ 387,815** Proceeds from issuance of PCW Senior Subordinated Notes..... 175,000 Proceeds from Unit Warrants Contributed to Cellular Holdings.................................................... 4,651 Proceeds from sale of Cellular Holdings Senior Discount Notes....................................................... 75,349 Net equity contributed from Price........................... 80,000 Cash used to acquire Palmer outstanding stock and options... (447,924) Cash used to retire current portion of Palmer notes payable..................................................... (2,321) Cash used to pay interest accrued through June 30, 1997 on Palmer Existing Indebtedness................................ (2,787) Cash used to retire Palmer Existing Indebtedness............ (378,000) Cash used to pay estimated transaction fees and expenses.... (23,650) Cash used to return capital to Price........................ (29,500) --------- $(161,367) ========= (E) DEFERRED COSTS, NET Estimated fees and expenses in connection with the acquisition of Palmer ...................................... $ 9,650 Estimated fees and expenses in connection with the debt financings.................................................. 14,000 To write off unamortized deferred financing costs of Palmer...................................................... (8,621) --------- $ 15,029 ========= (F) LONG-TERM DEBT New Credit Facility......................................... $ 387,815 Senior Subordinated Notes................................... 175,000 Cellular Holdings Senior Discount Notes, net amount allocated to warrant of $4,651.............................. 75,349 Repayment of Palmer Existing Indebtedness................... (378,000) --------- $ 260,164 ========= (G) DEFERRED TAX LIABILITY To record the deferred tax liability arising from the acquisition of FCC license using a 41% effective tax rate... $ 169,102 ========= (H) OTHER CURRENT LIABILITIES To record the repayment of accrued interest on Palmer Existing Indebtedness....................................... $ (2,787) =========
28 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS) (I) NOTES PAYABLE To record the repayment of Palmer notes payable............................. $ (2,321) ========= (J) STOCKHOLDERS' EQUITY To reflect equity contribution from Price................................... $ 80,000 To reflect equity contribution of Palmer common stock from Price............ 40,313** To reflect equity contribution from Price................................... 4,651 To eliminate the equity of adjusted Palmer in connection with the acquisition by PCW.......................................................... (253,516) To return Capital to Price.................................................. (29,500) --------- $(158,052) ========= (K) CELLULAR LICENSES, NET Represents the increase in cellular licenses due to the acquisition of Palmer...................................................................... $ 412,444 ========= (L) CASH AND CASH EQUIVALENTS To reflect cash contribution to Cellular Holdings........................... $ (80,000) To reflect cash contributed to Cellular Holdings............................ (4,651) To reflect proceeds from the sale of certain Price investments.............. 19,378 To reflect proceeds from the sale of certain Price long-term investments.... 18,238 To reflect proceeds from the sale of Unit Warrants.......................... 4,651 Cash used to redeem the PIK Preferred Stock and Warrants to purchase Price Common Stock............................................................... (29,500)* To reflect return of Capital from Cellular Holdings......................... 29,500 --------- $ (42,384) ========= (M) STOCKHOLDERS' EQUITY To reflect the elimination of Cellular Holdings' stockholders' equity....... $ (95,464) To reflect the sale of the Unit Warrants.................................... 4,651 To reflect issuance of PIK Preferred Stock and warrants..................... 29,500 To reflect redemption of PIK Preferred Stock and warrants................... (29,500) To reflect Company Common Stock purchased and retired....................... (26,628) To reflect issuance of Company Common Stock in exchange for Palmer common 40,313 stock....................................................................... --------- $ (77,128) ========= (N) DEFERRED COSTS, NET To record deferral of estimated fees and expenses in connection with the offering of $ 2,872 Cellular Holdings Senior Discount Notes..................................... =========
- -------- * Assuming the acquisition of Palmer and the redemption of the PIK Preferred Stock and certain warrants to purchase Price Common Stock occur on October 15, 1997. ** The issuance of 5.0 million shares of Price Common Stock assumes that half of the total allotted shares are issued in connection with the Offer. If 6.7 million shares are issued, shareholders' equity of Price would increase by an additional $13,687 and accordingly, the New Credit Facility would decrease by $13,687. If no Palmer shareholders exchange for Price Common Stock, then the stockholders' equity would decrease by $40,313 and conversely, the New Credit Facility would increase by $40,313. 29 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS)
PRO FORMA PRO FORMA ADJUSTMENTS ADJUSTMENTS FOR FOR THE THE ACQUISITION PRO FORMA SALE OF PALMER AS CELLULAR AND THE RELATED CELLULAR PALMER FT. MYERS FT. MYERS ADJUSTED HOLDINGS FINANCINGS HOLDINGS PRICE -------- --------- ----------- --------- -------- --------------- --------- ------- Revenues.......... $159,743 $24,144 $ $135,599 $ $ $135,599 $ 2,962 Cost and expenses: Cost of cellular service/operating expenses........ 28,717 5,441 23,276 23,276 2,233 Cost of equipment....... 17,944 2,633 15,311 15,311 Selling, general and administrative.. 46,892 6,315 2,440 (o) 43,017 43,017 2,373 Depreciation and amortization.... 25,013 1,558 23,455 12,241 (p) 35,696 467 -------- ------- ------- -------- ------ -------- -------- ------- Operating income (loss)........... 41,177 8,197 (2,440) 30,540 (12,241) 18,299 (2,111) Other income (ex- pense): Interest (expense)....... (31,462) (300) (31,162) (36,032)(q) (67,194) (216) Other income (expense)....... (429) (63) (366) (366) 97,578 -------- ------- ------- -------- ------ -------- -------- ------- Total other income (expense)...... (31,891) (363) (31,528) (36,032) (67,560) 97,362 (s) Minority interest share of income.. 1,880 1,880 1,880 -------- ------- ------- -------- ------ -------- -------- ------- Income (loss) before income tax expense.......... 7,406 7,834 (2,440) (2,868) (48,273) (51,141) 95,251 Income tax expense (benefit)........ 2,724 2,724 (4,228)(r) (1,504) 24,584 -------- ------- ------- -------- ------ -------- -------- ------- Net income (loss)........... $ 4,682 $ 7,834 $(2,440) $ (5,592) $ $(44,045) $(49,637) $70,667 ======== ======= ======= ======== ====== ======== ======== ======= Deficiency of earnings to fixed charges.......... $ 51,141 Net income per share............ $ .18 $ 7.45 PRO FORMA ADJUSTMENTS FOR ISSUANCE OF UNITS, THE ISSUANCE AND REDEMPTION OF THE PREFERRED STOCK AND WARRANTS TO PURCHASE THE PRICE COMMON STOCK AND PRO CONTRIBUTION TO FORMA CELLULAR HOLDINGS PRICE ----------------- --------- Revenues.......... $ $138,561 Cost and expenses: Cost of cellular service/operating expenses........ 25,509 Cost of equipment....... 15,311 Selling, general and administrative.. 45,390 Depreciation and amortization.... 36,163 ----------------- --------- Operating income (loss)........... 16,188 Other income (ex- pense): Interest (expense)....... (67,410) Other income (expense)....... (4,583)(t) 92,629 ----------------- --------- Total other income (expense)...... (4,583) 25,219 Minority interest share of income.. 1,880 ----------------- --------- Income (loss) before income tax expense.......... (4,583) 39,527 Income tax expense (benefit)........ 23,080 ----------------- --------- Net income (loss)........... $(4,583) $ 16,447 ================= ========= Deficiency of earnings to fixed charges.......... Net income per share............ $ 1.14
30 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 1997 (IN THOUSANDS)
PRO FORMA ADJUSTMENTS FOR ISSUANCE OF UNITS, THE ISSUANCE AND REDEMPTION OF THE PREFERRED STOCK AND WARRANTS TO PRO FORMA PRO FORMA PURCHASE THE ADJUSTMENTS ADJUSTMENTS FOR PRICE COMMON FOR THE THE ACQUISITION PRO FORMA STOCK AND SALE OF PALMER AS CELLULAR AND THE RELATED CELLULAR CONTRIBUTION TO PALMER FT. MYERS FT. MYERS ADJUSTED HOLDINGS FINANCINGS HOLDINGS PRICE CELLULAR HOLDINGS -------- --------- ----------- --------- -------- --------------- --------- ------ ----------------- Revenues.......... $ 93,228 $14,266 $ $ 78,962 $ $ $ 78,962 $ $ Cost and expenses: Cost of cellular service/operating expenses........ 15,554 3,455 12,099 12,099 Cost of equipment....... 11,057 1,640 9,417 9,417 Selling, general and administrative.. 27,204 3,385 1,220 (o) 25,039 25,039 1,363 Depreciation and amortization.... 15,129 872 14,257 6,122 (p) 20,379 25 -------- ------- ------- -------- ------- -------- -------- ------ ------- Operating income (loss)........... 24,284 4,914 (1,220) 18,150 (6,122) 12,028 (1,388) Other income (expense): Interest expense......... (16,113) 99 (16,212) (17,523)(q) (33,735) (48) Other, net....... 162 162 162 2,464 (2,464)(t) -------- ------- ------- -------- ------- -------- -------- ------ ------- Total other income (expense)...... (15,951) 99 (16,050) (17,523) (33,573) 2,416 (2,464) Minority interest share of income.. 782 782 782 -------- ------- ------- -------- ------- -------- -------- ------ ------- Income (loss) before income tax expense.......... 7,551 5,013 (1,220) 1,318 (23,645) (22,327) 1,028 (2,464) Income tax expense (benefit)........ 3,851 3,851 (2,114)(r) 1,737 452 -------- ------- ------- -------- ------- -------- -------- ------ ------- Net income (loss)........... $ 3,700 $ 5,013 $(1,220) $ (2,533) $ $(21,531) $(24,064) $ 576 $(2,464) ======== ======= ======= ======== ======= ======== ======== ====== ======= Deficiency of earnings to fixed charges.......... $ 22,327 Net income (loss) per share........ $ .13 $ .08 PRO FORMA PRICE --------- Revenues.......... $ 78,962 Cost and expenses: Cost of cellular service/operating expenses........ 12,099 Cost of equipment....... 9,417 Selling, general and administrative.. 26,402 Depreciation and amortization.... 20,404 --------- Operating income (loss)........... 10,640 Other income (expense): Interest expense......... (33,783) Other, net....... 162 --------- Total other income (expense)...... (33,621) Minority interest share of income.. 782 --------- Income (loss) before income tax expense.......... (23,763) Income tax expense (benefit)........ (2,189) --------- Net income (loss)........... $(25,952) ========= Deficiency of earnings to fixed charges.......... Net income (loss) per share........ $ (2.13)
31 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES PRICE COMMUNICATIONS CELLULAR HOLDINGS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS) For purposes of determining the pro forma effect of the transactions described above on Price condensed consolidated statements of operations for the six months ended June 30, 1997 and the year ended December 31, 1996, the following adjustments have been made:
FOR THE FOR THE PERIOD ENDED YEAR ENDED JUNE 30, DECEMBER 31, 1997 1996 ------------ ------------ (O) SELLING, GENERAL AND ADMINISTRATIVE Represents a portion of the operating expenses (including monthly management fees; property and equipment acquisitions and expenses; central billing expenses and central accounts payable expenses) charged to Ft. Myers by Palmer.......... $ 1,220 $ 2,440 ======== ======== (P) DEPRECIATION AND AMORTIZATION Represents amortization of the FCC license over 40 years............................................. $ 5,156 $ 10,311 Represents amortization of the acquisition of Palmer and costs of the Cellular Holdings Senior Discount Notes offering over 5 years.............. 966 1,930 -------- -------- $ 6,122 $ 12,241 ======== ======== (Q) INTEREST EXPENSE, NET Interest expense on $387.8 million of New Credit Facility at an assumed interest rate of 8.5% per annum*............................................ $ 16,482 $ 32,964 Interest expense on $175 million of the Senior Subordinated Notes at an assumed interest rate of 11.75% per annum.................................. 10,432 20,563 Interest expense on $80 million of the Holdings Senior Discount Notes at an assumed interest rate of 13.50%......................................... 5,491 11,165 Interest expense related to the accretion of Cellular Holdings Senior Discount Notes due to Unit Warrants value**............................. 232 465 Represents current amortization expense related to deferred debt financing costs..................... 876 1,750 Represents current amortization expense related to deferred Holdings Senior Discount Notes costs..... 144 287 Elimination of previously recorded interest (16,134) (31,162) expense........................................... -------- -------- $ 17,523 $ 36,032 ======== ======== -------- *An 1/8% change in the interest rate will increase or decrease the interest expense per annum on the bank debt by $485. **Represents the accretion over 10 years of the Cellular Holdings Senior Discount Notes resulting from the allocation of proceeds of the Cellular Holdings Offering between notes and warrants. (R) INCOME TAX EXPENSE (BENEFIT) To record deferred tax benefit resulting from the amortization of the acquired FCC license.......... $ (2,114) $ (4,228) ======== ======== (S) OTHER INCOME (EXPENSE) Primarily includes gain on sale of broadcast properties. (T) OTHER INCOME (EXPENSE) To reduce interest income to reflect liquidation of investments....................................... $ (2,464) $ (4,583) ======== ========
32 THE OFFER GENERAL Price hereby offers, upon the terms and subject to the conditions set forth herein and in the related Letter of Transmittal, to exchange the Stock Consideration of $18.00 in Price Common Stock per Palmer Share for up to 3,000,000 Palmer Shares validly tendered on or prior to the Expiration Date and not properly withdrawn. The Stock Consideration for a Palmer Share consists of that number of shares of Price Common Stock equal to the Exchange Ratio. To the extent the aggregate number of Palmer Shares desired to be exchanged by the Palmer Stockholders in the Offer exceeds 3,000,000 shares, Price will exchange shares of Price Common Stock on a pro rata basis among the Palmer Stockholders, based on the number of Palmer Shares properly tendered prior to the Expiration Date and not withdrawn by each such tendering Palmer Stockholder. The number of shares of Price Common Stock to be issued to any Palmer Stockholder will be adjusted to avoid issuances of fractional shares of Price Common Stock. Due to the difficulty of determining the precise number of Palmer Shares properly tendered and not withdrawn, if proration is required, Price does not expect to announce the final results of proration or exchange Palmer Shares for shares of Price Common Stock pursuant to the Offer until at least seven trading days after the Expiration Date. Preliminary results of proration will be announced by press release as promptly as practicable. Holders of Palmer Shares may obtain such preliminary information from the Information Agent (888-881-0527). The term "Exchange Ratio" means the quotient (rounded to the nearest 1/100,000) determined by dividing $18.00 by the average of the closing sales prices of Price Common Stock on the AMEX on each of the five consecutive trading days ending on September 17, 1997. On September 2, 1997, the closing price of Price Common Stock on the AMEX was $7.50. Based on such closing price, the Exchange Ratio would be 2.4 shares of Price Common Stock for each Palmer Share. The Exchange Ratio will change as the market price of Price Common Stock changes. Palmer Stockholders may call the Information Agent any time on or after the date hereof through the Expiration Date for the current Exchange Ratio calculated based on the then- current Price Communications Average Price for the five consecutive trading days ending with the trading day immediately preceding the date the call is placed. The actual Price Communications Average Price and Exchange Ratio will be calculated as of September 17, 1997, as described above, and a press release will be issued announcing the actual Exchange Ratio prior to the opening of the trading day on September 18, 1997. On May 23, 1997, Price, Price Communications Wireless, Inc., a wholly-owned subsidiary of Price ("PCW") and Palmer entered into the Agreement and Plan of Merger (the "Palmer Merger Agreement"), which provides, among other things, for the merger of PCW with and into Palmer, with Palmer as the surviving corporation (the "Palmer Merger"). It is contemplated that the Offer will be consummated immediately prior to consummation of the Palmer Merger, so that (subject to proration as set forth above) Palmer Stockholders properly tendering and not withdrawing Palmer Shares in the Offer will receive $18 in Price Common Stock per Palmer Share pursuant to the Offer and Palmer Stockholders not tendering Palmer Shares (and not exercising appraisal rights in respect of the Palmer Merger under Delaware law) will receive $17.50 in cash per Palmer Share pursuant to the Palmer Merger. Any Palmer Shares not taken up in the Offer as a result of proration will receive $17.50 in cash pursuant to the Palmer Merger. Palmer Stockholders will be deemed to have waived all rights to receive the Merger Consideration and to have forfeited any theretofore perfected appraisal rights with respect to all Palmer Shares properly tendered in the Offer and accepted for exchange by Price. The maximum number of Palmer Shares sought in the Offer is 3,000,000. A special meeting of the shareholders of Price has authorized the issuance of a maximum of 10,000,000 shares of Price Common Stock in the Offer. In the event the Exchange Ratio based upon the average closing price per share of Price Common Stock for the five trading days ending on September 17, 1997 could result in a requirement that Price issue more than the 10,000,000 shares of Price Common Stock in exchange for the Palmer Shares sought in the Offer (i.e., if the Price Communications Average Price was less than $5.40 per share), Price would amend the Offer by reducing the number of Palmer Shares sought in the Offer and/or by determining the Exchange Ratio on a basis different than that described above, or otherwise, so as to permit the Offer to be consummated without requiring the issuance of more than 10,000,000 shares of Price Common Stock. 33 Tendering stockholders will not be obligated to pay any charges or expenses of the Exchange Agent or any brokerage commissions. Except as set forth in the instructions to the Letter of Transmittal, transfer taxes on the exchange of Palmer Shares pursuant to the Offer will be paid by or on behalf of Price. The purpose of the Offer is to provide Palmer Stockholders the opportunity to continue to participate in the ongoing business of Palmer by receiving shares of Price Common Stock in lieu of cash. In addition, to the extent Palmer Shares are exchanged for shares of Price Common Stock in the Offer, the aggregate cash consideration to be paid by Price in the Acquisition will be correspondingly reduced. Price's obligation to exchange shares of Price Common Stock for Palmer Shares pursuant to the Offer is conditioned upon satisfaction of the Offer Conditions. See "--Conditions of the Offer." This Prospectus and the related Letter of Transmittal and other relevant materials will be mailed by Price to record holders of Palmer Shares and will be furnished by Price to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the list of stockholders of Palmer or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Palmer Shares. TIMING OF THE OFFER The Offer is scheduled to expire at 12:00 midnight, New York City time, on October 2, 1997. It is Price's current intention to extend the Offer until all conditions have been either satisfied or waived. See "--Extension, Termination and Amendment." EXTENSION, TERMINATION AND AMENDMENT Price expressly reserves the right (but will not be obligated), in its sole discretion, at any time or from time to time, and regardless of whether any of the events set forth under "Conditions of the Offer" shall have occurred or shall have been determined by Price to have occurred (a) to extend the period of time during which the Offer is to remain open by giving oral or written notice of such extension to the Exchange Agent, which extension must be announced no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date, and (b) to amend the Offer in any respect (including, without limitation, by decreasing or increasing the consideration offered in the Offer to holders of Palmer Shares and/or by increasing or decreasing the number of Palmer Shares being sought in the Offer) by giving oral or written notice of such amendment to the Exchange Agent. There can be no assurance that Price will exercise its right to extend the Offer. However, it is Price's current intention to extend the Offer until all conditions have been satisfied or waived. During any such extension, all Palmer Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering stockholder to withdraw his Palmer Shares. See "--Withdrawal Rights." Price expects to know whether all conditions to the Palmer Merger have been satisfied or waived prior to the expiration of the Offer. Subject to the applicable rules and regulations of the Commission, Price also reserves the right, in its sole discretion, at any time or from time to time, (i) to delay acceptance for exchange of or, regardless of whether such Palmer Shares were theretofore accepted for exchange, exchange of any Palmer Shares pursuant to the Offer or to terminate the Offer and not accept for exchange or exchange any Palmer Shares not theretofore accepted for exchange, or exchanged, upon the failure of any of the conditions of the Offer to be satisfied and (ii) to waive any condition (other than the condition relating to the effectiveness of the Registration Statement) or otherwise amend the Offer in any respect, by giving oral or written notice of such delay, termination or amendment to the Exchange Agent and by making a public announcement thereof. Any such extension, termination, amendment or 34 delay will be followed as promptly as practicable by public announcement thereof, such announcement in the case of an extension to be issued no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the Offer be promptly disseminated to stockholders in a manner reasonably designed to inform stockholders of such change) and without limiting the manner in which Price may choose to make any public announcement, Price shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. Price confirms that if it makes a material change in the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, Price will extend the Offer to the extent required under the Exchange Act. If, prior to the Expiration Date, Price shall increase or decrease the percentage of Palmer Shares being sought or the consideration offered to holders of Palmer Shares, such increase or decrease shall be applicable to all holders whose Palmer Shares are accepted for exchange pursuant to the Offer, and, if at the time notice of any such increase or decrease is first published, sent or given to holders of Palmer Shares, the Offer is scheduled to expire at any time earlier than the tenth business day from and including the date that such notice is first so published, sent or given, the Offer will be extended until the expiration of such ten business- day period. For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 A.M. through 12:00 midnight, New York City time. EXCHANGE OF PALMER SHARES; DELIVERY OF PRICE COMMON STOCK Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Price will accept for exchange, and will exchange, up to 3,000,000 Palmer Shares validly tendered and not properly withdrawn as promptly as practicable after the Expiration Date. In addition, subject to applicable rules of the Commission, Price expressly reserves the right to delay acceptance for exchange or the exchange of Palmer Shares in order to comply with any applicable law. In all cases, exchange of Palmer Shares tendered and accepted for exchange pursuant to the Offer will be made only after timely receipt by the Exchange Agent of certificates for such Palmer Shares (or a confirmation of a book-entry transfer of such Palmer Shares in the Exchange Agent's account at The Depository Trust Company or the Philadelphia Depository Trust Company (each, a "Book-Entry Transfer Facility" and collectively, the "Book-Entry Transfer Facilities"), a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other required documents. For purposes of the Offer, Price will be deemed to have accepted for exchange up to 3,000,000 Palmer Shares validly tendered and not withdrawn as, if and when Price gives oral or written notice to the Exchange Agent of its acceptance of the tenders of such Palmer Shares pursuant to the Offer. Delivery of Price Common Stock in exchange for Palmer Shares pursuant to the Offer and cash in lieu of fractional shares of Price Common Stock will be made by the Exchange Agent as soon as practicable after receipt of such notice. The Exchange Agent will act as agent for tendering stockholders for the purpose of receiving Price Common Stock and cash to be paid in lieu of fractional shares of Price Common Stock from Price and transmitting such Price Common Stock and cash to tendering stockholders. Under no circumstances will interest with respect to fractional shares be paid by Price by reason of any delay in making such exchange. If any tendered Palmer Shares are not accepted for exchange pursuant to the terms and conditions of the Offer for any reason, or if certificates are submitted for more Palmer Shares than are tendered, certificates for such unexchanged Palmer Shares will be returned without expense to the tendering stockholder or, in the case of Palmer Shares tendered by book-entry transfer of such Palmer Shares into the Exchange Agent's account at a Book-Entry Transfer Facility pursuant to the procedures set forth below under "-- Procedure for Tendering," such Palmer Shares will be credited to an account maintained within such Book-Entry Transfer Facility, as soon as practicable following expiration or termination of the Offer. 35 CASH IN LIEU OF FRACTIONAL SHARES OF PRICE COMMON STOCK No certificates representing fractional shares of Price Common Stock will be issued pursuant to the Offer. In lieu thereof, each tendering stockholder who would otherwise be entitled to a fractional share of Price Common Stock will receive cash in an amount equal to such fraction (expressed as a decimal and rounded to the nearest 0.01 of a share) multiplied by the closing price for shares of Price Common Stock on the AMEX on the date such stockholder's Palmer Shares are accepted for exchange by Price. WITHDRAWAL RIGHTS Palmer Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date, and, unless theretofore accepted for exchange by Price pursuant to the Offer, may also be withdrawn at any time after November 4, 1997. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth on the back cover of this Prospectus and must specify the name of the person having tendered the Palmer Shares to be withdrawn, the number of Palmer Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Palmer Shares. The signature(s) on the notice of withdrawal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) which is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program (an "Eligible Institution") unless such Palmer Shares have been tendered for the account of any Eligible Institution. If Palmer Shares have been tendered pursuant to the procedures for book-entry tender as set forth below under "--Procedure for Tendering," any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Palmer Shares and must otherwise comply with such Book-Entry Transfer Facility's procedures. If certificates have been delivered or otherwise identified to the Exchange Agent, the name of the registered holder and the serial numbers of the particular certificates evidencing the Palmer Shares withdrawn must also be furnished to the Exchange Agent as aforesaid prior to the physical release of such certificates. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Price, in its sole discretion, which determination shall be final and binding. Neither Price, the Exchange Agent, nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or will incur any liability for failure to give any such notification. Any Palmer Shares properly withdrawn will be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Palmer Shares may be retendered by following one of the procedures described under "--Procedure for Tendering" at any time prior to the Expiration Date. PROCEDURE FOR TENDERING For a Palmer Stockholder to validly tender Palmer Shares pursuant to the Offer, (i) a properly completed and duly executed Letter of Transmittal (or manually executed facsimile thereof), together with any required signature guarantees, or an Agent's Message (as defined below) in connection with a book- entry transfer, and any other required documents, must be transmitted to and received by the Exchange Agent at one of its addresses set forth on the back cover of this Prospectus, and certificates for tendered Palmer Shares must be received by the Exchange Agent at such address or such Palmer Shares must be tendered pursuant to the procedures for book-entry tender set forth below (and a confirmation of receipt of such tender received (such confirmation, a "Book- Entry Confirmation"), in each case prior to the Expiration Date, or (ii) such stockholder must comply with the guaranteed delivery procedures set forth below. The term "Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility to, and received by, the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that such Book- 36 Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Palmer Shares, which are the subject of such Book-Entry Confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Price may enforce such agreement against such participant. The Exchange Agent will establish accounts with respect to the Palmer Shares at the Book-Entry Transfer Facilities for purposes of the Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in any of the Book-Entry Transfer Facilities' systems may make book-entry delivery of the Palmer Shares by causing such Book-Entry Transfer Facility to transfer such Palmer Shares into the Exchange Agent's account in accordance with such Book-Entry Transfer Facility's procedure for such transfer. However, although delivery of Palmer Shares may be effected through book-entry at the Book-Entry Transfer Facilities, the Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at one or more of its addresses set forth on the back cover of this Prospectus prior to the Expiration Date, or the guaranteed delivery procedures described below must be complied with. Signatures on all Letters of Transmittal must be guaranteed by an Eligible Institution, except in cases in which Palmer Shares are tendered (i) by a registered holder of Palmer Shares who has not completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. If the certificates for Palmer Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if certificates for unexchanged Palmer Shares are to be issued to a person other than the registered holder(s), the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates, with the signature(s) on the certificates or stock powers guaranteed as aforesaid. THE METHOD OF DELIVERY OF PALMER SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING PALMER STOCKHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO CASH RECEIVED IN LIEU OF FRACTIONAL SHARES OF PRICE COMMON STOCK, A STOCKHOLDER MUST PROVIDE THE EXCHANGE AGENT WITH HIS OR HER CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY WHETHER SUCH STOCKHOLDER IS SUBJECT TO BACKUP WITHHOLDING OF FEDERAL INCOME TAX BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. CERTAIN STOCKHOLDERS (INCLUDING, AMONG OTHERS, ALL CORPORATIONS AND CERTAIN FOREIGN INDIVIDUALS) ARE NOT SUBJECT TO THESE BACKUP WITHHOLDING AND REPORTING REQUIREMENTS. IN ORDER FOR A FOREIGN INDIVIDUAL TO QUALIFY AS AN EXEMPT RECIPIENT, THE STOCKHOLDER MUST SUBMIT A FORM W-8, SIGNED UNDER PENALTIES OF PERJURY, ATTESTING TO THAT STOCKHOLDER'S EXEMPT STATUS. If a Palmer Stockholder desires to tender Palmer Shares pursuant to the Offer and such stockholder's certificates are not immediately available or such stockholder cannot deliver the certificates and all other required documents to the Exchange Agent prior to the Expiration Date or such stockholder cannot complete the 37 procedure for book-entry transfer on a timely basis, such Palmer Shares may nevertheless be tendered, provided that all of the following conditions are satisfied: (i) such tenders are made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Price, is received by the Exchange Agent as provided below on or prior to the Expiration Date; and (iii) the certificates for all tendered Palmer Shares (or a confirmation of a book-entry transfer of such securities into the Exchange Agent's account at a Book-Entry Transfer Facility as described above), in proper form for transfer, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and all other documents required by the Letter of Transmittal are received by the Exchange Agent within three trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, telex, facsimile transmission or mail to the Exchange Agent and must include a guarantee by an Eligible Institution in the form set forth in such Notice. In all cases, exchanges of Palmer Shares tendered and accepted for exchange pursuant to the Offer will be made only after timely receipt by the Exchange Agent of certificates for Palmer Shares (or timely confirmation of a book-entry transfer of such securities into the Exchange Agent's account at a Book-Entry Transfer Facility as described above), properly completed and duly executed Letter(s) of Transmittal (or facsimile(s) thereof), or an Agent's Message in connection with a book-entry transfer, and any other required documents. Accordingly, tendering stockholders may be paid at different times depending upon when certificates for Palmer Shares or confirmations of book-entry transfers of such Palmer Shares are actually received by the Exchange Agent. By executing a Letter of Transmittal as set forth above, the tendering Palmer Stockholder irrevocably appoints designees of Price as such stockholder's attorneys-in-fact and proxies, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Palmer Shares tendered by such stockholder and accepted for exchange by Price and with respect to any and all other Palmer Shares and other securities issued or issuable in respect of the Palmer Shares on or after September 5, 1997. Such appointment is effective, and voting rights will be effected, when and only to the extent that Price deposits the shares of Price Common Stock for Palmer Shares tendered by such stockholder with the Exchange Agent. All such proxies shall be considered coupled with an interest in the tendered Palmer Shares and therefore shall not be revocable. Upon the effectiveness of such appointment, all prior proxies given by such stockholder will be revoked, and no subsequent proxies may be given (and, if given, will not be deemed effective). Price's designees will, with respect to the Palmer Shares for which the appointment is effective, be empowered, among other things, to exercise all voting and other rights of such stockholder as they, in their sole discretion, deem proper at any annual, special or adjourned meeting of Palmer's stockholders or otherwise. Price reserves the right to require that, in order for Palmer Shares to be deemed validly tendered, immediately upon Price's exchange of such Palmer Shares, Price must be able to exercise full voting rights with respect to such Palmer Shares. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of Palmer Shares will be determined by Price, in its sole discretion, which determination shall be final and binding. Price reserves the absolute right to reject any and all tenders of Palmer Shares determined by it not to be in proper form or the acceptance of or exchange for which may, in the opinion of Price's counsel, be unlawful. Price also reserves the absolute right to waive any of the conditions of the Offer (other than the condition relating to the effectiveness of the Registration Statement of which this Prospectus is a part) or any defect or irregularity in the tender of any Palmer Shares. No tender of Palmer Shares will be deemed to have been validly made until all defects and irregularities in tenders of Palmer Shares have been cured or waived. Neither Price, the Exchange Agent nor any other person will be under any duty to give notification of any defects 38 or irregularities in the tender of any Palmer Shares or will incur any liability for failure to give any such notification. Price's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and instructions thereto) will be final and binding. The tender of Palmer Shares pursuant to any of the procedures described above will constitute a binding agreement between the tendering Palmer Stockholder and Price upon the terms and subject to the conditions of the Offer. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following is a summary of the material federal income tax consequences applicable to those Palmer Stockholders who participate in the Offer. This summary is based upon the provisions of the Internal Revenue Code of 1986 (the "Code"), applicable Treasury Regulations promulgated thereunder, judicial decisions and administrative rulings all as of the date hereof. There can be no assurance that changes in applicable law subsequent hereto may not adversely affect the tax consequences described herein. Proskauer Rose LLP, counsel to Price, is of the opinion that the following summary accurately sets forth the material federal income tax consequences of the Offer to those Palmer Stockholders who participate. Counsel's opinion is based upon, among other things, a representation letter provided by Holdings and Price containing customary statements relating to certain technical requirements that must be satisfied for the tax consequences of the Offer to be governed by Section 351 of the Code. The following discussion does not address all aspects of federal income taxation that may be relevant to particular holders in light of their personal circumstances, or to taxpayers subject to special rules under the federal income tax laws (such as, for example, certain financial institutions, life insurance companies, foreign purchasers, tax-exempt entities and holders who acquired their Palmer Shares pursuant to the exercise of employee stock options or otherwise as compensation) and does not address any aspect of state, local or foreign tax laws or consequences. This discussion also assumes that the Palmer Shares exchanged will be held as capital assets as of the date of the Offer. Price, prior to the consummation of the Palmer Merger and the Offer, intends to effect the Holding Company Merger. As a result, each Palmer Stockholder who participates in the Offer will receive Holdings Common Stock. The Holding Company Merger in which shareholders of Price receive one share of Holdings Common Stock in exchange for each share of Price Common Stock and the exchange by those Palmer Stockholders who participate in the Offer of Palmer Shares for shares of Holdings Common Stock will be treated for federal income tax purposes as a transfer of property, governed by Section 351 of the Code, to Holdings by the holders of Price Common Stock and Palmer Shares. A Palmer Stockholder who receives Holdings Common Stock in the Offer should not recognize gain or loss upon such exchange. The aggregate tax basis of the Holdings Common Stock received by such Palmer Stockholder will equal the aggregate tax basis of the Palmer Shares surrendered therefor, and the holding period of the Holdings Common Stock will include the holding period of the Palmer Shares surrendered. A Palmer Stockholder who receives cash in lieu of a fractional share of stock, will be treated as having received such fractional share and then having exchanged such share for cash in a redemption by Holdings. Any gain or loss attributable to fractional shares will generally be capital gain or loss, in an amount equal to the difference between the cash received and the tax basis of the fractional share exchanged. The following discussion could be relevant to a Palmer Stockholder who participates in the Offer and who also will receive cash pursuant to the Palmer Merger. In general, the cash consideration received by a Palmer Stockholder in the Palmer Merger which is attributable to the Fort Myers sale, the New Credit Facility and the Senior Subordinated Notes, will be treated as 39 a redemption in payment of the Palmer Shares surrendered in the exchange, resulting in the recognition of capital gain or loss, unless such Palmer Stockholder should own, actually and constructively (applying the attribution rules of Section 318 of the Code), Holdings Common Stock representing 50 percent or more of the value of Holdings after the Offer. In that event, a portion of the cash received may be treated as a dividend to the extent of an allocable portion of Palmer's earnings and profits, unless such holder can satisfy either the Substantially Disproportionate Redemption Test or Meaningful Reduction Test described below. The portion of the cash consideration received by a Palmer Stockholder in the Palmer Merger which is attributable to capital contributions made by Price and the proceeds from the Cellular Holdings Offering should be treated, for tax purposes, as a sale of Palmer Shares by the holder thereof. There is a risk, however, that as a result of the Holding Company Merger the IRS may claim that an allocable portion of the cash consideration received by a Palmer Stockholder in the Palmer Merger which is attributable to (i) cash originating from Price or (ii) the sales proceeds allocable to the Warrants issued in conjunction with the Cellular Holdings Notes, should be recharacterized as cash received by such holder from Holdings in connection with the Section 351 exchange ("cash from Holdings Company sources"). If the IRS were to successfully assert this position, a Palmer Stockholder would recognize gain, but not loss, equal to the lesser of (i) the amount of gain realized measured by the excess of the sum of the cash from Holdings sources and the fair market value of Holdings Common Stock received in the Offer over the tax basis of the Palmer Shares exchanged for Holdings Common Stock and the Palmer Shares deemed to be exchanged for cash from Holdings sources and (ii) the amount of cash from Holdings sources. In that event, the tax basis of the Holdings Common Stock received in the exchange will be the same as the Palmer Shares surrendered, decreased by the amount of cash from Holdings sources received and increased by the amount of gain recognized. The holding period of the Holdings Common Stock will include the holding period of the Palmer Shares surrendered. Holdings believes, however, that because none of the cash consideration to be received by Palmer Stockholders will be paid by Holdings, if asserted by the IRS, this position should not prevail. The tax consequences of the Offer and the Palmer Merger to Palmer Stockholders could vary from those described above, in the event that persons who own 50 percent or more of the vote or value of the outstanding Palmer Shares immediately before such transactions, own, after applying the constructive ownership rules of Sections 318 and 304 of the Code, 50 percent or more of the vote or value of the outstanding Holdings Common Stock immediately afterward. In that event, as discussed below, a portion of the cash received by a Palmer Stockholder which is attributable to Price's capital contributions and the proceeds from the Cellular Holdings Offering might be treated as a dividend rather than as amounts received from the sale or exchange of a capital asset. The determining factor in whether sale or exchange or dividend treatment will be applicable to a particular Palmer Stockholder in these circumstances, is whether the actual and constructive ownership interest of such Palmer Stockholder has been reduced, measured by such Palmer Stockholder's actual and constructive ownership in Palmer prior to the transactions as compared to such Palmer Stockholder's constructive ownership of Palmer (computed by reference to such Palmer Stockholder's actual and constructive ownership of Holdings) after the transactions. A Palmer Stockholder will realize dividend income, rather than receive sale or exchange treatment, for the amount of such cash unless, after applying the constructive ownership rules of Section 318 of the Code, (i) the percentage of Palmer Shares constructively owned by a Palmer Stockholder is less than 80 percent of the percentage of Palmer Shares actually and constructively owned by such holder before the transactions (and assuming that such Palmer Stockholder owns actually and constructively less than 50 percent of the total combined voting power of Palmer) ("Substantially Disproportionate Redemption Test"), or (ii) if the transactions otherwise result in a "meaningful reduction" in such Palmer Stockholder's constructive ownership of Palmer (measured after the transactions by reference to such Palmer Stockholder's actual and constructive ownership of Holdings) ("Meaningful Reduction Test"). The IRS has indicated, that in the case of a minority stockholder in a publicly held corporation whose relative stock interest is minimal and who exercises no control over the corporation's affairs, a minimal reduction in the percentage of stock owned by such stockholder would constitute a "meaningful reduction" and thus will avoid dividend treatment. Accordingly, cash received by such 40 a Palmer Stockholder whose actual and constructive percentage interest in Holdings is less than that holder's percentage interest in Palmer prior to the transactions should not be treated as constituting a dividend (even if the Substantially Disproportionate Redemption Test was not satisfied). However, should neither of these tests be met, a Palmer Stockholder will be treated as having received a distribution that may be partially or wholly treated as a dividend. Such a distribution will be treated as a dividend to the extent of Cellular Holdings' and Palmer's earnings and profits. (In the event the IRS successfully claims that a portion of the cash consideration received should be recharacterized as paid by Holdings, to that extent, dividend treatment would be measured by the Holdings' and Palmer's earnings and profits.) Palmer Stockholders should consult their own tax advisors concerning the application of these tests. Certain noncorporate Palmer Stockholders may be subject to backup withholding at a rate of 31% on cash payments made in lieu of issuing fractional shares. Backup withholding will apply only if a Palmer Stockholder (i) fails to furnish its Taxpayer Identification Number ("TIN") which, in the case of an individual, would be his or her Social Security number, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that it has failed to properly report payments of interest and dividends or (iv) under certain circumstances, fails to certify, under penalty or perjury, that it has furnished a correct TIN and has not been notified by the IRS that it is subject to backup withholding. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded, or credited against the Palmer Stockholder's United States federal income tax liability provided that the required information is furnished to the IRS. Each Palmer Stockholder that receives Holdings Common Stock in the Offer will be required to retain records and file with such holder's federal income tax return a statement setting forth certain facts relating to the Offer. THIS FEDERAL INCOME TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY, AND MAY NOT APPLY TO ALL HOLDERS OF PALMER SHARES. PALMER STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE TRANSACTIONS DISCUSSED HEREIN. PURPOSE OF THE OFFER The purpose of the Offer is to provide Palmer Stockholders the opportunity to continue to participate in the ongoing business of Palmer by receiving shares of Price Common Stock in lieu of cash. In addition, to the extent Palmer Shares are exchanged for shares of Price Common Stock in the Offer, the aggregate cash consideration to be paid by Price will be correspondingly reduced. CONDITIONS OF THE OFFER The Offer is subject to a number of conditions which are described below. The Offer is conditioned upon the satisfaction of all of the conditions set forth in Article XIII of the Palmer Merger Agreement, or waiver thereof by Price. Such conditions include: (i) stockholder approval by the requisite vote of the Palmer Stockholders in accordance with applicable law; (ii) the absence of any action or proceeding which is then in effect and has the effect of prohibiting the Palmer Merger or any of the transactions contemplated thereby; (iii) termination of all applicable waiting periods under the HSR Act; and (iv) all consents, waiver, approvals and authorizations required to be obtained from the FCC (the "FCC Transfer Approvals"), and all filings or notices required to be made with the FCC by Price, PCW and Palmer prior to the consummation of the transactions contemplated in the Palmer Merger Agreement. Each of the FCC Transfer Approvals shall have become a Final Order. For purposes of the Palmer Merger Agreement, "Final Order" shall mean an action by the FCC: (i) that is not reversed, stayed, enjoined, set aside, annulled or suspended within the deadline, if any, provided by applicable statute or regulation; (ii) with respect to which no request for stay, motion or petition for reconsideration or rehearing, application or request for review, or notice of appeal or other judicial petition 41 for review that is filed within such period is pending, and (iii) as to which the deadlines, if any, for filing any such request, motion, petition, application, appeal or notice, and for the entry of orders staying, reconsidering, or reviewing on the FCC's own motion have expired. The obligations of Price to effect the Palmer Merger and the other transactions contemplated in the Palmer Merger Agreement are also subject to the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by applicable law; (i) the representations and warranties of Palmer made in the Palmer Merger Agreement shall be true and correct in all material respects; (ii) the agreements and covenants of Palmer required to be performed on or before the Effective Timer shall have been performed in all material respects; (iii) Price shall received legal opinions in form and substance reasonably satisfactory to Price; (iv) the Dissenting Shares, as defined below, shall constitute not greater than ten percent (10%) of the shares of Class A common stock outstanding on the Closing Date; and (v) since the date of the Palmer Merger Agreement, Palmer has experienced no adverse change to its business. "Dissenting Shares" are the Palmer Shares that are issued and outstanding immediately prior to the Effective Time and that are held by stockholders who shall not have voted in favor of the Palmer Merger or consented thereto in writing and who shall have demanded properly in writing appraisal for such Palmer Shares in accordance with Section 262 of Delaware Law. The obligations of Palmer to effect the Palmer Merger and the other transactions contemplated in the Palmer Merger Agreement are also subject to the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by applicable law: (i) the representations and warranties of Price and PCW made in the Palmer Merger Agreement shall be true and correct in all material respects; (ii) the agreements and covenants of Price and PCW required to be performed on or before the Effective Time shall have been performed in all material respects; and (iii) Palmer shall have received a legal opinion in form and substance reasonably satisfactory to Palmer. The Offer is conditioned upon the Palmer Merger Agreement not having been terminated pursuant to Article IX thereof and that none of the parties to the Palmer Merger Agreement shall have asserted a right to terminate such Agreement. Article IX of the Palmer Merger Agreement provides that the agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the Palmer Merger Agreement by the stockholders of Palmer. Termination may occur on the following conditions: (a) by mutual consent of each of Price and Palmer; (b) by either Price or Palmer if there is a material breach of any representation or warranty in the Palmer Merger Agreement on the part of the other which is not cured within thirty (30) business days following receipt by the breaching party of notice of such breach; (c) by either Price or Palmer if any decree, permanent injunction, judgment order or other action by any court of competent jurisdiction or any governmental entity prohibiting consummation of the Palmer Merger shall have become final and nonappealable; (d) by either Price or Palmer if the Palmer Merger Agreement shall fail to receive the requisite vote for approval and adoption by the stockholders of Palmer at a special meeting of the Palmer Stockholders and the Palmer Merger shall not have been consummated within forty-five (45) days thereafter; and (e) by either Palmer or Price if the Palmer Merger shall not have been consummated before December 31, 1997 (the "Termination Date") provided, however, that the right to terminate the Palmer Merger Agreement shall not be available to any party whose failure to fulfill any obligation under the Palmer Merger Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before the Termination Date. The Offer is also conditioned upon the following: (a) The shares of Price Common Stock issuable to the Palmer Stockholders in the Offer shall have been authorized for listing on the AMEX, subject to official notice of issuance; (b) The Registration Statement shall have become effective under the Securities Act, and no stop order suspending the effectiveness of the Registration Statement shall have been issued or proceedings for that purpose shall have been initiated or threatened by the Commission and the Company shall have received all necessary "blue sky" authorizations; 42 (c) All required material governmental authorizations, permits, consents, orders or approvals which do not impose terms or conditions that could reasonably be expected to have a material adverse effect on Price and/or Palmer shall have been received; (d) A temporary restraining order, preliminary or permanent injunction or other order or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Offer or any of the other transactions contemplated by this Prospectus shall not be in effect; a statute, rule, regulation, order, injunction or decree shall not have been enacted, entered, promulgated or enforced by any court, administrative agency or commission or other governmental authority or instrumentality which prohibits, restricts or makes illegal the consummation of the Offer; or there shall not have been a failure to obtain any required consent or approval under foreign laws or regulations, the absence of which would prohibit the consummation of the Offer or would have a material adverse effect on Price or Palmer; (e) There shall not be pending any suit, action or proceeding by any governmental entity (i) challenging the Offer, seeking to restrain or prohibit the consummation of the Offer or seeking to obtain from Palmer or Price any damages that are material in relation to Palmer and its subsidiaries taken as a whole, (ii) seeking to prohibit or limit the ownership or operation by Palmer or Price or any of their subsidiaries of any material portion of the business or assets of Palmer or Price or any of their subsidiaries or to compel Palmer or Price or any of their subsidiaries, to dispose of or hold separate any material portion of the business or assets of Palmer or Price or any of their subsidiaries, as a result of the Offer, (iii) seeking to impose limitations on the ability of Price to acquire or hold, or exercise full rights to acquire or hold, or exercise full rights of ownership of, any shares of capital stock of Palmer, (iv) seeking to prohibit Price from effectively controlling in any material respect the business or operations of Palmer or (v) which otherwise is reasonably likely to have a material adverse effect on Price or Palmer; (f) There shall not have occurred or been threatened (i) any general suspension of trading in, or limitation on times or prices for, securities on any national securities exchange or in the over-the-counter market in the United States, (ii) any significant adverse change in interest rates, the financial markets or major stock exchange indices in the United States or abroad or in the market price of Palmer Shares, including, without limitation, a decline of at least 10% in either the Dow Jones Average of Industrial Stocks or the Standard & Poor's 500 Index from that existing at the close of business on September 4, 1997, (iii) any change in the general political, market, economic, regulatory or financial conditions in the United States or abroad that could, in the reasonable judgment of Price, have a material adverse effect upon the business, properties, assets, liabilities, capitalization, stockholders' equity, condition (financial or otherwise), operations, licenses or franchises, results of operations or prospects of Palmer or any of its subsidiaries or the trading in, or value of, the Palmer Shares, (iv) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (v) any limitation (whether or not mandatory) by any government, domestic, foreign or supranational, or governmental entity on, or other event that, in the sole judgment of Price, might affect, the extension of credit by banks or other lending institutions, (vi) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States or (vii) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof. (g) (i) There shall not have occurred any general suspension of trading in, or limitation on prices for, securities on the AMEX, (ii) the declaration of a banking moratorium or any suspension of payments in respect of banks in the U.S., (iii) the commencement of a war, armed hostilities or other international or national calamity directly or indirectly involving the U.S., or in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof, or (iv) any decline in either the Dow Jones Industrial Average or the Standard and Poor's Index of 500 Industrial Companies by an amount in excess of 10% measured from the close of business on September 4, 1997; 43 The foregoing conditions are for the sole benefit of Price and may be asserted by Price regardless of the circumstances giving rise to any such conditions (including any action or inaction by Price or may be waived by Price in whole or in part (other than the condition relating to effectiveness of the Registration Statement). The determination as to whether any condition has been satisfied shall be in the sole judgment of Price and will be final and binding on all parties. The failure by Price at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed a continuing right which may be asserted at any time and from time to time. Notwithstanding the fact that Price reserves the right to assert the failure of a condition following acceptance for exchange but prior to exchange in order to delay exchange or cancel its obligation to exchange properly tendered Palmer Shares, Price will either promptly exchange such Palmer Shares or promptly return such Palmer Shares. FEES AND EXPENSES Price has retained Corporate Investors Communications, Inc. (888-881-0527) to act as Information Agent in connection with the Offer. The Information Agent may contact holders of Palmer Shares by mail, telephone, telex, telegraph and personal interviews and may request brokers, dealers and other nominee stockholders to forward the Offer materials to beneficial owners of Palmer Shares. The Information Agent will be paid a customary fee of $5,000 for such services, plus reimbursement of out-of-pocket expenses, and Price will indemnify the Information Agent against certain liabilities and expenses in connection with the Offer, including liabilities under federal securities laws. Price will pay the Exchange Agent reasonable and customary compensation for its services in connection with the Offer, plus reimbursement for out-of- pocket expenses, and will indemnify the Exchange Agent against certain liabilities and expenses in connection therewith, including liabilities under the federal securities laws. Price will not pay any fees or commissions to any broker or dealer or other person (other than the Dealer Managers and the Information Agent) for soliciting tenders of Palmer Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust companies will be reimbursed by Price for customary mailing and handling expenses incurred by them in forwarding material to their customers. ACCOUNTING TREATMENT Price will account for the acquisition of Palmer Shares pursuant to the Offer using the purchase method of accounting. Accordingly, the purchase price will be allocated to assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. STOCK EXCHANGE LISTINGS Price Common Stock is listed on the AMEX. Application will be made to list the Price Common Stock to be issued pursuant to the Offer on the AMEX. COMPARISON OF STOCKHOLDERS RIGHTS UNDER NEW YORK AND DELAWARE LAW As a consequence of the Offer, the stockholders of Palmer (a Delaware corporation) will become shareholders of the Company (a New York corporation). As a result of differences between the New York Business Corporation Law (the "NYBCL") and the Delaware General Corporation Law (the "DGCL"), several changes will be effected in the right of the Palmer Stockholders receiving shares of Company Common Stock. The provisions of the NYBCL and the DGCL differ in numerous respects. Summarized below are certain of the principal differences between the NYBCL and the DGCL affecting the rights of stockholders. This summary does not purport to be a complete statement of the differences affecting the stockholders' rights under the NYBCL and the DGCL and is subject to, and qualified in its entirety by reference to, all the provisions of these statutes. DIVIDENDS. Under both the NYBCL and the DGCL a corporation may generally pay dividends out of surplus. In addition, the DGCL, unlike the NYBCL permits a corporation, under certain circumstances, to pay dividends, if there is no surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. 44 RIGHTS AND OPTIONS. The NYBCL requires that holders of a majority of the outstanding shares approve any incentive plan pursuant to which rights or options are to be granted to directors, officers or employees. The DGCL does not require stockholder approval of such incentive plans. Various other applicable legal and regulatory requirements may make stockholder approval of rights or option plans of Palmer necessary. CONSIDERATION FOR SHARES. The NYBCL provides that neither obligations of the subscriber for future payments nor future services shall constitute payment or partial payment for shares of a corporation. Furthermore, certificates for shares may not be issued until the full amount of the consideration for the shares has been paid. The DGCL provides that shares of stock may be issued, and deemed to be fully paid, if the corporation receives consideration having a value not less than the par value of such shares and the corporation receives a binding obligation of the subscriber to pay the balance of the subscription price. DISSENTER'S RIGHT. The NYBCL provides that a dissenting stockholder has the right to receive the fair value of his shares if he objects to (i) certain mergers and consolidations, (ii) certain dispositions of assets requiring stockholder approval, (iii) a share exchange, or (iv) certain amendments to the certificate of incorporation which adversely affect the rights of such stockholder. The DGCL provides such appraisal rights only in the case of a stockholder objecting to certain mergers or consolidations, and such appraisal rights do not apply (x) to stockholders of the surviving corporation in a merger if stockholder approval of the merger is not required, or (y) to any class of stock which is either (a) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc., or (b) held of record by more than 2,000 holders, unless stockholders are required to accept for their shares in the merger or consolidation anything other than common stock of the surviving corporation, common stock of another corporation that is so listed or held, cash in lieu of fractional shares or any combination of the foregoing. INDEMNIFICATION OF OFFICERS AND DIRECTORS. The laws of New York and Delaware regarding indemnification by a corporation of its directors and officers provide that indemnification may be made in connection with derivative actions except where the director or officer is adjudged to be liable to the corporation, unless and only to the extent that, an appropriate court determines that, in view of all the circumstances, such director or officer is fairly and reasonably entitled to such indemnification. The NYBCL additionally provides that indemnification may not be made in connection with derivative actions where a claim is settled or otherwise disposed of. The laws of New York and Delaware regarding indemnification by a corporation of its directors and officers also provide that the indemnification and advancements of expenses granted pursuant to, or provided by, such laws is not exclusive of any other rights to which a director or officer may be entitled. They NYBCL additionally provides that no indemnification may be made to or on behalf of any director or officer for liability arising from actions taken in bad faith, intentional wrongdoing, or where an improper personal benefit was derived. The DGCL contains no such express limitation. LIMITATION OF DIRECTOR LIABILITY. The provisions of the DGCL permitting indemnification and limitation of liability of officers, directors, agents and employees of a Delaware corporation are somewhat more protective of directors and officers than the NYBCL. The DGCL permits a corporation to provide in its certificate of incorporation that directors will have no personal liability to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for: (a) any breach of the director's duty of loyalty, (b) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) the payment of illegal dividends or distributions, or (d) any transaction from which the director derived an improper personal benefit. LOANS TO DIRECTORS. The NYBCL prohibits loans to corporate directors unless authorized by stockholder vote. The DGCL permits the Board of Directors, without stockholder approval, to authorize loans to corporate directors who are also officers. 45 VOTE REQUIRED FOR MERGER. The NYBCL requires the affirmative vote of two- thirds of a corporation's outstanding shares to authorize a merger, consolidation, dissolution or disposition of substantially all of the assets of a corporation. The DGCL requires the affirmative vote of a majority of the outstanding shares to authorize any such action, unless otherwise expressly provided in the certificate of incorporation. Also, the DGCL permits a merger without approval of the stockholders of the surviving corporation if, among other things, no Certificate of Incorporation amendment is involved and the merger results in nor more than a 20% increase in the number of outstanding shares of common stock of such corporation. No such provision is contained in the NYBCL. STOCKHOLDER CONSENT TO ACTION WITHOUT A MEETING. The NYBCL provides that any action by stockholders may be taken without a meeting only with the written consent of all stockholders who would be entitled to vote at a meeting held for such purpose. Under the DGCL, unless the corporation's certificate of incorporation provides otherwise, any action that could be taken at an annual or special meeting of stockholders may be taken without prior notice and without a vote if a consent in writing setting forth the action to be taken is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. APPROVAL OF TRANSACTIONS WITH INTERESTED DIRECTORS. The NYBCL provides several methods for establishing the validity of transactions between a corporation and interested directors. One method requires a vote that would be sufficient for such purpose without counting the vote of such interested director, or, if the votes of the disinterested directors are insufficient to constitute an act of the board, by unanimous vote of the disinterested directors. The comparable provision of the DGCL requires only the affirmative vote of a majority of the disinterested directors, without requiring that such vote be sufficient alone to be the act of the board or committee. NOTICES AND RECORD DATE. Under the DGCL, the Board of Directors of a corporation may fix a record date for stockholder meetings and may give notices for such meetings which shall not be more than sixty nor less than ten days before the date of a meeting. The NYBCL allows for a period of between ten and fifty days for notices or determinations of a record date. CLASSIFICATION OF THE BOARD OF DIRECTORS. The NYBCL permits a classified board with as many as four classes but forbids fewer than three directors in any class. The DGCL permits a classified board of directors with as many as three classes, but does not specify a minimum number of directors for each class. Neither the Palmer Certificate of Incorporation not Price's Certificate of Incorporation provides for a classified board. NUMBER OF DIRECTORS. Under the DGCL, a corporation may have as few as one director and there is no statutory upper limit on the number of directors. The specific number may be fixed in the by-laws or in the certificate of incorporation, but if fixed in the certificate of incorporation, may be changed only by amendment of the certificate of incorporation. If the certificate of incorporation is silent as to the number of directors, the board of directors may fix or change the authorized number of directors pursuant to a provision of the by-laws. The Palmer By-laws provide that the number of directors shall be determined by the Board. Under the NYBCL, the number of directors may not be less than three, and any higher number may be fixed by the By-laws or by action of the stockholders or of the board of directors under the specific provisions of the By-laws adopted by the stockholders. The number of directors may be increased or decreased by amendment of the By-laws or by action of the stockholders or of the board of directors under the specific provisions of a by-law adopted by the stockholders, subject to certain limitations. BUSINESS COMBINATION STATUTES. The NYBCL prohibits any "business combination" (as therein defined) between a domestic corporation and an "interested stockholder" for five years after the date that the interested stockholder became an interested stockholder unless prior to that date the board of directors of the domestic corporation approved the business combination or the transaction that resulted in the interested stockholder becoming an interested stockholder. After five years, such a business combination is permitted only if (a) it is 46 approved by a majority of the shares not owned by, or by an affiliate of, the interested stockholder or (b) certain statutory fair price requirements are met. An "interested stockholder" is any person who beneficially owns, directly or indirectly, 20% or more of the outstanding voting shares of the corporation. The DGCL prohibits any "business combination" (as therein defined) between a Delaware corporation and an "interested stockholder" for three years following the date that the interested stockholder became an interested stockholder unless (i) prior to that time the board of directors approved the business combination or the transaction that resulted in the interested stockholder becoming an interested stockholder, (ii) upon consummation of the transaction that resulted in the interested stockholder becoming an interested stockholder, the interested stockholder held at least 85% of the outstanding voting stock of the corporation (not counting shares owned by officers and directors and certain shares in employee stock plans), or (iii) on or subsequent to such time the business combination is approved by the board of directors and at least two-thirds of the outstanding shares of voting stock not owned by the interested stockholder. The DGCL defines "interested stockholder" as any person who beneficially owns, directly or indirectly, 15% or more of the outstanding voting stock of the corporation. INSPECTION OF STOCKHOLDER'S LIST. With respect to the inspection of stockholder's lists, the NYBCL provides a right of inspection on at least 5 days' written demand to (i) any person who shall have been a stockholder for at least 6 months immediately preceding the demand or (ii) any person holding, or authorized in writing by, at least 5% of any class of outstanding shares. The corporation has certain rights calculated to assure itself that the demand for inspection is not for a purpose or interest other than that of the corporation. The DGCL permits any stockholder, upon written request, to inspect the stockholder's list at any time for a purpose reasonably related to such person's interest as a stockholder and, during the 10 days preceding the stockholder's meeting, for any purpose germane to that meeting. REDEMPTION OF SHARES. The NYBCL generally permits redemption of shares of common stock only at the option of the corporation. The DGCL permits redeemable shares to be subject to redemption, in accordance with the terms thereof, by the corporation at its option or at the option of the holders thereof, provided that at the time of such redemption the corporation has outstanding shares of at least one class or series with full voting powers that is not subject to redemption. HOLDING COMPANY REORGANIZATION. While no analogous provision exists under the NYBCL, Section 251(g) of the DGCL permits a Delaware corporation to reorganize as a holding company without stockholder approval. The reorganization contemplated by the statute is accomplished by merging the subject corporation with or into a direct or indirect wholly owned subsidiary of the corporation and converting the stock of the corporation into stock of another direct or indirect wholly owned subsidiary of the corporation, which would be the new holding company. The statute eliminates the requirement for a stockholder vote on such a merger but contains several provisions designed to ensure that the rights of stockholders are not changed by or as a result of the merger, except and to the extent that such rights could be changed without such stockholder approval under existing law. 47 CREATION OF A HOLDING COMPANY FOR PRICE GENERAL At a special meeting of shareholders held on September 5, 1997, the shareholders of Price approved, in accordance with the recommendation of the Board of Directors of Price, the creation of a holding company by adopting the Agreement and Plan of Merger (the "Plan of Merger") among Price, Holdings and PCCSub, Inc. ("Sub") which provides for the merger of Sub into Price (the "Holding Company Merger"). As a result of the Holding Company Merger, Holdings will be owned by the shareholders of Price immediately prior to the Holding Company Merger, and Price will become a wholly-owned subsidiary of Holdings. Holdings, which will then be a publicly held company, will change its name to Price Communications Corporation, and Price will change its name to Price, Inc. As a consequence of the Holding Company Merger, Palmer Stockholders will receive shares of Holdings common stock in the Offer. A Palmer Stockholder who receives Holdings common stock in the Offer should not recognize gain or loss upon such exchange. See "The Offer--Certain Federal Income Tax Consequences". The Holding Company Merger is being effected in order to facilitate Price's access to sources of financing by adding an additional potential borrower in Price's holding company structure. Although the holding company structure to be created by the Holding Company Merger is intended to facilitate the Price's access to sources of financing, the Holding Company Merger is not otherwise expected to have any effect on Price or those Palmer Stockholders who participate in the Offer. It is anticipated that the Holding Company Merger will be accounted for as a restructuring. The Holding Company Merger will not affect the ultimate responsibility of corporate management for profitable growth and the creation of shareholder value. As a result of the Holding Company Merger: . There will be no change in the state of incorporation, since both Price and Holdings are New York corporations. . The Certificate of Incorporation and Bylaws of Holdings will be identical in substance to Price's Certificate of Incorporation and Bylaws immediately prior to the Holding Company Merger, with a total of 60,000,000 shares Holdings Common Stock authorized. Therefore, Holdings will have the same authorized capital stock as Price with the same rights and privileges. Holdings will change its name to Price Communications Corporation. . Each share of Price Common Stock, and each share of Preferred Stock and each share of PIK Preferred Stock of Price will be converted automatically into one share of Holdings Common Stock, one share of Holdings Preferred Stock and one share of Holdings PIK Preferred Stock, respectively, with the same rights and privileges. Certificates for shares of Price Common Stock will automatically represent shares of Holdings Common Stock. No exchange of stock certificates will be required. . The shares of Holdings Common Stock are expected to be listed for trading on the AMEX, as the shares of Price Common Stock are currently. Holdings will be a reporting company under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). . Immediately after the Holding Company Merger, Holdings will, on a consolidated basis, have the same assets, liabilities and shareholders equity as Price. The business of Price will remain unchanged. 48 . Holdings will have the same directors and officers as Price at the time of the Holding Company Merger. . The Holding Company Merger will not add "anti-takeover" protections or have an anti-takeover effect. . There will be no contractual restrictions or restrictions in Price's certificate of incorporation on the ability of Price to pay dividends to Holdings. PLAN OF MERGER The Holding Company Merger will become effective upon the filing of a certificate of merger with the Secretary of State of New York. The filing is expected to occur prior to consummation of the Offer. The date of such filing is referred to as the "Holding Company Merger Effective Date." Conversion. In accordance with the Plan of Merger and subject to shareholder approval and the fulfillment or waiver of certain other conditions described herein, on the Holding Company Merger Effective Date each share of Price Common Stock outstanding immediately prior to the Holding Company Merger, each share of Preferred Stock of Price outstanding immediately prior to the Holding Company Merger and each share of PIK Preferred Stock of Price outstanding immediately prior to the Holding Company Merger will be converted automatically into one share of Holdings Common Stock, one share of Holdings Preferred Stock and one share of Holdings PIK Preferred Stock, respectively. As a result of the Holding Company Merger, Sub will be merged with and into Price, and Price's shareholders will become shareholders of Holdings. In addition, the Unit Warrants will, pursuant to their terms, entitle the holders thereof to purchase shares of Holdings Common Stock upon the exercise thereof in lieu of shares of Price Common Stock. Under the Plan of Merger, the approval of the Holding Company Merger will be deemed to be approval of the assumption by Holdings of Price's 1992 Long-Term Incentive Plan. The 1992 Long Term Incentive Plan, which was approved by shareholders in 1992, authorizes the issuance of up to 1,250,000 shares of Common Stock to senior officers, senior management and other key employees of Price and its subsidiaries in the form of non-qualified or incentive stock options, stock appreciation rights, restricted stock, performance shares, performance units and other stock-based awards. An aggregate of 784,330 shares have been issued or are reserved for issuance pursuant to outstanding options under the 1992 Long Term Incentive Plan, while an aggregate of 465,670 shares will remain available for issuance under the Plan following the assumption of the Plan in the Holding Company Merger. Conditions to the Holding Company Merger. The Holding Company Merger is subject to the following conditions, among others: (a) approval for listing the shares of Holdings Common Stock issuable in the Holding Company Merger for trading on the AMEX; and (b) absence of an injunction or litigation relating to the Holding Company Merger. Amendment, Waiver or Termination of the Plan of Merger. The Plan of Merger provides that Price, Holdings and Sub may amend any of the terms of, or waive any of the conditions to, the Plan of Merger before the consummation of the Holding Company Merger and before or after shareholder approval, provided that any such amendment will not, in the opinion of the Board of Directors of Price, have any materially adverse effect on the shareholders of Price. In addition, the Plan of Merger provides that the Plan of Merger may be terminated by the Board of Directors of Price at any time prior to the Holding Company Merger Effective Date notwithstanding shareholder approval. DESCRIPTION OF CAPITAL STOCK General. The Certificate of Incorporation of Holdings is identical in substance to Price's and, after the Holding Company Merger Effective Date, Holdings will have issued the same number of shares of Holdings Common Stock, Holdings Preferred Stock and Holdings PIK Preferred Stock as Price has issued shares of Common Stock, Preferred Stock and PIK Preferred Stock immediately prior to the Holding Company Effective 49 Date. Sub has issued and outstanding 100 shares of common stock, $.01 par value, of Sub ("Sub Common Stock"), all of which are owned by Holdings. Price Common Stock and Holdings Common Stock. Holders of Price Common Stock and Holdings Common Stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders and do not have cumulative voting rights. Shareholders casting a plurality of votes of the shareholders entitled to vote in an election of directors may elect all of the directors standing for election. Holders of Price Common Stock and Holdings Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the applicable Board of Directors out of funds legally available therefor, subject to any preferential dividend rights of preferred stock that may be issued at such future time or times. Upon the liquidation, dissolution or winding up of Price or Holdings, the holders of Price Common Stock and Holdings Common Stock are entitled to receive ratably the net assets of Price or Holdings, as the case may be, available after the payment of all debts and other liabilities and subject to the prior rights of PIK Preferred Stock and Preferred Stock or Holdings PIK Preferred Stock and Holdings Preferred Stock, as the case may be, that may be issued at such time. Holders of Price Common Stock and Holdings Common Stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of Price Common Stock and the shares of Holdings Common Stock to be outstanding following the Holding Company Merger are fully paid and nonassessable. The rights, preferences and privileges of holders of Price Common Stock and Holdings Common Stock are subject to the rights of the holders of shares of any series of preferred stock or Holdings preferred stock, as the case may be, which Price may designate and issue in the future. Rights Agreements. Each share of Price Common Stock currently includes one right (a "Price Right") to purchase shares of Company Common Stock under the circumstances contemplated by Price's shareholders' rights plan (the "Price Rights Agreement"). Prior to the Holding Company Merger, Holdings will adopt a substantially identical shareholders' rights plan (the "Holdings Rights Agreement" and, together with Price Rights Agreement, the "Rights Agreement"), and upon the Holding Company Merger, each Price Right will be converted into one right (a "Holdings Right" and, together with Price Rights, the "Rights") to purchase shares of Holdings Common Stock under the circumstances contemplated by the Rights Agreements. Each Right initially represents the right, when exercisable, to purchase a share of Price Common Stock or Holdings Common Stock, as the case may be, at a purchase price of $22.50 per share. The Rights are not exercisable, and cannot be transferred separately from the common stock until the first date (the "Distribution Date") of a public announcement that a person or group has acquired beneficial ownership of 20% or more of the outstanding shares of common stock. A person or group whose acquisition of common stock causes a Distribution is referred to as an "Acquiring Person." Certain shareholders, who owned in excess of 20% of the Price Common Stock on the date of adoption of the Price Rights Agreement and certain of their affiliates and permitted transferees are not deemed to be Acquiring Persons and their ownership will not cause a Distribution Date unless they acquire an additional one percent or more of the common stock. Prior to the consummation of the Offer, the Rights Agreements will be amended to clarify that Palmer stockholders who acquire Price Common Stock or Holdings Common Stock, as the case may be, in the Offer will not be deemed Acquiring Persons as a result of such acquisition. If any person becomes an Acquiring Person, each holder of Rights (other than Rights that have become void as described below) will thereafter have the right (the "Flip-In Right") to receive, upon exercise of the Rights, the number of shares of Price Common Stock or Holdings Common Stock, as the case may be (or in certain circumstances, other securities or debt of Price or Holdings, as the case may be), having a value, immediately prior to such triggering event, equal to two times the aggregate exercise price of such Rights. Price's or Holdings' Board of Directors, at its option, may exchange the Flip-In Rights for shares of common stock or certain other securities of the corporation, provided that (i) no person is the beneficial owner of 50% or more of the common stock at the time of such exchange and (ii) such exchange must be authorized by a majority of the Board and the Disinterested Directors (as defined in the Rights Agreements). All Rights owned by an Acquiring Person or an affiliate or associate thereof will be void. 50 If, after there is an Acquiring Person, Price or Holdings, as the case may be, is acquired in a merger or other business combination transaction in which the holders of all outstanding common stock immediately prior to the consummation of the transaction are not the holders of all of the surviving corporation's voting power, or in which more than 50% of the corporation's assets or earning power is sold or transferred, then each holder of Rights (except those owned by an Acquiring Person or an affiliate or associate thereof) will thereafter have the right (the "Flip-Over Right") to receive, upon exercise of such Rights, common stock of the acquiring company having a value equal to two times the aggregate exercise price of the Rights. The holder of a Right will continue to have the Flip-Over Right whether or not such holder exercised or surrenders the Flip-In Right. The exercise price per Right is subject to adjustment upon certain dividends and upon certain subdivisions, combinations and reclassifications of the shares of common stock. The Rights may also be redeemed, in whole but not in part, at a price of $.01 per Right, payable in cash or common stock, at any time prior to the earlier of a person becoming an Acquiring Person, or the expiration of the Rights, if such redemption is approved by the majority of the Board and the Disinterested Directors. Preferred Stock and Holdings Preferred Stock. The Board of Directors of each of Price and Holdings is authorized, subject to any limitations prescribed by law, without further stockholder approval, to issue from time to time up to an aggregate of 20,000,000 shares of Price's or Holdings, as the case may be, authorized class of undesignated preferred stock, in one or more series. Each such series of preferred stock or Holdings preferred stock, as the case may be, shall have the number of shares, designations, preferences, powers, qualifications and special or relative rights or privileges as shall be determined by the applicable Board of Directors, which may include, among others, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights. The issuance of preferred stock or Holdings preferred stock, as the case may be, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of the outstanding voting stock of the Price or Holdings, as the case may be. The Board of Directors of each of Price and Holdings has authorized the issuance of 728,133 shares of Series A Preferred Stock and 364,066 shares of Series B Preferred Stock. All authorized shares of Price's Series A Preferred Stock and Series B Preferred Stock have been issued to Mr. Robert Price, the President of Price. Pursuant to the Holding Company Merger, each such share will be converted into one share of Holdings Series A Preferred Stock or Holdings Series B Preferred Stock, as the case may be. Each share of Series A Preferred Stock of Price and Holdings is entitled to one vote per share, and to receive 1% of the dividends and liquidation distributions payable with respect to a share of Price Common Stock and Holdings Common Stock, respectively. Each share of Series B Preferred Stock of Price and Holdings is entitled to one-half vote per share, and to receive 1% of the dividends and liquidation distributions payable with respect to a share of Price Common Stock and Holdings Common Stock, respectively. In the event of (i) a merger of Price, the sale or exchange of all or substantially all of Price's assets or the occurrence of any other transaction or event as a result of which the holders of Price Common Stock receive at least $22.00 per share in the case of the Series A Preferred Stock (or $15.00 per share in the case of the Series B Preferred Stock) or (ii) the acquisition of more than 50% of the voting power of the securities of Price then outstanding by any person, entity or group, provided the market value of Price Common Stock at such time is at least $22.00 per share in the case of the Series A Preferred Stock (or $15.00 per share in the case of the Series B Preferred Stock) (the amount per share received by holders of Common Stock or the market price per share of Price Common Stock described above being referred to as the "Transaction Price"), Mr. Price would receive a payment per share of Series A Preferred Stock equal to the sum of 25% of the excess of the Transaction Price per share (up to a Transaction Price of $32.00) over $9.125, 50% of the excess of the Transaction Price per share (up to a Transaction Price of $42.00) over $32.00, 100% of the excess of the Transaction Price per share (up to a Transaction Price of $52.00) over $42.00, and 125% of the excess of the Transaction Price per share over $52.00, and Mr. Price would receive a payment per share of Series B Preferred Stock equal to the excess of the Transaction Price over $10.00. To illustrate the forgoing, (A) in the event of a transaction described above resulting in a Transaction Price to the holders of Price Common Stock equal to $20.00, Mr. Price would receive 51 no payment in respect of the Series A Preferred Stock and would receive a payment per share of Series B Preferred Stock equal to a $10.00; (B) in the event of a Transaction Price per share of $30.00, Mr. Price would receive a payment per share of Series A Preferred Stock equal to $5.22 (25% of the transaction Price over $9.125) and a payment per share of Series B Preferred Stock equal to $20.00; (C) in the event of a Transaction Price per share of $40.00, Mr. Price would receive a payment per share of Series A Preferred Stock equal to $9.72 (25% of the excess of $32.00 over $9.125 plus 50% of the excess of $40.00 over $32.00) and a payment per share of Series B Preferred Stock equal to $30.00; and (D) in the event of a Transaction Price share of $50.00, Mr. Price would receive a payment per share of Series A Preferred Stock equal to $18.72 (25% of the excess of $32.00 over $9.125 plus 50% of the excess of $42.00 over $32.00 plus 100% of the excess of $50.00 over $42.00) and a payment per share of Series A Preferred Stock equal to $40.00. Although the Board of Directors and Compensation Committee of Price believe that the provisions of the Series A and Series B Preferred Stock provide the Price's President and Chief Executive Officer with incentive to maximize shareholder value by providing such officer with significant profit upon the consummation of various business combination transactions providing the holders of Price Common Stock with a payment per share significantly in excess of current trading prices, the Series A Preferred Stock and Series B Preferred Stock may be viewed as having the potential effect of discouraging a bidder's proposal to acquire control of or merge with Price in that such Preferred Stock would increase the cost to a bidder of certain of such transactions. For example, a transaction resulting in a Transaction Price of $30.00 per share to holders of Price Common Stock would result in a total payment in respect of the Series A Preferred Stock and Series B Preferred Stock equal to $11,082,174. In addition, the votes cast by such shares of Preferred Stock (a total of 910,166 votes, or 14.8% of the total votes cast by all outstanding shares of the Price Common Stock and Preferred Stock as of July 31, 1997) would make it more difficult for a bidder to elect directors or enact shareholder proposals opposed by management of Price. The shares of Series A Preferred Stock will be repurchased by Price in the event of Mr. Price's death or termination of employment prior to a transaction resulting in a payment as aforesaid, as follows: (i) If his employment with Price terminates because of death or disability or termination by Price not for cause, or his retirement subsequent to Price Common Stock trading for an average of at least $22.00 per share over a period of 10 consecutive trading days, Price will repurchase the Series A Preferred Stock at its then fair market value, as determined by appraisal. (ii) If his employment terminates for any reason except as aforesaid, Price will repurchase the Series A Preferred Stock at the lower of the price paid by him for such stock or its then fair market value, as determined by appraisal. The shares of Series B Preferred Stock will be repurchased by Price upon Mr. Price's request provided that the trading price of Price Common Stock during any period of 10 consecutive trading days prior to such request was at least $15.00 per share, for a purchase price equal to its then fair market value, as determined by appraisal. In addition, the shares of Series B Preferred Stock will be repurchased by Price in the event of Mr. Price's death or termination of employment prior to a transaction resulting in a payment as set forth in the second preceding paragraph, as follows: (i) If his employment with Price terminates because of death or disability or termination by Price not for cause, or his retirement subsequent to the Price Common Stock trading for an average of at least $15.00 per share over a period of 10 consecutive trading days, Price will repurchase the Series B Preferred Stock at its then fair market value, as determined by appraisal. (ii) If his employment terminates for any reason except as aforesaid, Price will repurchase the Series B Preferred Stock at the lower of the price paid by him for such stock or its then fair market value, as determined by appraisal. The foregoing provisions with respect to the Series A and Series B Preferred Stock are subject to appropriate adjustment in the event of a stock split, stock dividend or similar event affecting Price Common Stock. 52 The Holdings Series A and Series B Preferred Stock will contain provisions identical in substance to the foregoing. Neither the Holding Company Merger, the Palmer Merger nor Offer will trigger any repurchase or other rights to payment in respect of the Series A or Series B Preferred Stock. PIK Preferred Stock and Holdings PIK Preferred Stock. Price has had a long- standing program of repurchasing shares of Price Common Stock, which Price believes currently represents a good long term investment for Price and an appropriate use of its current cash resources. From time to time, Price engaged in discussions with the Franklin Funds concerning the purchase of 2,291,953 shares of Price Common Stock held by the Franklin Funds but Price was unable to negotiate a purchase from the Franklin Funds directly. In June 1997, NatWest Capital Markets Limited ("NatWest") approached Price with a proposal for a transaction, negotiated in June and July, 1997, in which: (i) NatWest would purchase the shares owned by the Franklin Funds directly from the Franklin Funds, (ii) NatWest would agree to act as initial purchaser in the Cellular Holdings Offering, (iii) Price would issue to NatWest 1,129 units (the "PIK Units") of PIK Preferred Stock and warrants ("PIK Warrants") to NatWest in exchange for the shares of Price Common Stock acquired from the Franklin Funds and $3.0 million in fees payable to NatWest in connection with the Cellular Holdings Offering and (iv) the PIK Units would be redeemed out of the proceeds of the Cellular Holding Offering following the consummation of the Palmer Merger. Each PIK Unit consists of 1,000 shares of PIK Preferred Stock, each with a liquidation value of $25.00 per share, and PIK Warrants to purchase 515.6 shares of Price Common Stock per Unit (or an aggregate of 582,112 shares of Price Common Stock, representing in the aggregate 10% of the fully diluted shares of Price Common Stock) at an exercise price of $0.01 per share. The PIK Preferred Stock is callable at the Company's option, together with the PIK Warrants at any time in whole or in part on or prior to 90 days from the issue date and at any time thereafter if NatWest or an affiliate is the holder of all the PIK Preferred Stock, at a redemption price equal to 100% of the liquidation preference of the PIK Preferred Stock, plus accrued dividends. The transaction reflects a significant redemption premium represented by the redemption price of the PIK Units (approximately $29.5 million) over the per share trading values of the Price Common Stock at the time of the transaction (approximately $6 5/16 to $9 1/4 per share during June and July 1997). The Company believes that the redemption premium was appropriate given the size of the block of Price Common Stock so purchased (approximately 30% of then outstanding Price Common Stock) and the value contributed by NatWest in connection with the Cellular Holdings Offering. The Holdings PIK Preferred Stock will contain provisions comparable to the foregoing. In addition, from and after the Holding Company Merger Effective Date, the Warrants will, pursuant to their terms, entitle the holders thereof to purchase shares of Holdings Common Stock upon the exercise thereof in lieu of shares of Price Common Stock. CERTAIN INFORMATION CONCERNING SUB AND HOLDINGS Business of Sub and Holdings. Sub and Holdings are companies that were formed in June 1997 at the direction of Price for the purpose of effecting the Holding Company Merger. Other than entering into the Plan of Merger, they have undertaken no operations. Market Price and Dividends on Common Stock of Sub and Holdings. All the outstanding Sub Common Stock is owned by Holdings. Holdings has issued one share of Holdings Common Stock to Price which will be cancelled at the Holding Company Merger Effective Date. The Sub Common Stock and the Holdings Common Stock are not publicly traded. Holdings intends to apply for listing the Holdings Common Stock to be issued in connection with the Holding Company Merger for trading on the AMEX and it is a condition to effectiveness of the Holding Company Merger that such listing application be approved. Neither Sub nor Holdings has ever declared a dividend on its capital stock. Selected Financial Data of Sub and Holdings. Sub and Holdings have no operations or operating history and, on a consolidated basis, have no assets and have never generated revenues. 53 INFORMATION CONCERNING PRICE GENERAL Price has historically been a nationwide communications company. Until consummation of their sale in March and February 1996, Price owned an ABC affiliate, WHTM-TV (which was acquired by Price during 1994), serving Harrisburg/Lancaster/Lebanon/York, Pennsylvania and three NBC affiliated television stations, KSNF-TV, serving Joplin, Missouri/Pittsburg, Kansas; KJAC-TV, serving Beaumont/Port Arthur, Texas; and KFDX-TV, serving Wichita Falls, Texas/Lawton, Oklahoma, respectively. Prior to 1995 the Company owned a number of television, radio, newspaper, cellular telephone and other communications and related properties which were disposed of pursuant to Price's long-standing policy of buying and selling communications properties at times deemed advantageous by the Price's Board of Directors. In 1992 Price filed a Consensual Plan of Reorganization pursuant to Chapter 11 of the United States Bankruptcy Code. Such Consensual Plan, as amended, was confirmed on June 11, 1992, and became effective on December 30, 1992. Price's business strategy is to acquire communications properties at prices it considers attractive, finance such properties on terms satisfactory to it, manage such properties in accordance with its operating strategy, and dispose of them if and when Price determines such disposition to be in its best interest. For the foregoing reasons, the results of Price's historical operations are not comparable to or indicative of results in the future. See "Price Management's Discussion and Analysis of Financial Condition and Results of Operations." Price has historically held interests in cellular telephone properties and licenses, including through PriCellular Corporation, which currently owns and operates FCC licensed cellular telephone systems, principally in the Midwest and Mid-Atlantic Regions. Prior to the sale of such interest by Price in 1993, Price held a 74% interest in PriCellular, and since 1995 Price has purchased the warrants and common stock of PriCellular described under "Information Concerning Price--Developments from 1995 through 1997." Prior to execution of the Palmer Merger Agreement, Price from time to time unsuccessfully attempted to acquire telecommunications businesses other than PriCellular. The Company believes that an acquisition such as Palmer in the telecommunications business is in the best interests of its shareholders in light of, among other reasons, the experience of its management in owning and operating businesses regulated by the FCC and, in particular, cellular telephone systems. Price's specific decision to make the Palmer acquisition was based, among other factors, on Palmer's operating income before depreciation and amortization, its record of growth, and its management team. See "The Acquisition--Reasons for the Acquisition," "Palmer Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Unaudited Pro Forma Condensed Consolidated Financial Statements." Price was organized in New York in 1979 and began active operations in 1981. Price owns 100% of the issued and outstanding capital stock of Price Communications Cellular Inc., which owns 100% of the issued and outstanding capital stock of Cellular Holdings, which owns 100% of the issued and outstanding capital stock of PCW. Price owns the PriCellular warrants and shares of common stock described under "Developments from 1995 through 1997" below (or aggregate beneficial ownership of 3,764,860 shares, or 9.3%, of PriCellular common stock); Mr. Price has beneficial ownership, excluding such shares beneficially owned by Price, of an aggregate of 3,485,685 shares, or 8.9%, of PriCellular common stock (including shares owned directly by Mr. Price, shares issuable pursuant to options held by Mr. Price and shares held by Mr. Price as joint tenant with his adult children); and members of Mr. Price's family beneficially own an additional 6,308,995 shares, or 16.3%, of PriCellular common stock. PriCellular beneficially owns no shares of Price's capital stock, there are no business relationships between PriCellular and Price and the Company has no plans, proposals or arrangements for any possible future transaction or business combination between the Company or PCW and PriCellular. 54 DEVELOPMENTS FROM 1995 THROUGH 1997 On March 1, 1996, Price sold substantially all of the assets, except cash but including accounts receivable together with certain liabilities, of its ABC affiliate serving the Harrisburg-York-Lebanon-Lancaster, Pennsylvania television market for approximately $115 million in cash to Allbritton Communications Company. Price recognized a pre-tax gain of approximately $65.6 million from this transaction. On February 2, 1996, Price sold substantially all of the assets, except cash and accounts receivable, together with certain liabilities, of its three NBC affiliates, KJAC-TV, Beaumont/Port Arthur, Texas, KFDX-TV, Wichita Falls, Texas/Lawton, Oklahoma and KSNF-TV, Joplin, Missouri/Pittsburg, Kansas for approximately $40.7 million in cash. The stations were sold to US Broadcast Group, a newly organized acquirer of television properties. Price recognized a pre-tax gain of approximately $29.4 million from this transaction. Prior to 1995, Price had written off its investment in Fairmont Communications Corporation ("Fairmont"), with the result that Price's carrying value in such investment was zero. During 1994, the Company entered into a settlement agreement with the various parties to the Fairmont bankruptcy proceedings, although the exact amount was uncertain until 1995. Price received during 1995 and 1996 cash payments totaling approximately $7.9 million and $62.5 thousand respectively, as a result of sales of properties by Fairmont. During December, 1995, Price invested approximately $8.4 million in warrants to acquire approximately 1.8 million shares of Class B Common Stock of PriCellular, a publicly held cellular telephone company of which Mr. Robert Price, the President of Price, is Chairman. During 1996 and through June 26, 1997, the Company purchased a total of 1,945,250 shares of PriCellular Class A Common Stock for approximately $15 million. For developments concerning financing, see "The Acquisition". EMPLOYEES As of June 30, 1997, Price employed four full time persons at its corporate headquarters in New York. PROPERTIES Price leases office space for its headquarters in New York City. (See Note 15 of the Notes to Price's Consolidated Financial Statements for information on minimum lease payments of the Company and its subsidiaries for the next five years.) LEGAL PROCEEDINGS Price is not currently involved in any pending legal proceedings likely to have a material adverse impact on Price. 55 PRINCIPAL SHAREHOLDERS OF PRICE The following table reflects the beneficial ownership of the each class of capital stock of Price as of August 8, 1997 and as adjusted to give effect to the issuance of 10,000,000 shares of Price Common Stock pursuant to the Offer by each person known by Price to be the beneficial owner of more than 5% of each class of such stock.
PERCENT OF CLASS NO. OF SHARES FOLLOWING BENEFICIALLY PERCENT STOCK NAME AND ADDRESS TITLE OF CLASS OWNED OF CLASS ISSUANCE (3) Robert Price............ Common Stock 866,758 17.3% 5.8% 45 Rockefeller Plaza Series A Preferred Stock (1) 728,133 100% 100% New York, New York Series B Preferred Stock (1) 364,066 100% 100% 10020 NatWest Capital Markets Common Stock (2) 582,112 10.0% 3.4% Limited................ PIK Preferred Stock (1) 1,129,000 100% 100% 175 Water Street New York, New York 10038
- --------------------- (1) The Series A Preferred Stock and the Series B Preferred Stock vote with the Price Common Stock on a share for share basis for the Series A Preferred Stock and on a one-half vote per share basis for the Series B Preferred Stock. Shares of PIK Preferred Stock have no voting rights (other than as required by law). (2) Represents shares of Price Common Stock issuable upon exercise of the Warrants. See "Creation of a Holding Company for Price--Description of Capital Stock." (3) Assumes the issuance of 10,000,000 shares of Price Common Stock pursuant to the Offer. 56 SECURITY OWNERSHIP OF PRICE'S MANAGEMENT The following table reflects the number of shares of each class of capital stock of Price beneficially owned as of June 26, 1997 by each director, each executive officer and all executive officers and directors of Price as a group as of such date and as adjusted to give effect to the issuance of 10,000,000 shares of Price Common Stock pursuant to the Offer.
PERCENT OF CLASS NO. OF SHARES FOLLOWING BENEFICIALLY PERCENT STOCK NAME TITLE OF CLASS OWNED OF CLASS ISSUANCE(4) Robert Price............ Common Stock 866,758 17.3% 5.8% Series A Preferred Stock(1) 728,133 100% 100% Series B Preferred Stock(1) 364,066 100% 100% George H. Cadgene....... Common Stock 2,208(2) * * Robert F. Ellsworth..... Common Stock 8 * * Kim I. Pressman......... Common Stock 62,261(3) * * All executive officers and directors as a Common Stock 931,235(2)(3) 18.6% 6.2% group (4 persons)...... Series A Preferred Stock(2) 728,133 100% 100% Series B Preferred Stock(2) 364,066 100% 100%
- --------------------- * Less than 1% (1) The Series A Preferred Stock and the Series B Preferred Stock vote with Price Common Stock on a share for share basis for the Series A Preferred Stock and on a one-half vote per share basis for the Series B Preferred Stock. (2) Includes 332 shares held by Mr. Cadgene's wife, as to which Mr. Cadgene disclaims beneficial ownership. (3) Includes 11 shares Ms. Pressman owns in a self-directed IRA account. Includes 62,250 shares subject to stock options exercisable within 60 days of June 26, 1997. (4) Assumes the issuance of 10,000,000 shares of Price Common Stock pursuant to the Offer. 57 MARKET FOR PRICE COMMON STOCK Price Common Stock is listed for trading on the AMEX under the symbol "PR". The following table sets forth information regarding the high and low sales prices for the periods indicated as adjusted to reflect Price's April, 1995 5 for 4 stock split:
CALENDAR YEAR 1995 HIGH LOW First Quarter........................................ $6 1/4 $4 7/8 Second Quarter....................................... $7 11/16 $5 5/16 Third Quarter........................................ $ 9 $6 7/8 Fourth Quarter....................................... $8 3/4 $7 1/2 CALENDAR YEAR 1996 First Quarter........................................ $8 5/8 $7 15/16 Second Quarter....................................... $9 3/16 $7 7/8 Third Quarter........................................ $8 3/8 $7 1/4 Fourth Quarter....................................... $7 15/16 $6 7/8 CALENDAR YEAR 1997 First Quarter........................................ $10 $8 3/8 Second Quarter....................................... $9 5/8 $6 5/16 Third Quarter (through September 2, 1997)............ $9 1/4 $7 7/16
Price, to date, has paid no cash dividends on Price Common Stock. The Board of Directors will determine future dividend policy based on Price's earnings, financial condition, capital requirements and other circumstances. It is not anticipated that dividends will be paid on Price Common Stock in the foreseeable future. 58 PRICE SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth certain selected consolidated financial data with respect to Price for the periods presented derived, in the case of the full-year data, from audited consolidated financial statements of Price and Notes thereto. On December 30, 1992, Price's consensual Plan of Reorganization became effective. A vertical black line has been placed to separate pre- organization consolidated operating statement items from the post- reorganization consolidated operating statement items since they are not prepared on a comparable basis. CONSOLIDATED OPERATING STATEMENT ITEMS (IN THOUSANDS)
UNAUDITED SIX MONTHS YEAR ENDED DECEMBER 31 (1) ENDED ------------------------------------------------ JUNE 30, (1) ---------------- PREDECESSOR REORGANIZED COMPANY COMPANY ------------------------------------ 1992 1993 1994 (2) 1995 1996 1996 1997 Net Revenue............................................ $ 53,957 $22,790 $ 24,039 $29,155 $ 2,962 $ 2,962 $ -- Operating Expenses..................................... 39,567 16,335 14,962 16,685 2,233 2,132 -- Corporate Expenses..................................... 4,973 3,649 4,475 2,687 2,373 1,211 1,363 Other (Income) Expense -Net............................ (35) 539 (16,245) (7,280) (98,372) (493) (2,464) Interest Expense....................................... 17,768 1,485 813 2,099 216 212 48 Amortization of Debt Discount and Deferred Debt Expense............................................... 1,004 766 646 460 -- -- -- Depreciation and Amortization.......................... 4,873 2,343 3,312 3,459 468 442 25 Unrealized Noncash (Recovery) (Gain) Loss on Marketable Securities (3)............... (146) 146 -- 166 794 -- -- Share of Loss of Partially Owned Companies............. 2,934 1,118 -- -- -- -- -- -------- ------- -------- ------- -------- -------- ------ Income (Loss) Before Reorganization Items, Income Taxes, and Extraordinary Items................................................. (16,981) (3,591) 16,076 10,879 95,250 94,909 1,028 Reorganization Items................................... (5,983) -- -- -- -- -- -- -------- ------- -------- ------- -------- -------- ------ Income (Loss) Before Income Taxes and Extraordinary Items................................................. (22,964) (3,591) 16,076 10,879 95,250 94,909 1,028 Income Tax (Expense) Benefits.......................... (499) (124) (1,652) 247 (24,583) 24,866 452 -------- ------- -------- ------- -------- -------- ------ Income (Loss) Before Extraordinary Items............... (23,463) (3,715) 14,424 11,126 70,667 70,043 609 Extraordinary Items (Net of Income Taxes): Gain on Early Extinguishments of Debt.................. -- 2,010 -- -- -- -- -- Gain on Forgiveness of Debt and Partial Sale of Subsidiary............................................ 312,678 -- -- -- -- -- -- -------- ------- -------- ------- -------- -------- ------ Net Income (Loss)...................................... $289,215 $(1,705) $ 14,424 $11,126 $ 70,667 $ 70,043 $ 609 ======== ======= ======== ======= ======== ======== ====== Per Share Amounts (4): Income (Loss) Before Extraordinary Items............... $ (0.25) $ 1.15 $ 1.06 $ 7.45 $ 7.03 $ 0.08 Extraordinary Items.................................... -- 0.14 -- -- -- -- -- -------- ------- -------- ------- -------- -------- ------ Net Income (Loss)...................................... N/A $ (0.11) $ 1.15 $ 1.06 $ 7.45 $ 7.03 $ 0.08 - -------------------------------------------------- ======== ======= ======== ======= ======== ======== ======
- --------------------- (1) Due to the Acquisition and the acquisition and dispositions during 1994, the borrowings incurred to effect such acquisition in 1994, the consummation of the Plan of Reorganization and the adoption of Fresh Start Reporting, Price's historical results should not be regarded as indicative of its future results. (2) Reflects results of operations of WHTM-TV since its acquisition during September 1994 through December 1994 and the results of the properties disposed of through their respective dates of sale. See notes 3 and 4 to Consolidated Financial Statements. (3) See Note 2 of Notes to Price's Consolidated Financial Statements. (4) Per share amounts for the Predecessor Company are neither comparable nor meaningful due to the forgiveness of debt, partial sale of subsidiary, issuance of new common stock and adoption of Fresh Start Reporting. All per share amounts prior to 1995 have been restated to reflect the April, 1995 5 for 4 stock split. 59 CONSOLIDATED BALANCE SHEET ITEMS (IN THOUSANDS, INCLUDING NOTES)
UNAUDITED AS OF DECEMBER 31 AS OF JUNE 30 ---------------------------------------------- --------------- 1992 1993 1994 1995 1996 1996 1997 Total Current Assets.... $28,494 $ 8,925 $ 9,093 $10,047 $ 96,605 $96,605 $58,527 Total Assets............ 74,327 37,272 90,852 95,985 115,888 115,888 95,961 Total Current Liabili- ties................... 11,373 3,292 9,076 36,309(1) 7,109 7,109 5,607 Long-Term Debt.......... 22,100(2) 3,200 21,310 -- -- -- -- Shareholders' Equity.... 40,646 30,705 39,079 40,876 108,779 108,779 90,318
- --------------------- (1) Includes $28,000 of a note payable to Bank of Montreal which was repaid upon the sale of three television stations on February 2, 1996. See "Business--Recent Developments." (2) Net of unamortized original issue discount of $8,705 as of December 31, 1992. 60 PRICE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Price reorganized and emerged from bankruptcy proceedings on December 20, 1992 and adopted Fresh Start Reporting in accordance with the guidelines established by the American Institute of Certified Public Accountants in Statement of Position 90-7. Under Fresh Start Reporting, assets and liabilities were recorded at their estimated fair market value and the historical deficit was eliminated. Due to the acquisition and dispositions discussed under "Information Concerning Price," the borrowings incurred to effect the acquisition, the retirement of Price's Secured Notes, the consummation of the Plan of Reorganization and adoption of Fresh Start Accounting, Price's historical results of operations should not be regarded as indicative of its future results. The following discussion should be read in conjunction with Price's Consolidated Financial Statements and the Notes thereto. RESULTS OF OPERATIONS--GENERAL The comparability of results for future periods will be affected by dispositions during 1996 (see Note 4 of Notes to Price's Consolidated Financial Statements), by the Acquisition and by the nature and timing of any future acquisitions or dispositions. Price currently has disposed of all of its operating properties. Consequently, until the completion of the Acquisition, Price will have no operating revenues and Price's future revenues will be derived from the investment of its funds. The Acquisition will substantially increase Price's operating expenses, depreciation and amortization charges and interest expense, as well as increasing revenues. For these reasons, the results of Price's historical operations may not be comparable from period to period or indicative of results in the future. SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996 Price's results of operations are not comparable for the six months ended June 30, 1997 to the six months ended June 30, 1996 as the six months ended June 30, 1996 include revenue from television stations which are not included in the six month period ended June 30, 1997. Other income for the six months ended June 30, 1997 included recoveries on accounts and notes receivable of approximately $636,000, interest income of approximately $1,596,000 and gain on sales of marketable securities of approximately $412,000 partially offset by an unrealized loss on marketable securities of approximately $327,000. 1996 COMPARED TO 1995 Price's net revenue, operating expenses, depreciation and amortization, and interest expense for the year ended December 31, 1996 are not comparable to the year ended December 31, 1995 due to the disposition of all Price's television properties during the first quarter of 1996 and the subsequent retirement of all Price's long-term debt. During 1996, revenue decreased to only $3.5 million from $34.4 million while for the same periods operating expenses decreased to $2.2 million from approximately $16.7 million. Interest expense and depreciation and amortization expense decreased to $216,000 and $468,000 from $2.1 million and $3.5 million, respectively. All of the above- mentioned items decreased as a result of the sales of all Price's operating properties. The sale of such properties resulted in approximately a $95.0 million pretax gain which was the primary reason for Price's net income of $70.7 million for the year ended December 31, 1996 compared to $11.1 million in 1995. Price had net income per share of $7.45 as opposed to $1.06 for the year ended December 31, 1995. 1995 COMPARED TO 1994 Price's net revenue, operating expenses, depreciation and amortization, and interest expense for the year ended December 31, 1995 are not comparable to the year ended December 31, 1994 due to the acquisition of 61 WHTM-TV and the borrowings under the Amended Line of Credit to effect such acquisition, and the dispositions of Price's radio properties and other assets (see Notes 3 and 4 of Notes to Price's Consolidated Financial Statements). During 1995, net revenue increased by approximately 21% to $29.2 million from $24.0 million. This increase was primarily due to the acquisition of WHTM-TV the results of which were included in Price's results for a full year as opposed to only three months in 1994. Operating expenses of Price increased overall to $16.7 million in 1995 from $15.0 million in 1994 due to the acquisition of WHTM-TV which was owned for the full year. Depreciation and amortization expense rose to $3.5 million in 1995 from $3.3 million in 1994 primarily as a result of the amortization of intangibles associated with the acquisition of WHTM-TV, offset by a reduction in the expense due to properties sold in 1994. Price recognized net income of approximately $11.1 million in 1995, as compared to $14.4 million in 1994 primarily as a result of the recovery on the Fairmont Notes of approximately $7.9 million in 1995. Net income in 1994 was $14.4 million primarily due to the net gains on the sale of its radio properties of $17.2 million. Additionally, interest expense was $2.1 million in 1995 as opposed to $.8 million in 1994 as a result of the acquisition of WHTM-TV in September 1994 and the related borrowings under the Amended Line of Credit. Price had net income per share of $1.06 in 1995, as opposed to $1.15 in 1994. LIQUIDITY AND CAPITAL RESOURCES Price had approximately $35.9 million and $83.4 million in cash and cash equivalents at June 30, 1997 and December 31, 1996, respectively. Price has approximately $47.1 million of working capital and no long-term debt outstanding at June 30, 1997. In May 1997, Price's Board of Directors and Compensation Committee authorized the issuance to Robert Price, President of Price, 728,000 shares of Price's newly authorized Series A Preferred Stock and 364,000 shares of newly authorized Series B Preferred Stock. In order to fund the Acquisition and pay related fees and expenses, PCW issued $175 million aggregate principal amount of 11 3/4% Senior Subordinated Notes due 2007 (the "PCW Notes"). Interest on the PCW Notes is payable semi- annually commencing on January 15, 1998. The PCW Notes are unsecured obligations of PCW and are subordinate in right of payment to senior indebtedness of PCW, including indebtedness under the New Credit Facility. The indenture under which the PCW Notes were issued imposes certain limitations on among other things, the ability of PCW and its subsidiaries to incur indebtedness and to pay dividends to Price. Upon certain acquisitions of more than 50% of the ownership of the Price equity and upon a change in the majority of Price's Board of Directors over any 12 month period that was not approved by a majority of the directors at the beginning of such 12 month period, the holders of the PCW Notes will have the right to cause the PCW Notes to be repurchased at 101% of the principal amount thereof, plus accrued and unpaid interest thereon. The consummation of the Exchange Offer will not give rise to such repurchase right. PCW has granted certain registration rights with respect to the PCW Notes. In order to fund the Acquisition and provide working capital following the Acquisition, Price and its subsidiaries will enter into the New Credit Facility providing for term loan borrowings in the aggregate principal amount of approximately $325 million and revolving loan borrowings of approximately $200 million. At the effective time of the Palmer Merger, PCW is expected to borrow all term loans available under the New Credit Facility and up to approximately $100 million of revolving loans. The remaining revolving loans will, subject to a borrowing base and certain other conditions, be available to fund the working capital requirements of PCW. On July 2, 1997, Price received an executed commitment letter from a financial institution to provide the New Credit Facility. The commitment is subject to significant conditions, including the absence of material adverse change in the business of Palmer, negotiation, execution and delivery of definitive documentation and consummation of the Fort Myers Sale (or arrangements satisfactory to the lenders under the New Credit Facility for short-term financing bridging such sale). Price believes that the Fort Myers Sale will take place as 62 contemplated in conjunction with the remainder of the Acquisition with the result that Price will not require short-term bridge financing. It is anticipated that loans under the New Credit Facility will bear interest at a floating rate between .25% and 1.50% above the lenders' prime borrowing rate or between 1.25% to 2.50% above the lenders' Euro-dollar base rate, depending on the ratio of the consolidated total debt to consolidated earnings before interest, taxes, depreciation and amortization of Price and its subsidiaries. The New Credit Facility will be secured by liens on substantially all of the real and personal property of Price and its subsidiaries. It is anticipated that the New Credit Facility will contain limitations on, among other things, the ability of Price to pay dividends or incur additional indebtedness and will require Price to maintain compliance with certain financial ratios. In order to provide financing for the Acquisition and the redemption of the PIK Preferred Stock and PIK Warrants, Cellular Holdings has issued in the Cellular Holdings Offering units consisting of $153.4 million in aggregate principal amount of its 13 1/2% Senior Secured Discount Notes due 2007 (the "Cellular Holdings Notes") together with warrants to purchase 527,696 shares of Common Stock at an exercise price of $.01 per share. The issue price of the Cellular Holdings Notes (approximately $80 million in the aggregate) represents a yield to maturity of 13 1/2%; cash interest will not begin to accrue on the Cellular Holdings Notes prior to August 2, 2002 and will be first payable on February 1, 2003. Approximately $47.5 million of the proceeds of the Cellular Holdings Offering will be used to fund the Acquisition, while the remainder will be used to redeem the PIK Preferred Stock and the PIK Warrants. The Cellular Holdings Notes are guaranteed by a subsidiary of Price (which in itself does not have any assets or operations) and secured by a pledge of the stock of Cellular Holdings. The holders of the Cellular Holdings Notes will have the right to cause Cellular Holdings to repurchase such Notes at 101% of the accrued value thereof upon certain change of control events parallel to those applicable to the PCW Notes. The indenture under which the Cellular Holdings Notes were issued contains restrictions on, among other things, the payment of dividends and the incurrence of indebtedness. The holders of the Cellular Holdings Notes have certain registration rights. The following discussion of the sources and uses of cash in the Acquisition and the liquidity and capital resources of Price following the Acquisition should be read in conjunction with "Unaudited Pro Forma Condensed Consolidated Financial Statements" and assumes that the Acquisition will take place. 63 The following table sets forth the estimated cash sources and uses of funds for the Acquisition, the contemplated redemption of the PIK Preferred Stock and the PIK Warrants and related fees and expenses, assuming that 5,000,000 shares of Price Common Stock are issued in exchange for 2,239,541 Palmer Shares in the Offer. The alternative consequences of (i) 6,697,674 shares of Price Common Stock being issued in the Offer for 3,000,000 Palmer Shares, (ii) 3,348,837 shares of Price Common Stock being issued in the Offer for 1,500,000 Palmer Shares or (iii) no shares of Price Common Stock being issued in the Offer, are disclosed in a footnote to the table. The maximum number of Palmer Shares that can be purchased with 10,000,000 shares of Price Common Stock will be determined based on the average closing price per share of Price Common Stock during the five trading days ending September 17, 1997. The numbers set forth in the table and footnotes below assume an average closing price of $8/1///1//6/.
TOTAL SOURCES (IN MILLIONS) New Credit Facility Term Loan.................................................... $325.0 Revolving Loan............................................... 62.8* 11 3/4% Senior Subordinated Notes due 2007..................... 175.0 Units.......................................................... 80.0 Equity contributions by the Company+........................... 80.0 Proceeds from Fort Myers Sale.................................. 166.3 ------ Total cash sources........................................... $889.1* ====== TOTAL USES: Cash consideration for Palmer common stock..................... $447.9* Palmer Existing Indebtedness (as of June 30, 1997)............. 383.1 Estimated transaction fees and expenses........................ 23.6 Cash for Redemption of PIK Preferred Stock and PIK Warrants.... 29.5** Cash to fund working capital requirements...................... 5.0 ------ Total uses................................................... $889.1 ======
- -------- + Payable either in cash or by delivery of Palmer Shares. * If 6,697,674 shares of Price Common Stock are issued in exchange for 3,000,000 Palmer Shares, the cash considerations for the Palmer Shares would be reduced to $434.9 million, and the amount initially borrowed under the revolving loan under the New Credit Facility would be reduced to $40.3 million. If 3,348,837 shares of Price Common Stock are issued in the Offer 1,500,000 Palmer Shares, the cash consideration for the Palmer Shares would be $461.9 million and the amount initially borrowed under the revolving loan would be $70.1 million. If the Offer is not consummated, then the cash consideration for the Palmer Shares would be increased to $488.9 million, and the amount initially borrowed under the revolving loan under the New Credit Facility will be increased to $100 million. ** Assuming the consummation of the Acquisition and the redemption of the PIK Preferred Stock and the PIK Warrants occur on October 15, 1997. The foregoing table does not reflect any provision for any taxes payable in connection with the Fort Myers Sale. Price has a tax planning strategy which it believes will avoid the payment of the $56.2 million tax which would otherwise be payable in connection with the Fort Myers Sale. While there can be no assurances that Price's position will prevail if challenged, Price has received a written opinion from a "big six" accounting firm (other then Arthur Andersen LLP) that, under existing laws, it is more likely than not that Price's position will prevail if challenged. This tax planning strategy (among others) would be eliminated, however, if certain proposals by the Joint Committee on Taxation were to be adopted by Congress. There can be no assurances that Price will be able to implement this tax planning strategy before any of such proposals are adopted or that Price's tax position would be "grandfathered" under any of such proposals, if adopted. The foregoing table also does not reflect $1.4 million which will be immediately payable to William J. Ryan as a severance payment pursuant to his existing employment contract upon consummation of the Acquisition and approximately $2.6 million of severance payments which could become payable over several years pursuant 64 to existing employment contracts between Palmer and its other executive officers. Price has entered into employment contracts with William J. Ryan and M. Wayne Wisehart to continue as officers after the consummation of the Acquisition and expects to enter into employment contracts with other key employees prior to the consummation of the Acquisition. Except for the $1.4 million payable to William J. Ryan, there can be no assurances as to the amount of payments that may be made to such officers, in recognition of such severance rights, whether or not they continue with Price after the consummation of the Acquisition. If Price were unable to borrow under the New Credit Facility and Price also failed to find alternative sources of financing, Price would be unable to consummate the Acquisition and would be in breach of its obligations under the Palmer Merger Agreement. Although the PCW Offering and Cellular Holdings Offering have been consummated, the notes issued thereunder are subject to mandatory redemption of 101% of the principal amount thereof, plus accrued interest thereon, if the Acquisition has not occurred by December 31, 1997 or if in the sole judgment of Price it appears that the Acquisition will not be consummated by December 31, 1997. Pending the consummation of the Acquisition, the proceeds from these offerings, plus cash sufficient to pay principal, premium and interest through December 31, 1997, are being held in escrow by the trustee for the holders of such notes. Following the Acquisition, Price's principal sources of liquidity are expected to be cash flow from operations and borrowings under the New Credit Facility. Price's principal uses of cash will be debt service requirements, capital expenditures and working capital. The following table sets forth Price's scheduled estimated payments of principal and interest on a pro forma basis as if the Acquisition had occurred on January 1, 1997, assuming (i) 2,239,541 Palmer Shares are exchanged in the Offer, (ii) the entry into the New Credit Facility with an interest rate of 8.5% and (iii) the redemption of the PIK Preferred Stock with a portion of the proceeds of the Cellular Holdings Offering.
1997 1998 1999 2000 2001 ------- ------- ------- ------- ------- Principal(1)........................... $ 0 $ 0 $38,782 $43,629 $45,811 Interest (excluding amortization of original issue discount)(2)........... 53,527 53,527 50,230 46,522 37,228 ------- ------- ------- ------- ------- $53,527 $53,527 $89,012 $90,151 $83,039 ======= ======= ======= ======= =======
(1) If 3,000,000 Palmer Shares were purchased in the Offer, the principal payments in 1997, 1998, 1999, 2000 and 2001 would have been $0, $0, $36.8 million, $41.4 million and $43.5 million, respectively. If 1,500,000 Palmer Shares were purchased in the Offer, the principal payments in 1997, 1998, 1999, 2000 and 2001 would have been $0, $0, $48.7 million, $45.2 million and $36.1 million, respectively. If no Palmer Shares were purchased in the Offer, principal payments in 1997, 1998, 1999, 2000 and 2001 would have been $0, $0, $42.2 million, $47.5 million and $49.7 million, respectively. (2) If 3,000,000 Palmer Shares were purchased in the Offer, the interest payments in 1997, 1998, 1999, 2000 and 2001 would have been $0, $0, $39.5 million, $44.4 million and $46.7 million, respectively. If 1,500,000 Palmer Shares were purchased in the Offer, the interest payments in 1997, 1998, 1999, 2000 and 2001 would have been $54.1 million, $54.1 million, $50.8 million, $47.0 million and $37.6 million, respectively. If no Palmer Shares were purchased in the Offer, interest payments in 1997, 1998, 1999, 2000 and 2001 would have been $56.4 million, $56.4 million, $52.4 million, $98.8 million and $39.1 million, respectively. During the five years ended December 31, 1996, Palmer generated operating income (loss) of $(4.3 million), $2.16 million, $15.1 million, $26.6 million and $41.2 million in the years ended 1992, 1993, 1994, 1995 and 1996, respectively. 65 Price will be highly leveraged upon consummation of the Acquisition. Price's ability to meet its debt service requirements, including those represented by the Notes and the New Credit Facility, will require significant and sustained growth in Price's cash flow. Based on the historical growth in Palmer's cash flow from operations and Price's assessment of Palmer's potential ability to increase market penetration while controlling costs, Price believes that Palmer's cash flow from operations will be sufficient to enable Price to meet its debt service requirements. If Palmer's cash flow from operations does not meet Price's current expectations, Price could seek alternative debt or equity financing. There can be no assurance, however, that Price will be successful in improving its cash flow by a sufficient magnitude or in a timely manner or in raising additional equity or debt financing to enable Price to meet its debt service requirements. Historically, Palmer met its capital requirements primarily through equity contributions, bank and intercompany debt and, to a lesser extent, through operating cash flow. Price expects to meet its capital requirements following the Acquisition from cash from operations and borrowings under the New Credit Facility. Upon consummation of the Acquisition, Price's only committed source of liquidity is expected to be the New Credit Facility. While Price expects to have sufficient availability under the New Credit Facility to meet its liquidity needs, the terms of the New Credit Facility which determine the availability thereunder are still under negotiation. Price has availability under the New Credit Facility for general corporate purposes and, if Price's tax planning strategy is unsuccessful, to finance the $56.2 million tax payment due with respect to the Fort Myers Sale. There can be no assurances, however, that the New Credit Facility will be entered into. In addition, borrowings under the New Credit Facility will be subject to significant conditions, including compliance with certain financial ratios and the absence of any material adverse change. In 1996, Palmer spent approximately $38.5 million for capital expenditures, exclusive of the Fort Myers acquisition. Price expects to spend approximately $35 million and $25 million for capital expenditures for the years ended December 31, 1997 and 1998, respectively. Price expects to use net cash provided by operating activities and borrowings available under the New Credit Facility to fund such capital expenditures. 66 INFORMATION CONCERNING PALMER GENERAL Palmer is engaged in the construction, development, management and operation of cellular telephone systems in the southeastern United States. At June 30, 1997, after giving effect to the Acquisition, Palmer provided cellular telephone service to 287,665 subscribers in Georgia, Alabama, Florida and South Carolina in a total of 17 licensed service areas composed of eight Metropolitan Statistical Areas ("MSAs") and nine Rural Service Areas ("RSAs"), with an aggregate estimated population of 3.5 million. Palmer sells its cellular telephone service as well as a full line of cellular products and accessories principally through its network of retail stores. Palmer markets all of its products and services under the service mark CELLULAR ONE. CERTAIN TERMS Interests in cellular markets that are licensed by the FCC are commonly measured on the basis of the population of the market served, with each person in the market area referred to as a "Pop". The number of Pops or Net Pops owned is not necessarily indicative of the number of subscribers or potential subscribers. As used in this Proxy Statement, unless otherwise indicated, the term "Pops" means the estimate of the 1996 population of an MSA or RSA as derived from the 1996 Donnelley Market Information Service. The term " Net Pops" means the estimated population with respect to a given service area multiplied by the percentage interest that Palmer owns in the entity licensed in such service area. MSAs and RSAs are also referred to as "Markets". MARKETS AND SYSTEMS Palmer's cellular telephone systems serve contiguous licensed service areas in Georgia, Alabama and South Carolina. Palmer also has cellular service areas in Georgia-1 RSA and Panama City, Florida. The following table sets forth on a pro forma basis after giving effect to the Acquisition as of July 18, 1997, with respect to each service area in which Palmer owns a cellular telephone system, the estimated population, Palmer's beneficial ownership percentage, the Net Pops and the date of initial operation of such system by Palmer or a predecessor operator.
ESTIMATED OWNERSHIP DATE SYSTEM POPULATION(2) PERCENTAGE NET POPS OPERATIONAL Albany, GA....................... 118,527 82.7% 98,061 4/88 Augusta, GA...................... 439,116 100.0 439,116 4/87 Columbus, GA..................... 254,150 85.2 216,518 11/88 Macon, GA........................ 313,686 99.2 311,234 12/88 Savannah, GA..................... 283,878 98.5 279,578 3/88 Georgia-1 RSA.................... 223,098 100.0 223,098 10/92 Georgia-6 RSA.................... 199,516 95.0 189,560 4/93 Georgia-7 RSA.................... 134,376 100.0 134,376 10/91 Georgia-8 RSA.................... 157,451 100.0 157,451 10/91 Georgia-9 RSA.................... 119,410 100.0 119,410 9/92 Georgia-10 RSA................... 149,699 100.0 149,699 10/91 Georgia-12 RSA................... 211,799 100.0 211,799 10/91 Georgia-13 RSA................... 147,392 82.7 121,942 -- Dothan, AL....................... 136,160 94.4 128,535 2/89 Montgomery, AL................... 318,371 92.8 295,430 8/88 Alabama-8 RSA.................... 171,993 100.0 171,993 7/93 --------- --------- Subtotal....................... 3,378,622 3,247,800 Panama City, FL.................. 146,018 78.4 114,493 9/88 --------- --------- Total.......................... 3,524,640 3,362,293 ========= =========
- --------------------- (1) Does not include Alabama-5 RSA, South Carolina-7 RSA and South Carolina-8 RSA where Palmer has interim operating authority. Palmer has no subscribers in South Carolina-7 RSA and South Carolina-8 RSA, 67 but instead provides roaming access to its own subscribers and others when they travel in these two service areas, utilizing its existing cell sites. Construction Permits were granted to third parties for the Alabama-5 RSA and South Carolina-8 RSA on May 20, 1997. Such third parties are required to complete construction of their respective RSA within 18 months. After completing construction, such third party may give Palmer ten days prior written notice, at which point Palmer would be required to sell its subscribers to such third party at cost. The application for a construction permit for the South Carolina-7 RSA has been remanded by the FCC to the Wireless Bureau for further review. (2) Based on population estimates for 1996 from the 1996 Donnelley Market Information Service. OPERATIONS General Palmer has concentrated its efforts on creating an integrated network of cellular telephone systems in the southeastern United States, principally to date in Georgia, Alabama, Florida and South Carolina. At June 30, 1997, after giving effect to the Acquisition, Palmer provided cellular telephone service to 287,665 subscribers in a total of 17 licensed service areas composed of eight MSAs and nine RSAs. The following table sets forth information, at the dates indicated after giving effect to the Acquisition, regarding Palmer's subscribers, penetration rate, cost to add a net subscriber, average monthly churn rate and average monthly service revenue per subscriber.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------------------- 1997 1992 1993 1994 1995 1996 ---------- Subscribers at end of period (1)............. 29,869 54,382 99,626 187,870 245,396 287,665 Penetration at end of period (2)............. 2.23% 3.57% 4.54% 6.41% 7.28% 8.12% Cost to add a net subscriber (3)......... $ 272 $ 198 $ 247 $ 275 $ 434 $ 477 Average monthly churn (4).................... 1.58% 1.32% 1.54% 1.51% 1.89% 1.78% Average monthly service revenue per subscriber (5).................... $59.65 $56.70 $56.54 $53.80 $50.37 $46.20
- -------------------- (1) Each billable telephone number in service represents one subscriber. Amounts at December 31, 1992 and 1993 include 955 and 2,576 subscribers, respectively, in the Alabama-7 RSA where Palmer had interim operating authority from June 1991 through July 1994. (2) Determined by dividing the aggregate number of subscribers by the estimated population. (3) Determined for each period by dividing (i) all costs of sales and marketing, including salaries, commissions and employee benefits and all expenses incurred by sales and marketing personnel, agent commissions, credit reference expenses, losses on cellular telephone sales, rental expenses allocated to retail operations, net installation expenses and other miscellaneous sales and marketing charges for such period including fees paid for use of the CELLULAR ONE service mark, by (ii) the net subscribers added during such period. (4) Determined for each period by dividing total subscribers discontinuing service during such period by the average number of subscribers for such period, divided by the number of months in the relevant period. (5) Determined for each period by dividing (i) the sum of the access, airtime, roaming, long distance, features, connection, disconnection and other revenues for such period by (ii) the average number of subscribers for such period, divided by the number of months in the relevant period. SUBSCRIBERS AND SYSTEM USAGE Palmer's subscribers, after giving effect to the Acquisition, have increased from 17,148 at January 1, 1992 to 287,665 at June 30, 1997. Reductions in the cost of cellular telephone services and equipment at the retail level have led to an increase in cellular telephone usage by general consumers for non- business purposes. As a result, the management of Palmer believes that there is an opportunity for significant growth in each of its existing service areas. Palmer's intention is to continue to broaden its subscriber base for basic cellular telephone 68 services as well as to increase its offering of customized services. The sale of custom calling features typically results in increased usage of cellular telephones by subscribers, thereby further enhancing revenues. In 1996, cellular telephone service revenues represented 94.8% of Palmer's total revenues, with equipment sales and installation representing the balance. MARKETING Palmer's marketing strategy is designed to generate continued net subscriber growth by focusing on subscribers who are likely to generate lower than average deactivations and delinquent accounts. Palmer's sales staff has a two- tier structure. A retail sales force handles walk-in traffic, and a targeted sales staff solicits certain industries and government subscribers. Palmer's management believes that its internal sales force is more likely than independent agents to successfully select and screen new subscribers. In addition, Palmer motivates its direct sales force to sell appropriate rate plans to subscribers, thereby reducing churn, by linking payment of commissions to subscriber retention. Palmer believes its use of an internal sales force keeps marketing costs low, both because commissions are lower and because subscriber retention is higher than if it used independent agents. For the six-month period ended June 30, 1997, Palmer's cost to add a net subscriber was $477, exclusive of the Fort Myers acquisition. Palmer's sales force works principally out of retail stores in which Palmer offers its cellular products and services. As of June 30, 1997, Palmer maintained 33 retail stores and 4 offices. Retail stores, which range in size up to 11,000 square feet, are fully equipped to handle customer service and the sale of cellular services, telephones and accessories. Eight of the newer and larger stores are promoted by Palmer as "Superstores". Each Superstore has an authorized warranty repair center and provides cellular telephone installation and maintenance services. Most of Palmer's larger markets currently have at least one Superstore. In addition, to enhance convenience for its customers, Palmer has begun to open smaller stores in locations such as shopping malls. Palmer markets all of its products and services under the name CELLULAR ONE. See "--Service Marks". Palmer believes it obtains substantial marketing benefits from the name recognition associated with this widely used service mark, both with existing subscribers traveling outside Palmer's service areas and with potential new subscribers moving into Palmer's service areas. In addition, Palmer believes that travelers who subscribe to CELLULAR ONE service in other markets may be more likely to use Palmer's service when they travel in Palmer's service areas. See "Risk Factors--Reliance on Use of Third Party Service Marks." PRODUCTS AND SERVICES In addition to providing cellular telephone service in each of its markets, Palmer also offers various custom-calling features such as voicemail, call forwarding, call waiting, three-way conference calling and no answer and busy transfer. Several rate plans are presented to prospective subscribers so that they may choose the plan that will best fit their expected calling needs. Most rate plans combine a fixed monthly access fee, per minute usage charges and additional charges for custom-calling features in a package that offers value to the subscriber while enhancing air time use and revenues for Palmer. In general, rate plans which include a higher monthly access fee typically include a lower usage rate per minute. An ongoing review of equipment and service pricing is maintained to ensure Palmer's competitiveness. As appropriate, revisions to pricing of service plans and equipment are made to meet the demands of the local marketplace. 69 The following table sets forth a breakdown of Palmer's revenues from the sale of its services and equipment for the periods indicated, exclusive of the Fort Myers acquisition.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30 ----------------------------------------- --------------- 1992 1993 1994 1995 1996 1996 1997 (IN THOUSANDS) Service revenue: Access and usage (1)... $11,821 $20,324 $37,063 $61,607 $ 105,415 $50,424 $59,485 Roaming (2)............ 2,231 3,075 5,884 11,157 13,741 6,458 9,758 Long distance (3)...... 992 1,309 2,218 3,634 6,781 3,142 4,113 Other (4).............. 680 1,230 2,745 2,585 2,600 1,395 1,394 ------- ------- ------- ------- --------- ------- ------- Total service revenue.. $15,724 $25,938 $47,870 $78,983 $ 128,537 $61,419 $74,750 Equipment sales and installation (5)....... 3,558 5,238 6,381 6,830 7,062 3,455 4,200 ------- ------- ------- ------- --------- ------- ------- Total.................. $19,282 $31,176 $54,251 $85,813 $ 135,599 $64,874 $78,950 ======= ======= ======= ======= ========= ======= =======
- --------------------- (1) Access and usage revenues include monthly access fees for providing service and usage fees based on per minute usage rates. (2) Roaming revenues are fees charged for providing services to subscribers of other systems when such subscribers or "roamers" place or receive a telephone call within one of Palmer's service areas. (3) Long distance revenue is derived from long distance telephone calls placed by Palmer's subscribers. (4) Other revenue includes, among other things, connect fees charged to subscribers for initial activation on the cellular telephone system and fees for feature services such as voicemail, call forwarding and call waiting. (5) Equipment sales and installation revenue includes revenue derived from the sale of cellular telephones and fees for the installation of such telephones. Reciprocal roaming agreements between each of Palmer's cellular telephone systems and the cellular telephone systems of other operators allow their respective subscribers to place calls in most cellular service areas throughout the country. Roaming revenue is a substantial source of incremental revenue for Palmer. For 1996, roaming revenues accounted for 10.7% of Palmer's service revenues and 10.1% of Palmer's total revenue. Palmer provides retail distribution of cellular telephones and maintains inventories of cellular telephones. Palmer negotiates volume discounts for the purchase of cellular telephones and, in many cases, passes such discounts on to its customers. Palmer believes that earning an operating profit on the sale of cellular telephones is of secondary importance to offering cellular telephones at competitive prices to potential subscribers. To respond to competition and to enhance subscriber growth, Palmer has historically sold cellular telephones below cost. SYSTEM DEVELOPMENT AND EXPANSION Palmer develops its service areas by adding channels to existing cell sites and by building new cell sites. Such development is done for the purpose of increasing capacity and improving coverage in direct response to projected subscriber demand. Projected subscriber demand is calculated for each cellular service area on a cell by cell basis. These projections involve a traffic analysis of usage by existing subscribers and an estimation of the number of additional subscribers in each such area. In calculating projected subscriber demand, Palmer builds into its design assumptions a maximum call "blockage" rate of 2.0% (percentage of calls that are not connected on first attempt at peak usage time during the day). 70 The following table sets forth, by market, at the dates indicated, the number of Palmer's operational cell sites.
AT DECEMBER 31, ------------------------------------ AT JUNE 30, 1992 1993 1994 1995 1996 1997 Georgia/Alabama.................. 28(1) 39(1) 70(2) 121(3) 181(4) 199(5) Panama City, FL.................. 4 7 7 9 11 11 --- --- --- --- --- --- Total.......................... 32(1) 46(1) 77(2) 130(3) 192(4) 210(5) === === === === === ===
- --------------------- (1) Includes two cell sites in the Alabama-7 RSA where Palmer had interim operating authority from June 1991 through June 1994. (2) Includes one cell site in the Alabama-5 RSA where Palmer has interim operating authority for two counties of such RSA and 17 existing cell sites that were purchased in the Georgia Acquisition. (3) Includes two existing cell sites in the Alabama-5 RSA where Palmer has interim operating authority for two counties of such RSA and 28 existing cell sites that were purchased in the GTE Acquisition. (4) Includes three existing cell sites in the Alabama-5 RSA where Palmer has interim operating authority for two counties of such RSA and 17 existing cell sites than were purchased in the Horizon and USCOC acquisitions. (5) Includes two existing cell sites in Alabama-5 RSA where Palmer has interim operating authority. Palmer estimates that in 1996 the capacity of its existing cellular telephone systems increased 42.0%. During 1996, Palmer spent approximately $38.5 million (exclusive of the Fort Myers acquisition) and, based on projected growth in subscriber demand, expects to spent approximately $35 million in 1997 in order to build out its cellular service areas, install an additional microwave network and implement certain digital radio technology. Palmer has constructed 20 cell sites to date in 1997 and plans to construct 10 additional cell sites with respect to its existing cellular systems during 1997 to meet projected subscriber demand and improve the quality of service. Microwave networks enable Palmer to connect switching equipment and cell sites without making use of local landline telephone carriers, thereby reducing or eliminating fees paid to landline carriers. During 1996, Palmer spent $1.0 million to build additional microwave connections. In addition, in 1996 Palmer spent $2.6 million to build a fiber optic network between Dothan, Alabama and Panama City, Florida. The installation of this network resulted in savings to the Company from a reduction in fees paid to telephone companies for landline charges, as well as giving the Company the ability to lease out a significant portion of the capacity. DIGITAL CELLULAR TECHNOLOGY Over the next decade, it is expected that cellular telephones will gradually convert from analog to digital technology. This conversion is due in part to capacity constraints in many of the largest cellular markets, such as Los Angeles, New York and Chicago. As carriers reach limited capacity levels, certain calls may be unable to be completed, especially during peak hours. Digital technology increases system capacity and offers other advantages over analog technology, including improved overall average signal quality, improved call security, potentially lower incremental costs for additional subscribers and the ability to provide data transmission services. The conversion from analog to digital technology is expected to be an industry-wide process that will take a number of years. The exact timing and overall costs of such conversion are not yet known. Palmer began offering TDMA (Time Division Multiple Access) standard digital service during 1997. This digital network allows Palmer to offer advanced cellular features and services such as caller-ID, short message paging and extended battery life. Palmer presently plans to roll out TDMA digital cellular services in the rest of its major markets during 1997. Where cell sites are not yet at their maximum capacity of radio channels, Palmer is adding digital channels to the network incrementally based on the relative demand for digital and analog channels. Where cell sites are at full capacity, analog channels are being removed and redeployed to expand capacity elsewhere within the network and replaced in such cell sites by digital channels. The implementation of digital cellular technology over a period of several years will involve modest incremental expenditures for switch 71 software and possible significant cost reductions as a result of reduced purchases of radio channels and a reduced requirement to split existing cells. However, as indicated above, the extent of any implementation of digital radio channels and the amount of any cost savings ultimately to be derived therefrom will depend primarily on subscriber demand. In the ordinary course of business, equipment upgrades at the cell sites have involved purchasing dual mode radios capable of using both analog and digital technology. The benefits of digital radio channels can only be achieved if subscribers purchase cellular telephones that are capable of transmitting and receiving digital signals. Currently, such telephones are more costly than analog telephones. The widespread use of digital cellular telephones is likely to occur only over a substantial period of time and there can be no assurance that this technology will replace analog cellular telephones. In addition, since most of Palmer's existing subscribers currently have cellular telephones that exclusively utilize analog technology, it will be necessary to continue to support, and if necessary increase, the number of analog radio channels within the network for many years. COMPETITION The cellular telephone service industry in the United States is competitive. Cellular telephone systems compete principally on the basis of service and enhancements offered, the technical quality of the cellular system, customer service, coverage capacity and price of service and equipment. Currently, Palmer's primary competition in each of its service areas is the other cellular licensee--the wireline carrier. The table below lists the wireline competitor in each of Palmer's existing service areas:
MARKET WIRELINE COMPETITOR Albany, GA............................. ALLTEL Augusta, GA............................ ALLTEL Columbus, GA........................... Public Service Cellular Macon, GA.............................. BellSouth Savannah, GA........................... ALLTEL Georgia-1 RSA.......................... BellSouth Georgia-6 RSA.......................... BellSouth and Intercel(1) Georgia-7 RSA.......................... Cellular Plus and BellSouth(1) Georgia-8 RSA.......................... ALLTEL Georgia-9 RSA.......................... ALLTEL and Public Service Cellular(1) Georgia-10 RSA......................... Cellular Plus and ALLTEL(1) Georgia-12 RSA......................... ALLTEL Georgia-13 RSA......................... ALLTEL Dothan, AL............................. BellSouth Montgomery, AL......................... ALLTEL Alabama-8 RSA.......................... ALLTEL Panama City, FL........................ 360(degrees) Communications Company (formerly Sprint Cellular)
- --------------------- (1) The wireline service area has been subdivided into two service areas by the purchasers of the authorization for the RSA. Palmer also faces competition from broadband personal communications services ("PCS"). PCS is a digital, wireless communications system supported by high-density call transmitters. Broadband PCS involves a network of small, low-powered transceivers placed throughout a neighborhood, business complex, community or metropolitan area to provide customers with mobile and portable voice and data communications. PCS subscribers communicate using digital radio handsets. Palmer also faces competition from other existing communications technologies such as conventional mobile telephone service, SMR and enhanced specialized mobile radio ("ESMR") systems and paging services. 72 Palmer also faces competition from "resellers". The FCC requires all cellular licensees to provide service to resellers that meet certain terms and conditions. A reseller provides wireless service to customers but does not hold an FCC license or own facilities. Instead, the reseller buys blocks of wireless telephone numbers and airtime from a licensed carrier and resells service through its own distribution network to the public. In addition, the FCC has licensed operators to provide mobile satellite service in which transmissions from mobile units to satellites would augment or replace transmissions to land-based stations. Although such a system is designed primarily to serve remote areas and is subject to transmission delays inherent in satellite communications, a mobile satellite system could augment or replace communications with segments of land- based cellular systems. Based on current technologies, however, satellite transmission services are not expected to be competitively priced with cellular telephone services. SERVICE MARKS CELLULAR ONE is a registered service mark with the U.S. Patent and Trademark Office. The service mark is owned by Cellular One Group, a Delaware general partnership of Cellular One Marketing, Inc., a subsidiary of Southwestern Bell Mobile Systems, Inc., together with Cellular One Development, Inc., a subsidiary of AT&T and Vanguard Cellular Systems, Inc. Palmer uses the CELLULAR ONE service mark to identify and promote its cellular telephone service pursuant to licensing agreements with Cellular One Group (the "Licensor"). In 1996, Palmer paid $219,000 in licensing and advertising fees under these agreements. Licensing and advertising fees are determined based upon the population of the licensed areas. The licensing agreements require Palmer to provide cellular telephone service to its customers, and to maintain a certain minimum overall customer satisfaction rating in surveys commissioned by the Licensor. Palmer's customer satisfaction ratings have consistently far exceeded this required minimum. REGULATION As a provider of cellular telephone services, Palmer is subject to extensive regulation by the federal government. The licensing, construction, operation, acquisition and transfer of cellular telephone systems in the United States are regulated by the FCC pursuant to the Communications Act of 1934, as amended (the "Communications Act"). The FCC has promulgated rules governing the construction and operation of cellular telephone systems and licensing and technical standards for the provision of cellular telephone service ("FCC Rules"). For cellular licensing purposes, the United States is divided into MSAs and RSAs. In each market, the frequencies allocated for cellular telephone use are divided into two equal blocks designated as Block A and Block B. Block A licenses were initially reserved for non-wireline companies, such as Palmer, while Block B licenses were initially reserved for entities affiliated with a local wireline telephone company. Under current FCC Rules, a Block A or Block B license may be transferred with FCC approval without restriction as to wireline affiliation, but generally, no entity may own any substantial interest in both systems in any one MSA or RSA. The FCC may prohibit or impose conditions on sales or transfers of licenses. Initial operating licenses are generally granted for terms of up to 10 years, renewable upon application to the FCC. Licenses may be revoked and license renewal applications denied for cause after appropriate notice and hearing. Palmer's cellular licenses expire in the following years with respect to the following number of service areas: 1997 (four); 1998 (three); 2000 (one); 2001 (five); 2002 (three) and 2006 (one). The FCC has issued a decision confirming that current licensees will be granted a renewal expectancy if they have complied with their obligations under the Communications Act during their license terms and provided substantial public service. A potential challenger will bear a heavy burden to demonstrate that a license should not be renewed if 73 the licensee's performance merits a renewal expectancy. Palmer believes that the licenses controlled by it will be renewed in a timely manner upon application. Under FCC rules, each cellular licensee was given the exclusive right to construct one of two cellular telephone systems within the licensee's MSA or RSA during the initial five-year period of its authorization. At the end of such five-year period, other persons are permitted to apply to serve areas within the licensed market that are not served by the licensee and current FCC Rules provide that competing applications for these "unserved areas" are to be resolved through the auction process. Palmer has no material unserved areas in any of its cellular telephone systems that have been licensed for more than five years. Palmer also regularly applies for FCC authority to use additional frequencies, to modify the technical parameters of existing licenses, to expand its service territory and to provide new services. The Communications Act requires prior FCC approval for acquisitions by Palmer of other cellular telephone systems licensed by the FCC and transfers by Palmer of a controlling interest in any of its licenses or construction permits, or any rights thereunder. Although there can be no assurance that any future requests for approval or applications filed by Palmer will be approved or acted upon in a timely manner by the FCC, based upon its experience to date, Palmer has no reason to believe such requests or applications would not be approved or granted in due course. The Communications Act prohibits the holding of a common carrier license (such as Palmer's cellular licenses) by a corporation of which more than 20% of the capital stock is owned directly or beneficially by aliens. Where a corporation such as Palmer controls another entity that holds an FCC license, such corporation may not have more than 25% of its capital stock owned directly or beneficially by aliens, in each case, if the FCC finds that the public interest would be served by such prohibitions. Failure to comply with these requirements may result in the FCC issuing an order to Palmer requiring divestiture of alien ownership to bring Palmer into compliance with the Communications Act. In addition, fines or a denial of renewal, or revocation of the license are possible. From time to time, legislation which could potentially affect Palmer, either beneficially or adversely, may be proposed by federal and state legislators. On February 8, 1996, the Telecommunications Act of 1996 (the "Telecom Act") was signed into law, revising the Communications Act to eliminate unnecessary regulation and to increase competition among providers of communications services. Palmer cannot predict the future impact of this or other legislation on its operations. The major provisions of the Telecom Act potentially affecting Palmer are as follows: Interconnection. The Telecom Act requires state public utilities commissions and/or the FCC to implement policies that mandate cost-based reciprocal compensation between cellular carriers and local exchange carriers ("LEC") for interconnection services. On August 8, 1996, the FCC released its First Report and Order in the matter of Implementation of the Local Competition Provisions in the Telecommunications Act of 1996 ("FCC Order") establishing the rules for the costing and provisioning of interconnection services and the offering of unbundled network elements by incumbent local exchange carriers. The FCC Order established procedures for Palmer's renegotiation of interconnection agreements with the incumbent local exchange carrier in each of Palmer's markets. LEC's and state regulators filed appeals of the FCC Order, which have been consolidated in the U.S. Court of Appeals for the Eighth Circuit. The Court has temporarily stayed the effective date of the pricing rules until more permanent relief can be fashioned. Palmer is currently negotiating with the incumbent local exchange carriers and has already renegotiated certain inter-connection agreements with LECs in most of Palmer's markets and believes that these negotiations will result in a substantial decrease in interconnection expenses incurred by Palmer. Facilities siting for personal wireless services. The siting and construction of cellular transmitter towers, antennas and equipment shelters are often subject to state or local zoning, land use and other regulation. Such 74 regulation may require zoning, environmental and building permit approvals or other state or local certification. The Telecom Act provides that state and local authority over the placement, construction and modification of personal wireless services (including cellular and other commercial mobile radio services and unlicensed wireless services) shall not prohibit or have the effect of prohibiting personal wireless services or unreasonably discriminate among providers of functionally equivalent services. In addition, local authorities must act on requests made for siting in a reasonable period of time, and any decision to deny must be in writing and supported by substantial evidence. Environmental effect of radio frequency emissions. The Telecom Act provides that state and local authorities cannot regulate personal wireless facilities based on the environmental effects of radio frequency emissions if those facilities comply with the federal standard. Universal service. The Telecom Act also provides that all communications carriers providing interstate communications services, including cellular carriers, must contribute to the federal universal service support mechanisms that the FCC will establish. The FCC implemented this provision of the Telecom Act in a Report and Order released in May 1997, which also provides that any cellular carrier is potentially eligible to receive universal service support. The Communications Act preempts state and local regulation of the entry of, or the rates charged by, any provider of cellular service. EMPLOYEES At June 30, 1997 Palmer had 577 full-time employees (excluding Fort Myers), none of whom is represented by a labor organization. Management considers its relations with employees to be good. PROPERTIES For each market served by Palmer's operations, Palmer maintains at least one sales or administrative office and operates a number of cell transmitter and antenna sites. As of June 30, 1997, Palmer had approximately 32 leases for retail stores used in conjunction with its operations and 3 leases for administrative offices. Palmer also had approximately 130 leases to accommodate cell transmitters and antennas as of July 8, 1997. LEGAL PROCEEDINGS Palmer is not currently involved in any pending legal proceedings likely to have a material adverse impact on it. 75 MARKET FOR PALMER SHARES The Palmer Shares are traded on the NASDAQ Stock Market. The following table sets forth information regarding the high and low sales prices for the periods indicated:
CALENDAR YEAR 1995 HIGH LOW First Quarter (1).......................................... $15.88 $14.25 Second Quarter............................................. $18.88 $14.25 Third Quarter.............................................. $24.50 $16.50 Fourth Quarter............................................. $24.25 $19.75 CALENDAR YEAR 1996 First Quarter.............................................. $22.50 $16.25 Second Quarter............................................. $22.81 $18.75 Third Quarter.............................................. $20.38 $16.00 Fourth Quarter............................................. $18.00 $10.25 CALENDAR YEAR 1997 First Quarter.............................................. $15.25 $ 9.25 Second Quarter............................................. $16.75 $10.25 Third Quarter (through September 2, 1997).................. $16.75 $16.375
- -------- (1) Trading commenced March 1995. Palmer has not paid any dividends on its common stock since its inception. 76 PALMER SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data for the periods and dates indicated set forth below have been derived from the audited consolidated financial statements and the unaudited condensed consolidated financial statements of Palmer. The condensed consolidated results of operations of Palmer for the six months ended June 30, 1996 and 1997 are unaudited and not necessarily indicative of Palmer's results of operations for the full year. The unaudited condensed consolidated financial data reflects all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair summary of Palmer's financial position, results of operations and cash flows for and as of the end of the periods presented. The following data should be read in conjunction with "Palmer Management's Discussion and Analysis of Financial Condition and Results of Operations" and Palmer's Consolidated Financial Statements and Notes thereto, included elsewhere herein.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------- ------------------ 1992 1993 1994(1) 1995(2) 1996(3) 1996 1997 (IN THOUSANDS, EXCEPT PERCENTAGE AND PER SUBSCRIBER DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue: Service................ $ 23,017 $ 35,173 $ 61,021 $ 96,686 $151,119 $ 72,741 $ 88,140 Equipment sales and installation........... 4,284 6,285 7,958 8,220 8,624 4,239 5,088 --------- -------- -------- -------- -------- -------- -------- Total revenue...... 27,301 41,458 68,979 104,906 159,743 76,980 93,228 --------- -------- -------- -------- -------- -------- -------- Engineering, technical and other direct expenses............... 5,395 7,343 12,776 18,184 28,717 14,939 15,554 Cost of equipment....... 5,071 7,379 11,546 14,146 17,944 8,397 11,057 Selling, general and administrative expenses................ 9,458 13,886 19,757 30,990 46,892 21,977 27,204 Depreciation and amortization............ 11,687 10,689 9,817 15,004 25,013 11,872 15,129 --------- -------- -------- -------- -------- -------- -------- Operating income (loss).................. (4,310) 2,161 15,083 26,582 41,177 19,795 24,284 --------- -------- -------- -------- -------- -------- -------- Other income (expense): Interest, net.......... (8,290) (9,006) (12,715) (21,213) (31,462) (16,006) (16,113) Other, net............. (5) (590) (70) (687) (429) (58) 162 --------- -------- -------- -------- -------- -------- -------- Total other expense............ (8,295) (9,596) (12,785) (21,900) (31,891) (16,064) (15,951) --------- -------- -------- -------- -------- -------- -------- Minority interest share of (income) losses...... 377 83 (636) (1,078) (1,880) (1,023) (782) Income taxes............ 0 0 0 (2,650) (2,724) (948) (3,851) --------- -------- -------- -------- -------- -------- -------- Net income (loss)....... $ (12,228) $ (7,352) $ 1,662 $ 954 $ 4,682 $ 1,760 $ 3,700 ========= ======== ======== ======== ======== ======== ======== OTHER DATA: Capital expenditures.... $ 3,835 $ 13,304 $ 22,541 $ 36,564 $ 41,445 $ 21,639 $ 31,700 Operating Income before depreciation and amortization ("EBITDA") (4).................... $ 7,377 $ 12,850 $ 24,900 $ 41,586 $ 66,190 $ 31,667 $ 39,413 EBITDA margin on service revenue................ 32.1% 36.5% 40.8% 43.0% 43.8% 43.5% 44.7% Penetration(5).......... 2.20% 3.48% 4.58% 6.41% 7.45% 6.85% 8.29% Subscribers at end of period (6)............. 37,209 65,761 117,224 211,985 279,816 243,887 325,653 Cost to add a net subscriber (7).......... $ 283 $ 203 $ 247 $ 276 $ 407 $ 375 $ 480 Average monthly service revenue per subscriber(8).......... $ 68.30 $ 62.69 $ 60.02 $ 56.68 $ 52.20 $ 54.05 $ 48.06 Average monthly churn (9)..................... 1.69% 1.37% 1.55% 1.55% 1.84% 1.63% 1.79% Ratio of earnings to fixed charges (10)...... 1.17x 1.21x 1.28x CONSOLIDATED BALANCE SHEET DATA: Cash.................... $ 443 $ 1,670 $ 2,998 $ 3,436 $ 1,698 $ 1,372 $ 1,740 Working capital (deficit)............... (740) 799 2,490 (1,435) 296 (8,017) 2,290 Property, plant and equipment, net......... 17,371 23,918 51,884 100,936 132,438 118,746 157,596 Licenses and other intangibles, net....... 103,901 114,955 199,265 332,850 387,067 357,810 409,193 Total assets............ 127,867 150,054 273,020 462,871 549,942 501,190 597,202 Total debt.............. 106,811 131,361 245,609 350,441 343,662 292,252 380,321 Stockholders' equity.... 10,659 3,244 4,915 74,553 164,930 170,608 168,630
77 (Footnotes from previous page) - -------- (1) Includes the Georgia Acquisition (as defined herein), which occurred on October 31, 1994. For the two months ended December 31, 1994, the Georgia Acquisition resulted in revenues to Palmer of $1,803 and operating loss of $645. (2) Includes the GTE Acquisition (as defined herein), which occurred on December 1, 1995. For the one month ended December 31, 1995, the GTE Acquisition resulted in revenues to Palmer of $2,126 and operating income of $208. (3) Includes the acquisition of the cellular telephone systems of USCOC (as defined herein) (Georgia-1 RSA), which occurred on June 20, 1996, and Horizon (as defined herein) (Georgia-6 RSA), which occurred on July 5, 1996. The acquisitions of USCOC and Horizon resulted in revenues to Palmer of $1,239 and $2,682, respectively, and operating (loss) income of $(278) and $743, respectively, during such year. (4) EBITDA should not be considered in isolation or as an alternative to net income (loss), operating income (loss) or any other measure of performance under GAAP. The Company believes that EBITDA is viewed as a relevant supplemental measure of performance in the cellular telephone industry. (5) Determined by dividing the aggregate number of subscribers by the estimated population. (6) Each billable telephone number in service represents one subscriber. (7) Determined for a period by dividing (i) costs of sales and marketing, including salaries, commissions and employee benefits and all expenses incurred by sales and marketing personnel, agent commissions, credit reference expenses, losses on cellular telephone sales, rental expenses allocated to retail operations, net installation expenses and other miscellaneous sales and marketing charges for such period, by (ii) the net subscribers added during such period. (8) Determined for a period by dividing (i) the sum of the access, airtime, roaming, long distance, features, connection, disconnection and other revenues for such period by (ii) the average number of subscribers for such period divided by the number of months in such period. (9) Determined for a period by dividing total subscribers discontinuing service by the average number of subscribers for such period, and dividing that result by the number of months in such period. (10) The ratio of earnings to fixed charges is determined by dividing the sum of earnings before extraordinary items and accounting changes, interest expense, taxes and a portion of rent expense representative of interest by the sum of interest expense and a portion of rent expense representative of interest. The ratio of earnings to fixed charges is not meaningful for periods that result in a deficit. For the years ended December 31, 1992 and 1993 the deficit of earnings to fixed charges was $12,605 and $7,435, respectively. 78 PALMER MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW OF PALMER Palmer's revenues consist of service revenue and equipment sales and installation. Service revenue includes access charges (generally a monthly charge), usage charges (based upon per minute usage rates), roaming charges (fees charged for providing services to subscribers of other cellular telephone systems when such subscribers or "roamers" place or receive a phone call within one of Palmer's service areas), long distance charges derived from long distance calls placed by Palmer's subscribers and other charges, including, among other things, connection charges for initial activation on the cellular telephone system, and feature services such as voice mail, call forwarding and call waiting. Palmer's revenues have grown primarily by increasing the number of its subscribers, both by improving its penetration rate (determined by dividing the aggregate number of subscribers by estimated population) in cellular telephone systems owned by Palmer and by acquiring or constructing new cellular telephone systems. Palmer's subscribers increased from 22,536 at the beginning of 1992 to 325,653 as of June 30, 1997. During the same period, Palmer's penetration rate in its cellular telephone systems increased from 1.45% at the beginning of 1992 to 8.3% as of June 30, 1997. Palmer also made several acquisitions between 1992 and 1996, as later described. On average, new subscribers use less air time and generate less revenue per subscriber than existing subscribers. Therefore, air time usage and service revenue generally do not increase proportionately with increases in numbers of subscribers over the same period. As a result, although Palmer's total revenue has increased each year, its average minutes of usage per subscriber and its average monthly revenue per subscriber have decreased over time as new subscribers have been added. Palmer expects these trends to continue in its existing cellular telephone systems as its penetration rate increases. Palmer believes that its cost to add a net subscriber will continue to be among the lowest in the cellular telephone industry, primarily because of its in-house direct sales and marketing staff. Although much of the cellular telephone industry markets through third-party agents, since 1992, Palmer has sold its products and services almost exclusively through an internal sales force that works principally out of retail stores in which Palmer offers a full line of cellular telephone products and services. Palmer's shift to nearly exclusive use of an internal sales force resulted in significant decreases in its cost to add a net subscriber during 1992-1993. Starting in 1994, increased losses from Palmer's sales of cellular telephones caused this downward trend in cost to add a net subscriber to slowly reverse itself. Palmer anticipates that its cost to add a net subscriber will continue to increase at a modest rate as savings associated with its nearly exclusive use of an internal sales force are fully realized, while other components of its calculation of cost to add a net subscriber continue to increase. In addition to sales and marketing expenses, Palmer's computation of its cost to add a net subscriber includes losses on cellular telephone sales, installation services, credit reference services and an allocation of rental expenses related to Palmer's retail stores. Prior to 1994, Palmer's customer billing was performed by a third-party vendor. In January 1994, Palmer began performing billing functions in-house, which significantly reduced customer service costs. The conversion to the in- house customer billing system reduced annual billing costs per subscriber from approximately $39 in 1993 to approximately $22 in 1994, $19 in 1995, and $19 in 1996. Since 1993, Palmer spent approximately $2.0 million in capital expenditures for its in-house billing system. The software utilized for in- house billing is leased from its previous third-party vendor. Therefore, no change has occurred in billing function or operation. 79 MARKET OWNERSHIP The following is a summary of the Palmer ownership interest in the cellular telephone system in each licensed service area to which the Palmer provided service at December 31, 1996 and June 30, 1997.
DECEMBER 31, JUNE 30, CELLULAR SERVICE AREA 1996 1997 --------------------- ------------ -------- Albany, Georgia...................................... 82.7% 82.7% Augusta, Georgia..................................... 100.0 100.0 Columbus, Georgia.................................... 84.9 85.2 Macon, Georgia....................................... 99.1 99.2 Savannah, Georgia.................................... 98.5 98.5 Dothan, Alabama...................................... 92.3 92.5 Montgomery, Alabama.................................. 91.9 92.8 Georgia 1 - RSA...................................... 100.0 100.0 Georgia 6 - RSA...................................... 94.8 95.1 Georgia 7 - RSA...................................... 100.0 100.0 Georgia 8 - RSA...................................... 100.0 100.0 Georgia 9 - RSA...................................... 100.0 100.0 Georgia 10 - RSA..................................... 100.0 100.0 Georgia 12 - RSA..................................... 100.0 100.0 Georgia 13 - RSA..................................... N/A 82.7 Alabama 8 - RSA...................................... 100.0 100.0 Fort Myers, Florida.................................. 99.0 99.0 Panama City, Florida................................. 77.9 78.4
On February 1, 1997, one of Palmer's majority-owned subsidiaries acquired the assets of and the license to operate the non-wireline cellular telephone system serving Georgia Rural Service Area Market No. 383, otherwise known as Georgia- 13 RSA, for a total purchase price of $31.2 million, subject to certain adjustments. 80 RESULTS OF OPERATIONS The following table sets forth for Palmer for the periods indicated, the percentage which certain amounts bear to total revenue.
FOR THE SIX MONTHS ENDED JUNE YEARS ENDED DECEMBER 31, 30, ---------------------------------- ------------ 1992 1993 1994 1995 1996 1996 1997 ----- ----- ----- ----- ----- ----- ----- Revenue: Service.................... 84.3% 84.8% 88.5% 92.2% 94.6% 94.5% 94.5% Equipment Sales and Installation.............. 15.7 15.2 11.5 7.8 5.4 5.5 5.5 ----- ----- ----- ----- ----- ----- ----- Total Revenue............ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 ----- ----- ----- ----- ----- ----- ----- Operating Expenses: Engineering, technical and other direct: Engineering and technical (1)..................... 10.3 8.8 8.1 7.6 7.9 8.2 8.2 Other direct costs of services (2)............ 9.4 8.9 10.5 9.7 10.1 11.2 8.5 Cost of equipment (3)...... 18.6 17.8 16.7 13.5 11.2 10.9 11.9 Selling, general and administrative: Sales and marketing (4).. 10.3 9.4 8.8 8.7 8.6 8.2 8.5 Customer service (5)..... 7.0 7.2 5.6 6.0 5.9 5.6 6.5 General and administrative (6)...... 17.4 16.9 14.2 14.9 14.9 14.8 14.2 Depreciation and amortization.............. 42.8 25.8 14.2 14.3 15.7 15.4 16.2 ----- ----- ----- ----- ----- ----- ----- Total operating expenses................ 115.8 94.8 78.1 74.7 74.3 74.3 74.0 ----- ----- ----- ----- ----- ----- ----- Operating income............. (15.8)% 5.2% 21.9% 25.3% 25.7% 25.7% 26.0% ===== ===== ===== ===== ===== ===== ===== Operating income before depreciation and amortization (7)............ 27.0% 31.0% 36.1% 39.6% 41.4% 41.1% 42.2% ===== ===== ===== ===== ===== ===== =====
- --------------------- (1) Consists of costs of cellular telephone network, including inter-trunk costs, span-line costs, cell site repairs and maintenance, cell site utilities, cell site rent, engineers' salaries and benefits and other operational costs. (2) Consists of net costs of roaming, costs of long distance, costs of interconnection with wireline telephone companies and other costs of services. (3) Consists primarily of the costs of the cellular telephones and accessories sold. (4) Consists primarily of salaries and benefits of sales and marketing personnel, employee and agent commissions and advertising and promotional expenses. (5) Consists primarily of salaries and benefits for customer service personnel and costs of printing and mailing billings generated in-house in 1994, 1995, and 1996 and for the six months ended June 30, 1996 and 1997, and fees paid to a third-party vendor of customer service billing prior to 1994. (6) Consists primarily of salaries and benefits of general and administrative personnel and other overhead expenses. (7) Operating income before depreciation and amortization should not be considered in isolation or as an alternative to net income (loss), operating income (loss) or any other measure of performance under generally accepted accounting principles. Palmer believes that operating income before depreciation and amortization is viewed as a relevant supplemental measure of performance in the cellular telephone industry. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Revenue. Service revenue totaled $151.l million for 1996, an increase of $54.4 million or 56.3% over $96.7 million for 1995. This increase was due primarily to a 69.7% increase in the average number of subscribers to 241,255 in 1996 from 142,147 in 1995. The increase in subscribers is the result of internal growth, which Palmer attributes primarily to its sales and marketing efforts, and recent acquisitions. The GTE Acquisition (as defined herein) accounted for 41,163 subscribers at December 31, 1996. Service revenue attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $24.6 million for 1996 as compared to $2.0 million for the one month ended December 31, 1995. 81 Average monthly service revenue per subscriber decreased to $52.20 for 1996 from $56.68 for 1995. This decrease occurred because, on average, new subscribers use less air time and generate less revenue per subscriber than existing subscribers as is customary in the cellular telephone industry. Therefore, air time usage and service revenue did not increase in proportion to the increase in subscribers. In addition, Palmer entered into revised roaming agreements with certain of its neighboring carriers. These agreements provide for reciprocal lower roaming rates per minute of use. This resulted in lower roaming revenue for Palmer, but also resulted in offsetting lower direct costs of services when Palmer's subscribers were roaming on these neighboring systems. Equipment sales and installation revenue, which consists primarily of cellular subscriber equipment sales, increased to $8.6 million for 1996 from $8.2 million for 1995, a 4.9% increase, due primarily to the increase in gross subscriber activations offset by lower cellular phone prices. While equipment sales and installation revenue increased slightly for 1996 from 1995, it decreased as a percentage of total cellular revenue to 5.4% for 1996 from 7.8% for 1995, reflecting the increased annual revenue base as well as lower cellular equipment prices charged to customers. Equipment sales and installation revenue attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $1.0 million for 1996 as compared to $0.1 million for the one month ended December 31, 1995. Operating Expenses. Engineering and technical expenses increased by 57.5% to $12.6 million for 1996 from $8.0 million for 1995, due primarily to the increase in the number of subscribers. As a percentage of revenue, engineering and technical expenses increased to 7.9% for 1996 from 7.6% for 1995 due to additional costs incurred for the recent acquisitions and recurring costs associated with Palmer's system development and expansion. Such development is done for the purpose of increasing capacity and improving coverage. Engineering and technical expenses attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $2.8 million for 1996 as compared to $0.2 million for the one month ended December 31, 1995. Other direct costs of services increased 58.3% to $16.1 million for 1996 from $10.2 million for 1995. As a percentage of revenue, other direct costs of services increased to 10.1% for 1996 from 9.7% for 1995. This increase in other direct costs of services as a percentage of revenue was due primarily to Palmer subsidizing more roaming costs for competitive reasons. Other direct costs of service attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $1.6 million for 1996 as compared to $0.2 million for the one month ended December 31, 1995. Cost of equipment increased 26.8% to $17.9 million for 1996 from $14.1 million for 1995, due primarily to the increase in gross subscriber activations for the same period. The equipment sales margin decreased to (108.1%) for 1996 from (72.1%) for 1995. In an effort to address market competition and improve market share, Palmer sold more telephones below cost in 1996 than in 1995. The cost of equipment attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $3.1 million for 1996 as compared to $0.2 million for the one month ended December 31, 1995. Sales and marketing costs increased 50.2% to $13.7 million for 1996 from $9.1 million for 1995. This increase is primarily due to the 28.1% increase in gross subscriber activations and the resulting increase in salaries and commissions. Sales and marketing costs as a percentage of total revenue remained relatively flat at 8.6% for 1996 and 8.7% for 1995. Palmer's cost to add a net subscriber, including losses on cellular telephone sales, increased to $407 for 1996 from $276 for 1995. This increase in cost to add a net subscriber was caused primarily by additional advertising and fixed marketing overhead associated with the systems acquired in the GTE Acquisition, which are not yet generating the offsetting gains in net subscribers. In addition, there were increased losses from Palmer's sales of cellular telephones. Sales and marketing costs attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $2.8 million in 1996 as compared to $0.2 million for the one month ended December 31, 1995. Customer service costs increased 49.9% to $9.4 million for 1996 from $6.3 million for 1995. As a percentage of revenue, customer service costs remained relatively flat at 5.9% and 6.0% for 1996 and 1995, 82 respectively. Customer service costs attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $1.9 million in 1996 as compared to $0.2 million for the one month ended December 31, 1995. General and administrative expenses increased 52.5% to $23.8 million for 1996 from $15.6 million for 1995 and remained flat as a percentage of revenue at 14.9% for 1996 and 1995. As the Company continues to add more subscribers and generate associated revenue, general and administrative expenses should decrease as a percentage of total revenues. The general and administrative costs attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $3.4 million for 1996 as compared to $0.4 million for the one month ended December 31, 1995. Depreciation and amortization increased 66.7% to $25.0 million for 1996 from $15.0 million for 1995. This increase is primarily due to the depreciation and amortization associated with the recent acquisitions and additional capital expenditures. Depreciation and amortization attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $6.2 million for 1996 as compared to $0.5 million for the one month ended December 31, 1995. Operating income for 1996 increased 54.9% to $41.2 million, an increase of $14.6 million over operating income for 1995. This improvement in operating results is attributed primarily to increases in revenue which exceeded increases in operating expenses. Operating income attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $3.8 million for 1996 as compared to $0.2 million for the one month ended December 31, 1995. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Revenue. Service revenue totaled $96.7 million for 1995, an increase of $35.7 million or 58.4% over $61.0 million for 1994. This increase was due primarily to a 67.8% increase in the average number of subscribers to 142,147 in 1995 from 84,718 in 1994. The increase in subscribers was the result of internal growth, which Palmer attributes primarily to its sales and marketing efforts, and the Georgia Acquisition. During 1995, Palmer added 13,098 net subscribers in the Georgia Acquisition, bringing the total subscribers served by those systems to 25,238 at December 31, 1995. Service revenue attributable to the cellular telephone systems acquired in the Georgia Acquisition totaled $12.3 million for 1995 as compared to $1.6 million for the two months ended December 31, 1994. The GTE Acquisition increased Palmer's subscribers by 34,904 at December 31, 1995. Service revenue attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $2.0 million for the one month ended December 31, 1995, and is included in Palmer's 1995 results of operations. Average monthly service revenue per subscriber decreased to $56.68 for 1995 from $60.02 for 1994. This decrease occurred because, on average, new subscribers use less air time and generate less revenue per subscriber than existing subscribers as is customary in the cellular telephone industry. Therefore, air time usage and service revenue did not increase in proportion to the increase in subscribers. Equipment sales and installation revenue, which consists primarily of cellular subscriber equipment sales, increased to $8.2 million for 1995 from $8.0 million for 1994, a 3.3% increase, due primarily to the increase in subscriber activations offset by lower cellular phone prices. While equipment sales and installation revenue increased slightly for 1995 from 1994, it decreased as a percentage of total cellular revenue to 7.8% for 1995 from 11.5% for 1994, reflecting the increased recurring annual revenue base as well as lower cellular equipment prices charged to customers. Equipment sales and installation revenue attributable to the cellular telephone systems acquired in the Georgia Acquisition totaled $1.1 million for 1995 as compared to $0.2 million for the two months ended December 31, 1994. Equipment sales and installation revenue attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $0.1 million for the one month ended December 31, 1995 and is included in Palmer's results of operations for 1995. 83 Operating Expenses. Engineering and technical expenses increased by 43.2% to $8.0 million for 1995 from $5.6 million for 1994, due primarily to the increase in subscribers. As a percentage of revenue, engineering and technical expenses decreased to 7.6% for 1995 from 8.1% for 1994. Engineering and technical expenses attributable to the cellular telephone systems acquired in the Georgia Acquisition totaled $2.4 million for 1995 as compared to $0.3 million for the two months ended December 31, 1994. Engineering and technical expenses attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $0.2 million for the one month ended December 31, 1995 and are included in Palmer's results of operations for 1995. Other direct costs of services increased 41.7% to $10.2 million for 1995 from $7.2 million for 1994. As a percentage of revenue, other direct costs of services decreased to 9.7% for 1995 from 10.5% for 1994. This decrease in other direct costs of services as a percentage of revenue was due primarily to Palmer improving its roaming agreements with neighboring cellular service providers, spreading its fixed charges over a larger revenue base, and bringing its intramarket roaming settlements in-house. Other direct costs of service attributable to the cellular telephone systems acquired in the Georgia Acquisition totaled $1.1 million for 1995 as compared to $0.2 million for the two months ended December 31, 1994. Other direct costs of service attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $0.2 million for the one month ended December 31, 1995 and are included in Palmer's results of operations for 1995. Cost of equipment increased 22.5% to $14.1 million for 1995 from $11.5 million for 1994, due primarily to the increase in gross subscriber activations for the same period. The equipment sales margin decreased to (72.1%) for 1995 from (45.1%) for 1994. In an effort to address market competition and improve market share, Palmer sold more telephones below cost in 1995 than in 1994. The cost of equipment attributable to the cellular telephone systems acquired in the Georgia Acquisition totaled $2.4 million for 1995 as compared to $0.3 million for the two months ended December 31, 1994. The cost of equipment attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $0.2 million for the one month ended December 31, 1995 and is included in Palmer's results of operations for 1995. Sales and marketing costs increased 51.5% to $9.1 million for 1995 from $6.0 million for 1994. This increase is primarily due to the 49.1% increase in gross subscriber activations and the resulting increase in salaries and commissions. Sales and marketing costs as a percentage of total revenue remained relatively flat at 8.7% for 1995 and 8.8% for 1994. Palmer's cost to add a net subscriber, including losses on cellular telephone sales, increased to $276 for 1995 from $247 for 1994. This increase in cost to add a net subscriber was caused primarily by increased losses from Palmer's sales of cellular telephones. Sales and marketing costs attributable to the cellular telephone systems acquired in the Georgia Acquisition totaled $1.7 million for 1995 as compared to $0.3 million for the two months ended December 31, 1994. Sales and marketing costs attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $0.2 million for the one month ended December 31, 1995 and are included in Palmer's results of operations for 1995. Customer service costs increased 62.0% to $6.3 million for 1995 from $3.9 million for 1994 and increased as a percentage of total revenue to 6.0% for 1995 from 5.6% for 1994. This increase is primarily due to an increase in subscribers, to operating costs associated with the newly established regional customer service call centers in Montgomery, Alabama and Savannah, Georgia and to non-recurring expenditures incurred in connection with the implementation of new area codes in Palmer's Alabama and Fort Myers, Florida service areas. Customer service costs attributable to the cellular telephone systems acquired in the Georgia Acquisition totaled $0.9 million for 1995 as compared to $0.2 million for the two months ended December 31, 1994. Customer service costs attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $0.2 million for the one month ended December 31, 1995 and are included in Palmer's results of operations for 1995. General and administrative expenses increased 58.2% to $15.6 million for 1995 from $9.8 million for 1994 and increased as a percentage of total revenue to 14.9% for 1995 from 14.2% for 1994 due primarily to the increase in the number of subscribers, as well as the Georgia and GTE Acquisitions. Fixed general and 84 administrative costs attributable to the acquisitions are incurred prior to the development of the subscriber base and the generation of associated revenue. As Palmer continues to add more subscribers and generate associated revenue, general and administrative expenses should decrease as a percentage of total revenues. The general and administrative costs attributable to the cellular telephone systems acquired in the Georgia Acquisition totaled $3.2 million for 1995 as compared to $0.4 million for the two months ended December 31, 1994. The general and administrative costs attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $0.4 million for the one month ended December 31, 1995 and are included in Palmer's results of operations for 1995. Depreciation and amortization increased 52.8% to $15.0 million for 1995 from $9.8 million for 1994. This increase is primarily due to the depreciation and amortization associated with the acquisitions and additional capital expenditures. Depreciation and amortization attributable to the cellular telephone systems acquired in the Georgia Acquisition totaled $3.6 million for 1995 as compared to the $0.7 million for the two months ended December 31, 1994. Depreciation and amortization attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $0.5 million for the one month ended December 31, 1995 and are included in Palmer's results of operations for 1995. Operating income for 1995 increased 76.2% to $26.6 million, an increase of $11.5 million over operating income for 1994. This improvement in operating results is attributed primarily to increases in revenue which exceeded increases in operating expenses. Operating income (loss) attributable to the cellular telephone systems acquired in the Georgia Acquisition totaled $(2.0) million for 1995 as compared to $(0.6) million for the two months ended December 31, 1994. Operating income attributable to the cellular telephone systems acquired in the GTE Acquisition totaled $0.2 million for the one month ended December 31, 1995 and is included in Palmer's results of operations for 1995. NET INTEREST EXPENSE, OTHER EXPENSE, INCOME TAX EXPENSE, AND NET INCOME Net interest expense increased 48.3% to $31.5 million for 1996 from $21.2 million for 1995 due primarily to debt incurred for the recent acquisitions and the amortization of deferred financing fees related to Palmer's credit facility. For 1995, net interest expense increased 66.8% to $21.2 million from $12.7 million for 1994 due primarily to debt incurred for the Georgia Acquisition and GTE Acquisition, the amortization of deferred financing fees related to Palmer's credit facility, and increased interest rates. Other expense was $0.4 million in 1996, $0.7 million in 1995 and $0.1 million in 1994. Other expense consists primarily of the disposal of certain assets by Palmer and other non-operating expenses. Income tax expense was $2.7 million for both 1996 and 1995 compared to none in 1994. The $2.7 million income tax expense in 1995 was a non-recurring deferred income tax charge related to the difference between the financial statement and income tax return bases of certain assets and liabilities of Palmer Cellular Partnership (the "Partnership"), predecessor of Palmer. In connection with Palmer's initial public offering of securities in March, 1995, all of the assets and liabilities of the Partnership were exchanged for stock in Palmer. Due to the exchange, a deferred tax liability was recorded to reflect the difference between the financial statement and income tax return basis in these assets and liabilities. See notes 2 and 5 to Palmer's consolidated financial statements. Net income for 1996 was $4.7 million, or $0.18 per share of common stock, compared to net income of $1.0 million, or $0.04 per share of common stock for 1995. The increase in net income is primarily attributable to increases in revenue which exceeded increases in expenses. Net income for 1994 was $1.7 million, or $0.09 per share of common stock. The decrease in net income between 1995 and 1994 is primarily attributable to interest expense on debt incurred for the Georgia Acquisition and the GTE Acquisition, and income tax expense. 85 SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996 REVENUE. Service revenues totaled $88.1 million for the first half of 1997, an increase of 21.2% over $72.7 million for the first half of 1996. This increase was primarily due to a 36.2% increase in the average number of subscribers to 305,638 for the first half of 1997 versus 224,333 for the first half of 1996. The increase in subscribers is the result of internal growth, which the Company attributes primarily to its strong sales and marketing efforts, and recent acquisitions. Average monthly revenue per subscriber decreased 11.1% to $48.06 for the first half of 1997 from $54.04 for the first half of 1996. This is in part due to the trend, common in the cellular telephone industry, where, on average, new subscribers are using less airtime than existing subscribers. Therefore, service revenues generally do not increase proportionately with the increase in subscribers. In addition, the decline reflects more competitive rate plans introduced into Palmer's markets. Equipment sales and installation revenue, which consists primarily of cellular subscriber equipment sales, increased by 20.0% to $5.1 million for the first half of 1997 compared to $4.2 million for the first half of 1996. The increase is due to the 20.7% increase in gross subscriber activations in the first half of 1997 compared to 1996. As a percentage of revenue, equipment sales and installation revenue remained flat at 5.5% for the first half of 1997 and 1996. OPERATING EXPENSES. Engineering and technical expenses increased by 21.4% to $7.7 million for the first half of 1997 from $6.3 million in the first half of 1996, due primarily to the increase in subscribers and recent acquisitions. As a percentage of revenue, engineering and technical expenses remained flat at 8.2% for the first half of 1997 and 1996, respectively. Palmer expects engineering and technical expenses to decrease as a percentage of revenue due to its large component of fixed costs. There can be no assurance, however, that this forward-looking statement will not differ materially from actual results due to unforeseen engineering and technical expenses. Other direct costs of services decreased to $7.9 million for the first half of 1997 from $8.6 million for the first half of 1996 reflecting the decrease in interconnection costs as a result of Palmer's renegotiation of interconnection agreements with the local exchange carriers ("LECs") in most of the markets. As a percentage of revenue, these costs of service declined to 8.5% from 11.2%, reflecting improved interconnection agreements with LECs, as well as efficiencies gained from the growing subscriber base. The cost of equipment increased 31.7% to $11.0 million for the first half of 1997 from $8.4 million for the first half of 1996, due primarily to the increase in gross subscriber activations for the same period. The equipment sales margin decreased to (117.3%) for the first half of 1997 from (98.1%) for the first half of 1996. In an effort to address market competition and improve market share, Palmer sold more telephones below cost in the first half of 1997, on average, than in the same period of 1996. Sales and marketing costs increased 26.2% to $8.0 million for the first half of 1997 from $6.3 million for the same period in 1996. This increase is primarily due to the 20.7% increase in gross subscriber activations and the resulting increase in commissions. As a percentage of total revenue, sales and marketing costs increased to 8.5% from 8.2% for the first half of 1997 and 1996, respectively. Palmer's cost to add a net subscriber, including loss on telephone sales, increased to $480 for the first half of 1997 from $375 for the first half of 1996. This increase in cost to add a net subscriber was caused primarily by increased losses from Palmer's sales of cellular telephones and an increase in commissions and advertising costs. Customer service costs increased 41.3% to $6.0 million for the first half of 1997 from $4.2 million for the first half of 1996. As a percentage of revenue, customer service costs increased to 6.5% from 5.6% for the first half of 1997 and 1996, respectively. The increase was due primarily to higher costs for billing support services. 86 General and administrative expenditures increased 15.8% to $13.2 million for the first half of 1997 from $11.4 million for the first half of 1996, due primarily to the increase in the costs associated with supporting recent acquisitions. General and administrative expenses decreased as a percentage of revenue to 14.2% in the first half of 1997 from 14.8% in the first half of 1996. As Palmer continues to add more subscribers, and generates associated revenue, general and administrative expenses should decrease as a percentage of total revenues. There can be no assurance, however, that this forward- looking statement will not differ materially from actual results due to unforseen general and administrative expenses and other factors. Depreciation and amortization increased 27.4% to $15.1 million for the first half of 1997 from $11.9 million for the first half of 1996. This increase was primarily due to the depreciation and amortization associated with recent acquisitions and additional capital expenditures. As a percentage of revenue, depreciation and amortization increased to 16.2% from 15.4% for the first half of 1997 and 1996, respectively. Operating income increased 22.7% to $24.3 million in the first half of 1997, from $19.8 million for the first half of 1996. This improvement in operating results is attributable primarily to increases in revenue which exceeded increases in operating expenses. NET INTEREST EXPENSE, INCOME TAXES AND NET INCOME. Net interest expense remained relatively flat at $16.1 million and $16.0 million for the first half of 1997 and 1996. Income tax expense was $3.9 million in the first half of 1997 and $0.9 million in the first half of 1996. This increase is due primarily to the increase in income before income taxes in 1997 and the fact that all remaining net operating loss carry forwards were recognized for financial statement purposes in 1996. Net income for the first half of 1997 was $3.7 million, or $0.13 per share, compared to net income of $1.8 million, or $0.07 per share, for the first half of 1996. The increase in net income is primarily attributable to increases in revenue which exceeded increases in operating expenses and income tax expense. LIQUIDITY AND CAPITAL RESOURCES Palmer's long-term capital requirements consist of funds for capital expenditures, acquisitions and debt service. Historically, Palmer has met its capital requirements primarily through equity contributions, bank and intercompany debt and, to a lesser extent, through operating cash flow. In 1996, Palmer spent approximately $41.4 million for capital expenditures. Palmer expects to spend $50 million and $25 million to $30 million for capital expenditures for the years ended December 31, 1997 and 1998, respectively. Palmer expects to use net cash provided by operating activities and borrowings available under the New Credit Facility to fund such capital expenditures. For a discussion of the anticipated liquidity and capital resources of Palmer following the Acquisition, see "Price Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." OTHER Pursuant to the Palmer Merger Agreement Price intends to acquire all issued and outstanding shares of common stock of Palmer and outstanding options and rights under employee and director stock purchase plans for a purchase price of $17.50 per share in cash. Following this merger, the common stock of Palmer will cease to be authorized to be quoted on the NASDAQ Stock Market and will become eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Act of 1934. ACCOUNTING POLICIES For financial reporting purposes, Palmer reports 100% of revenues and expenses for the markets for which it provides cellular telephone service. However, in several of its markets, Palmer holds less than 100% of the equity ownership. The minority stockholders' and partners' shares of income or losses in those markets are 87 reflected in the consolidated financial statements as "minority interest share of (income) losses", except for losses in excess of their capital accounts and cash call provisions which are not eliminated in consolidation. For financial reporting purposes, Palmer consolidates each subsidiary and partnership in which it has a controlling interest (greater than 50.0%). From 1992 through 1996, Palmer had controlling interests in each of its subsidiaries and partnerships. INFLATION Palmer believes that inflation affects its business no more than it generally affects other similar businesses. LEGAL MATTERS The legality of the issuance of the Price Common Stock to be issued in the Offer will be passed on by Proskauer Rose LLP, New York, New York. EXPERTS The Consolidated Financial Statements and Schedule of Price Communications Corporation as of and for the years ended December 31, 1995 and 1996, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. The consolidated statements of operations, cash flows, and shareholders' equity of Price Communications Corporation and subsidiaries for the year ended December 31, 1994, have been included in this Proxy Statement/Prospectus in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements of Palmer Wireless, Inc and subsidiaries as of December 31, 1995 and 1996 and for each of the years in the three-year period ended December 31, 1996 have been included herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. 88 INDEX TO FINANCIAL STATEMENTS
PAGE ---- PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES Auditors' Reports....................................................... F-2 Consolidated Balance Sheets at December 31, 1996 and 1995............... F-4 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994.................................................... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994.................................................... F-6 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994............................................................... F-7 Notes to Consolidated Financial Statements.............................. F-8 Consolidated Balance Sheets at December 31, 1996 and June 30, 1997 (Unaudited)............................................................ F-18 Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 1996 and 1997 (Unaudited)..................................... F-19 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1997 (Unaudited)..................................... F-20 Notes to Consolidated Financial Statements.............................. F-21 PALMER WIRELESS, INC. AND SUBSIDIARIES Independent Auditors' Report............................................ F-24 Consolidated Balance Sheets, December 31, 1995 and 1996 ................ F-25 Consolidated Statements of Operations, Years Ended December 31, 1994, 1995 and 1996 ......................................................... F-26 Consolidated Statements of Stockholders' Equity, Years Ended December 31, 1994, 1995 and 1996 .............................................................. F-27 Consolidated Statements of Cash Flows, Years Ended December 31, 1994, 1995 and 1996 ......................................................... F-28 Notes to Consolidated Financial Statements ............................. F-30 Condensed Consolidated Balance Sheets, December 31, 1996 and June 30, 1997 (Unaudited) ...................................................... F-42 Condensed Consolidated Statements of Operations, for the Six Months Ended June 30, 1996 and 1997 (Unaudited)............................... F-43 Condensed Consolidated Statements of Stockholders' Equity, Year Ended December 31, 1996 and Six Months Ended June 30, 1997 (Unaudited)....... F-44 Condensed Consolidated Statements of Cash Flows, Six Months Ended June 30, 1996 and 1997 (Unaudited).......................................... F-45 Notes to Condensed Consolidated Financial Statements (Unaudited) ....... F-46
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Price Communications Corporation: We have audited the accompanying consolidated balance sheets of Price Communications Corporation (a New York corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of Price's management. Our responsibility is to express an opinion on these consolidated financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Price Communications Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Arthur Andersen LLP New York, New York February 24, 1997 F-2 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Price Communications Corporation: We have audited the accompanying consolidated statements of operations, cash flows, and shareholders' equity of Price Communications Corporation and subsidiaries for the year ended December 31, 1994. These consolidated financial statements are the responsibility of Price's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Price Communications Corporation and subsidiaries for the year ended December 31, 1994 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP New York, New York January 20, 1995 F-3 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995
1996 1995 ASSETS CURRENT ASSETS: Cash and cash equivalents............................ $ 83,356,748 $ 1,206,557 Investment securities (Note 2): Trading securities.................................. 4,045,628 237,975 Available-for-sale securities....................... 8,694,966 -- Accounts receivable, net of allowance for doubtful accounts of $473,579 in 1996 and $294,554 in 1995... 488,882 6,096,446 Film broadcast rights................................ -- 1,764,468 Prepaid expenses and other current assets............ 18,672 741,307 ------------ ----------- Total current assets.............................. 96,604,896 10,046,753 ------------ ----------- PROPERTY AND EQUIPMENT, AT COST LESS ACCUMULATED DEPRECIATION (Note 7)................................ 159,000 11,308,808 BROADCAST LICENSES AND OTHER INTANGIBLES, less accumulated amortization of $2,559,354 in 1995 (Note 2)................................................... -- 65,434,705 FILM BROADCAST RIGHTS................................. -- 231,225 LONG-TERM INVESTMENTS (Note 6)........................ 18,204,429 8,350,000 DEFERRED TAX ASSET (Note 10).......................... 350,000 -- NOTES RECEIVABLE (Note 5)............................. 540,000 540,000 OTHER ASSETS.......................................... 29,500 73,907 ------------ ----------- Total assets...................................... 115,887,825 $95,985,398 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses................ $ 2,755,497 $ 3,197,471 Accrued interest..................................... -- 510,119 Current portion of long-term debt (Note 9)........... -- 28,000,000 Deferred tax liability (Note 10)..................... 1,042,862 -- Other current liabilities (Note 8)................... 3,310,774 4,601,409 ------------ ----------- Total current liabilities......................... 7,109,133 36,308,999 ------------ ----------- DEFERRED TAX EFFECT OF BASIS DIFFERENCE ARISING ON ACQUISITION (Note 10)................................ -- 17,971,028 OTHER LIABILITIES (Note 8)............................ -- 829,689 COMMITMENTS AND CONTINGENCIES (Note 15) SHAREHOLDERS' EQUITY (Notes 13 and 14): Preferred Stock, par value $.01 per share; authorized 20,000,000, no shares outstanding................... -- -- Common Stock, par value $.01 per share; authorized 40,000,000 shares; outstanding 9,038,808 shares in 1996 and 9,579,842 shares in 1995................... 90,388 95,798 Additional paid-in capital........................... 12,240,133 16,935,009 Unrealized gain on marketable equity securities, net of tax effect (Note 2).............................. 1,936,743 -- Retained earnings.................................... 94,511,428 23,844,875 ------------ ----------- Total shareholders' equity........................ 108,778,692 40,875,682 ------------ ----------- Total liabilities and shareholders' equity........ $115,887,825 $95,985,398 ============ ===========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. F-4 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 Revenue............................... $ 3,491,441 $34,377,543 $ 28,053,341 Agency and representatives' commissions.......................... 529,577 5,222,273 4,014,209 ------------ ----------- ------------ Net revenue....................... 2,961,864 29,155,270 24,039,132 ------------ ----------- ------------ Operating expenses.................... 2,233,347 16,684,608 14,961,399 Corporate expenses.................... 2,373,045 2,687,064 4,474,787 Other income, net (Notes 4, 5 and 11).................................. (98,372,359) (7,280,215) (16,244,568) Interest expense...................... 216,389 2,099,365 813,493 Amortization of debt discount and deferred debt expense................ -- 460,000 645,835 Depreciation and amortization......... 467,413 3,459,320 3,312,049 Realized loss on marketable securities, net...................... 793,641 166,211 -- ------------ ----------- ------------ Income before income taxes............ 95,250,388 10,878,917 16,076,137 Income tax (expense) benefit (Note 10).................................. (24,583,835) 247,000 (1,652,588) ------------ ----------- ------------ Net income........................ $ 70,666,553 $11,125,917 $ 14,423,549 ============ =========== ============ Net income per share (Note 2)......... $ 7.45 $ 1.06 $ 1.15 ============ =========== ============
The accompanying notes to consolidated financial statements are an integral part of these statements. F-5 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net income.......................... $ 70,666,553 $ 11,125,917 $ 14,423,549 ------------ ------------ ------------ Adjustments to reconcile net income to net cash (used in) provided by operating activities: Items not affecting cash-- Amortization of debt discount and deferred debt expense............. -- 100,000 645,835 Depreciation and amortization...... 467,413 3,459,320 3,312,049 Loss on disposition of equipment... -- -- 47,529 Loss on mark-down of long-term investment, net of tax effect..... 650,000 -- -- Change in assets and liabilities, net of effects of reorganization-- Decrease (increase) in net accounts receivable............... 3,191,494 (1,022,996) 307,979 Decrease in prepaid expenses and other assets...................... 392,243 83,180 1,581,117 Decrease in film broadcast rights............................ 333,800 1,862,277 536,910 Decrease in goodwill............... -- 295,477 -- (Decrease) increase in accounts payable and accrued expenses...... (936,802) (405,263) 1,563,455 (Decrease) increase in accrued interest payable, net of forgiveness....................... (510,119) 510,119 (1,023,932) Increase (decrease) in other liabilities....................... 402,825 (2,267,942) 1,013,375 Reclassification of transactions to investing and financing activities-- Gain on sale of properties, net.... (94,998,417) -- (17,219,231) Loss on purchase of common stock... -- 1,185,662 -- Gain on sale of trading securities........................ (2,121,897) -- -- Loss on sale of trading securities........................ 2,915,538 166,211 -- Purchase of trading securities, net............................... (4,601,295) -- -- (Recovery) reserve on notes receivable, net................... -- (7,884,884) 737,500 ------------ ------------ ------------ Total adjustments................. (94,815,217) (3,918,839) (8,497,414) ------------ ------------ ------------ Net cash (used in) provided by operating activities............. (24,148,664) 7,207,078 5,926,135 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Sale of businesses and equipment, net of cash retained............... 155,706,330 -- 32,451,283 Investment in businesses, net of cash acquired...................... -- -- (50,270,793) Capital expenditures................ (137,399) (1,469,505) (751,965) Purchase of available-for-sale securities and long-term investments........................ (16,569,790) (10,567,300) -- Proceeds from sale of marketable securities......................... -- 1,813,115 -- Proceeds from (disbursements of) notes receivable, net.............. -- 8,202,384 (390,000) ------------ ------------ ------------ Net cash provided by (used in) investing activities............. 138,999,141 (2,021,306) (18,961,475) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Short-term borrowings............... -- 1,000,000 -- Payment of short-term borrowings.... -- (1,000,000) -- Repurchases and payments of long- term debt.......................... (28,000,000) -- -- Payment of line of credit origination fee.................... -- (100,000) (475,000) Borrowings under line of credit agreements......................... -- 6,360,000 45,000,000 Repayments under line of credit agreements......................... -- (860,000) (25,700,000) Repurchase of Company common stock.. (5,102,742) (10,659,200) (6,271,064) Stock options exercised............. 402,456 143,975 222,312 ------------ ------------ ------------ Net cash (used in) provided by financing activities............. (32,700,286) (5,115,225) 12,776,248 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents............. 82,150,191 70,547 (259,092) CASH AND CASH EQUIVALENTS, beginning of year............................. 1,206,557 1,136,010 1,395,102 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, end of year................................ $ 83,356,748 $ 1,206,557 $ 1,136,010 ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these statements. F-6 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
UNREALIZED GAIN ON MARKETABLE COMMON STOCK EQUITY -------------------- ADDITIONAL SECURITIES, NUMBER PAID-IN NET OF RETAINED OF SHARES VALUE CAPITAL TAX EFFECT EARNINGS TOTAL BALANCE, December 31, 1993................... 12,354,646 $123,546 $32,285,576 $ -- $(1,704,591) $ 30,704,531 Net Income............ -- -- -- -- 14,423,549 14,423,549 Purchase and retirement of common stock................ (1,245,115) (12,451) (6,258,613) -- -- (6,271,064) Stock options exercised............ 104,079 1,041 221,271 -- -- 222,312 ---------- -------- ----------- ---------- ----------- ------------ BALANCE, December 31, 1994................... 11,213,610 112,136 26,248,234 -- 12,718,958 39,079,328 Net income............ -- -- -- -- 11,125,917 11,125,917 Purchase and retirement of common stock................ (1,691,028) (16,910) (9,456,628) -- -- (9,473,538) Stock options exercised............ 57,260 572 143,403 -- -- 143,975 ---------- -------- ----------- ---------- ----------- ------------ BALANCE, December 31, 1995................... 9,579,842 95,798 16,935,009 -- 23,844,875 40,875,682 Net Income............ -- -- -- -- 70,666,553 70,666,553 Unrealized gain on marketable equity securities, net of tax effect........... -- -- -- 1,936,743 -- 1,936,743 Purchase and retirement of common stock................ (643,700) (6,437) (5,096,305) -- -- (5,102,742) Stock options exercised............ 102,666 1,027 401,429 -- -- 402,456 ---------- -------- ----------- ---------- ----------- ------------ BALANCE, December 31, 1996................... 9,038,808 $ 90,388 $12,240,133 $1,936,743 $94,511,428 $108,778,692 ========== ======== =========== ========== =========== ============
The accompanying notes to consolidated financial statements are an integral part of these statements. F-7 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 1. OPERATIONS Price Communications Corporation ("Price") is a nationwide communications company. Until consummation of their sale in March and February 1996, Price owned an ABC affiliate, WHTM-TV (which was acquired by Price during 1994) (See Note 3), serving Harrisburg/Lancaster/Lebanon/York, Pennsylvania; and three NBC affiliated television stations, KSNF-TV, serving Joplin, Missouri/Pittsburg, Kansas; KJAC-TV, serving Beaumont/Port Arthur, Texas; and KFDX-TV, serving Wichita Falls, Texas/Lawton, Oklahoma (see Note 4), respectively. Prior to 1995 Price owned a number of television, radio, newspaper and other media and related properties which were disposed of pursuant to Price's long-standing policy of buying and selling media properties at times deemed advantageous by Price's Board of Directors. Price intends to continue to investigate and pursue potential media and other acquisitions such as television and radio properties and, possibly, outdoor advertising and newspaper properties. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of Price and its subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. Certain prior year amounts have been reclassified to conform with current year presentation. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Cash and Cash Equivalents Price considers all highly liquid debt instruments, including Treasury bills, purchased with maturities of three months or less at the time of purchase to be cash equivalents. Investment Securities Price adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115") effective January 1, 1994. At December 31, 1996, Price's Investment Securities were in marketable equity securities, and classified as "Trading Securities" as well as "Available-for-Sale Securities" under the provisions of SFAS No. 115. At December 31, 1995, Price's Investment Securities were in marketable equity securities and classified as Trading Securities. Unrealized holding gains and losses for Available-for-Sale Securities are excluded from earnings and reported, net of taxes, as a separate component of shareholders' equity. Net unrealized holding gains and losses for Trading Securities are included in net income. Trading Securities are carried at fair value which approximates cost. Available-for-Sale Securities are shown at fair value, which is based on quoted market prices for these investments. As of December 31, 1996 and 1995, Price had unrealized gains of $2,979,605 and $0, respectively, on available-for-sale securities, and unrealized gains of $0 and $0, respectively, on trading securities. Realized gains and losses are determined principally on a specific indentification basis. F-8 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996, 1995 AND 1994 Property and Equipment Property and equipment are recorded at cost. Depreciation and amortization are computed using the straight-line method over estimated useful lives, as follows: Buildings--15 to 25 years Broadcasting equipment--10 to 12 years Leasehold improvements--the life of the underlying lease Furniture and fixtures--3 to 10 years Transportation equipment--3 years Broadcast Licenses and Other Intangibles Excess of purchase price over the fair value of net assets acquired includes FCC licenses, station call letters, and goodwill. These assets are integral determinants of a communications property's economic value and have long and productive lives. Price amortized such assets over a 40-year life commencing from the original date of acquisition. Deferred expenses associated with debt instruments were amortized under the straight-line method over the respective life of such debt instruments. Debt discounts were amortized using the effective interest method. Film Broadcast Rights The cost of film broadcast rights is stated at the lower of cost or estimated net realizable value. The total cost of the rights is recorded as an asset and a liability when the program becomes available for broadcast. The cost of film broadcast rights is charged to operations on the basis of the estimated number of showings or, if unlimited showings are permitted, over the terms of the broadcast license agreements. The current portion of film broadcast rights represent those rights that will be amortized in the succeeding year. Amortization of film broadcast rights included in operating expenses amounted to approximately $333,800, $1,831,300, and $1,077,000 for the years ended December 31, 1996, 1995, and 1994, respectively. Revenue Recognition Advertising revenue is recognized as income when the advertisements are broadcast. Revenue from barter transactions (advertising provided in exchange for goods and services) is recognized as income when advertisements are broadcast, and merchandise or services received are charged to expense when received or used. Credit Risk Price provides an allowance for doubtful accounts based on reviews of its customers' accounts. Included in operating expenses is bad debt expense of approximately $179,000, $84,000, and $319,000 for the years ended December 31, 1996, 1995, and 1994, respectively. Per Share Data Net income per share is based on net income for the period divided by the weighted average number of shares of common stock and common stock equivalents outstanding, which were approximately 9.5, 10.4, and 12.4 million shares for 1996, 1995, and 1994, respectively. All presentations of shares outstanding and amounts for 1995 and 1994 have been restated to reflect the five-for-four common stock split in April, 1995 (Note 13). F-9 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996, 1995 AND 1994 Fair Market Value of Stock Options During 1996, Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") became effective. SFAS 123 requires all companies to change what they disclose about their employee stock-based compensation plans. This statement requires that companies either (1) record, as compensation expense, the fair market value, as defined, of stock options issued to employees, or (2) if the company elects to not record the fair market value of stock options granted as compensation expense, to disclose the pro forma impact on net income and earnings per share as if such compensation expense was recorded. Price has elected to adopt the disclosure requirements. The impact of adopting these disclosure requirements was immaterial to Price in 1995 and 1996. Income Taxes Price accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 3. ACQUISITION OF WHTM-TV On September 16, 1994, Price acquired all of the outstanding shares of the corporation which owns all of the assets of WHTM-TV, the ABC affiliate serving the Harrisburg-York-Lancaster-Lebanon, Pennsylvania television market for approximately $47 million plus a working capital adjustment of approximately $4 million. The acquisition was accounted for under the purchase method, and accordingly, the operating results of WHTM-TV have been included in the consolidated operating results since the date of acquisition. Funds for the acquisition were provided by cash on hand and a credit facility from the Bank of Montreal ("BMO") of $45 million (Note 9), which was reduced to $22.5 million upon the sale of Price's radio properties in West Palm Beach during October of 1994 (Note 4). The acquisition resulted in intangible assets, primarily broadcast licenses of approximately $44.2 million and goodwill of approximately $18.6 million, both of which were being amortized over a forty year period. 4. DISPOSITIONS In February 1994, Price sold its outdoor advertising business for a total of $875,000 in cash and notes receivable (Note 5). This disposition resulted in a pretax loss of $350,000. In April 1994, Price sold substantially all of the assets of its radio properties, WWKB-AM and WKSE-FM in Buffalo, New York, for $5 million in cash. Price realized a pretax gain of approximately $3.2 million on this transaction. In May 1994, Price sold all of the stock of Eimar Realty Corporation, its then wholly owned subsidiary, which held a building in Nashville, Tennessee, to TLM Corporation, a former subsidiary of Price. The purchase price was $815,000 including a note from the purchaser of $540,000 (Note 5). Price's pretax gain on the transaction was deminimis. In October 1994, Price sold substantially all of the assets, together with certain liabilities of radio stations WBZT-AM and WIRK-FM, West Palm Beach, Florida, for approximately $23 million in cash. Price realized a F-10 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996, 1995 AND 1994 pretax gain of approximately $13.5 million on this transaction. The net proceeds were used to retire $22.5 million under the BMO credit facility (Note 9). In October 1994, Price sold its building in Red Bank, New Jersey for $1.7 million in cash. Price realized a deminimis gain on the sale. In November 1994, Price sold substantially all of the assets of radio stations WOWO-AM and WOWO-FM in Fort Wayne and Huntington, Indiana, respectively, for $2.3 million in cash. Price recognized a pretax gain on the sale of approximately $.8 million. On February 2, 1996, Price sold substantially all of the assets, except cash and accounts receivable, together with certain liabilities, of its three NBC affiliates, for approximately $40.7 million in cash. Of the sale proceeds, approximately $28.7 million was used to repay the principal and interest due under the BMO term loan agreement. Price recognized a pretax gain of approximately $29.4 million. On March 1, 1996, Price sold substantially all of the assets except cash and accounts receivable, together with certain liabilities of WHTM-TV, its ABC affiliate serving the Harrisburg-Lancaster-Lebanon-York, Pennsylvania, television market, for $115 million in cash to Allbritton Communications Company. Price recognized a pretax gain of approximately $65.6 million. The gains and losses on the dispositions outlined above have been included in other (income) expense, net on Price's statement of operations. 5. NOTES RECEIVABLE Investments in notes receivable include the following: During 1996, Price loaned $1,000,000 to the Hamilton Group LLC ("Hamilton") in the form of a Promissory Note bearing interest at the rate of 6% and payable on December 31, 1999. The maturity date is extendible at the Maker's option until December 31, 2001. A Director of Price is a participant in Hamilton. In 1995 Price received a $655,000 payment on a note receivable originating from the sale of its outdoor advertising business in 1994. During 1994, Price set up a reserve of $337,500 against this note receivable. Since this note receivable was collected in full, the previously established reserve was reversed and treated as income and included in other (income) expense, net on Price's consolidated statement of operations. During 1994, in connection with the sale of Eimar Realty Corporation, Price received a note from the buyer, TLM Corporation (a former subsidiary of Price) (Note 4), in the amount of $540,000. The note bears interest at the rate of 5% per annum, payable quarterly, with principal payable on May 20, 1998. In connection with the sale in 1987 of seven radio stations to Fairmont Communications Corporation ("Fairmont") for an aggregate sale price of $120 million, Price loaned $50 million to Fairmont (the "Fairmont Notes") and acquired a 27% equity interest in Fairmont. The Fairmont Notes were issued in three series of 12 1/2% increasing rate subordinated notes due in 1992, extendible at Fairmont's option to 1994. Interest on the notes was payable quarterly in cash or additional notes at Fairmont's election. F-11 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996, 1995 AND 1994 During 1992, Fairmont filed for voluntary relief under Chapter 11 of the U.S. Bankruptcy Code. At that time Price ceased to record additional notes related to interest paid in kind since it was not entitled to interest after that date under the Bankruptcy Code. During 1993, the United States Bankruptcy Court for the Southern District of New York confirmed the Chapter 11 Plan of Reorganization (the "Fairmont Plan") for Fairmont and its subsidiaries. Essentially, the Fairmont Plan provided for the orderly liquidation of the assets of Fairmont and its subsidiaries, and the distribution of the proceeds derived therefrom according to the relative priorities of the parties asserting interests therein. In 1996 and 1995, Price received net cash payments totaling approximately $62.5 thousand and $7.9 million from the proceeds of the liquidation of Fairmont, respectively. This amount has been treated as income and included in other (income) expense, net on Price's consolidated statement of operations. 6. INVESTMENT IN PARTIALLY OWNED COMPANIES On December 21, 1995, Price acquired warrants for $8,350,000 to purchase 1,819,610 shares of PriCellular Corporation's ("PriCellular") Class B Common Stock. The exercise price at December 31, 1996 was approximately $4.77 per share of Class B Common Stock, and escalates over the next three years to $6.29. During 1996, Price purchased 1,726,250 shares of PriCellular Class A Common Stock for approximately $13.1 million. The President of PriCellular is the President of Price. 7. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31 --------------------- 1996 1995 Land.................................................. $ -- $ 685,000 Buildings............................................. -- 2,403,409 Broadcasting equipment................................ -- 10,783,560 Leasehold improvements................................ 257,236 119,836 Furniture and fixtures................................ -- 551,332 Transportation equipment.............................. -- 596,829 -------- ----------- 257,236 15,139,966 Less--Accumulated depreciation and amortization....... (98,236) (3,831,158) -------- ----------- Net property and equipment............................ $159,000 $11,308,808 ======== ===========
8. OTHER LIABILITIES Other liabilities consist of:
DECEMBER 31 --------------------- 1996 1995 Liability for broadcast rights........................ $ -- $2,722,343 Income and franchise taxes payable.................... 3,310,774 1,461,995 Other................................................. -- 1,246,760 ---------- ---------- 3,310,774 5,431,098 Less--Amounts due currently........................... 3,310,774 4,601,409 ---------- ---------- $ -- $ 829,689 ========== ==========
F-12 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996, 1995 AND 1994 9. LONG-TERM DEBT Long-term debt consists of the following notes payable by wholly-owned subsidiaries of Price at December 31, 1995:
1995 Atlantic Broadcasting Corporation, Federal Broadcasting Corporation, Southeast Texas Broadcasting Corporation and Tri-State Broadcasting Corporation: Note payable to BMO under term loan agreement............... $28,000,000 ----------- Total debt................................................ 28,000,000 Less--Amount due currently.................................... 28,000,000 ----------- Total long-term debt...................................... $ -- ===========
On December 12, 1995, Price entered into an amended line of credit agreement ("Credit Agreement") with The Bank of Montreal ("BMO"). The Credit Agreement created a line of credit for $28 million. Borrowings under the Credit Agreement were subject to base interest at the BMO base rate, as defined, plus a maximum of .75% and were secured by the assets of the subsidiaries. Additionally, there was a commitment fee of .5% on the unused portion of the Credit Agreement. On December 31, 1995, the effective interest rate was 8.5%. On February 2, 1996, Price sold its three NBC affiliates and used a portion of the proceeds to pay $28 million plus interest to BMO to terminate the Credit Agreement. 10. INCOME TAXES Provision (benefit) for income taxes is approximately:
YEAR ENDED DECEMBER 31 --------------------------------- 1996 1995 1994 Current: Federal................................. $13,673,000 $ -- $ 300,000 State and local......................... 10,219,000 447,000 1,489,000 ----------- --------- ---------- 23,892,000 447,000 1,789,000 ----------- --------- ---------- Deferred: Federal................................. 692,000 (560,000) (97,000) State and local......................... -- (134,000) (39,000) ----------- --------- ---------- 692,000 (694,000) (136,000) ----------- --------- ---------- Tax provision (benefit)................... $24,584,000 $(247,000) $1,653,000 =========== ========= ==========
F-13 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996, 1995 AND 1994 For the years ended December 31, 1996 and 1995, the provision for income taxes differs from the amount computed by applying the federal income tax rate (35%) because of the effect of the following items:
YEAR ENDED DECEMBER 31 -------------------------------------- 1996 1995 1994 Tax at federal income tax rate...... $ 33,338,000 $ 3,808,000 $ 5,627,000 State taxes, net of federal income tax benefit........................ 7,487,000 291,000 942,000 Benefits of utilization of operating loss carryforwards................. (33,729,000) (4,975,000) (5,120,000) Amortization of goodwill and other intangibles........................ 117,000 217,000 309,000 Basis difference and Goodwill on sold Properties.................... 17,088,000 -- -- Other............................... 283,000 412,000 (105,000) ------------ ----------- ----------- $ 24,584,000 $ (247,000) $ 1,653,000 ============ =========== ===========
Price had, as of December 31, 1996 and 1995, deferred tax assets of $516,000 and $34,295,000 which were subject to a valuation allowance of approximately $166,000 and $31,925,000, respectively. The allowance has been recognized to offset the related tax asset due to the uncertainty of the realization of benefit of such amount. These deferred tax assets and liabilities consist of the following:
DECEMBER 31 ---------------------- 1996 1995 Deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts............................. $ 166,000 $ 100,000 Notes from and investment in partially owned compa- nies.............................................. -- -- Minimum tax credit carryforward.................... -- 642,000 Capital loss carryforwards......................... -- 10,681,000 Net operating loss carryforwards................... -- 22,406,000 Investment tax credit carryforwards................ -- 100,000 Notes receivable, principally due to reserves...... -- 136,000 Reserve on long-term investments................... 350,000 -- Other.............................................. -- 230,000 ---------- ----------- 516,000 34,295,000 ---------- ----------- Deferred tax liabilities: Unrealized gain on available-for-sale securities times the estimated tax rate of 35%............... 1,043,000 -- Property and equipment, principally due to differences in depreciation and the effect of Fresh Start Reporting............................. -- 2,370,000 Intangible asset FCC license....................... -- 17,971,000 ---------- ----------- $1,043,000 $20,341,000 ========== ===========
F-14 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996, 1995 AND 1994 11. OTHER INCOME, NET Other income, net, consists of:
YEAR ENDED DECEMBER 31 --------------------------------------- 1996 1995 1994 Gains on sales of properties, net.. $(94,998,417) $ -- $(17,219,231) Interest income.................... (4,583,297) -- (201,896) Loss on disposition of equipment... -- -- 47,529 (Recovery) reserve for losses on notes receivable, net (Note 5).... (62,500) (7,884,884) 737,500 Loss on write-down of long-term in- vestment.......................... 1,000,000 -- -- Loss on purchase of common stock (Note 13)......................... -- 1,185,662 -- Other, net......................... 271,855 (580,993) 391,530 ------------ ----------- ------------ $(98,372,359) $(7,280,215) $(16,244,568) ============ =========== ============
12. SEGMENT DATA Price's business operations were previously classified into two segments: Television and Radio Broadcasting and Other. Price sold its radio stations and outdoor advertising business during 1994 and accordingly operated in only one segment in 1996 and 1995. The segment data for 1994 is as follows:
YEAR ENDED DECEMBER 31, 1994 ---------------------------------------------- BROADCASTING ---------------------- TELEVISION RADIO OTHER CONSOLIDATED Net revenue.................. $16,756,288 $7,233,424 $ 49,420 $24,039,132 Operating expenses........... 9,651,752 5,250,629 59,018 14,961,399 Depreciation and amortiza- tion........................ 2,464,785 577,430 269,834 3,312,049 ----------- ---------- --------- ----------- Operating income (loss)*..... $ 4,639,751 $1,405,365 $(279,432) $ 5,765,684 =========== ========== ========= ===========
- --------------------- * Operating income (loss) is before corporate expenses, other income-net, interest expense, amortization of debt discount and deferred debt expense, share of loss of partially owned companies, reorganization items, income taxes and extraordinary items. 13. SHAREHOLDERS' EQUITY Price currently has outstanding warrants on its common stock exercisable for approximately 124,000 shares at an exercise price of $4.23 per share during the five-year period ending September 30, 1998. In October 1994, Price's Board of Directors enacted a Stockholders' Rights Plan (the "Plan") designed to protect the interests of Price's shareholders in the event of a potential takeover for a price which does not reflect Price's full value or which is conducted in a manner or on terms not approved by the Board as being in the best interests of Price and its shareholders. The Board has declared a dividend distribution of One Common Stock Purchase Right on each outstanding share of Common Stock of Price. The Rights provide, in substance, that should any person or group acquire 20% or more of Price's Common Stock, each Right, other than Rights held by the acquiring person or group, would entitle its holder to purchase a specified number of Price Communications Corporation common shares for 50% of their then current market value. In addition, the Rights may be exercised at the holders option, at a purchase price of $22.50 per share at any time prior to the termination F-15 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996, 1995 AND 1994 of the Plan. Unless a 20% acquisition has occurred, the Rights may be redeemed by Price at any time prior to the termination date of the Plan. On February 10, 1994, Price's Board of Directors authorized the repurchase by Price of up to 2,500,000 shares of its Common Stock. Price is authorized to make such purchases from time to time in the market or in privately negotiated transactions when it is legally permissible to do so or believed to be in the best interests of its shareholders. During the year ended December 31, 1994, Price repurchased and retired approximately 1,245,000 shares pursuant to that authorization. On February 1, 1995, Price purchased 1,077,875 shares of its common stock from S.A.C. Capital Management, L.P. for approximately $6.6 million. This transaction was approved by Price's Board of Directors. Price paid a premium over the daily quoted market price of approximately $1.2 million that is recorded as other (income) expense on Price's consolidated statement of operations. In March 1995, at Price's Annual Meeting, the shareholders authorized the creation of 20 million shares of undesignated Preferred Stock for acquisitions and other purposes. No preferred stock had been issued as of December 31, 1996. On April 8, 1995, Price's Board of Directors approved a five-for-four stock split of Price's Common Stock to shareholders of record as of the close of business on March 27, 1995. Price issued approximately 2 million shares of Common Stock. The stated par value of each share was not changed from $.01. All presentations of shares outstanding and amounts per share in years prior to 1995 have been restated to reflect the 1995 stock split. In March 1995, Price's Board of Directors authorized the purchase of up to 1.3 million shares of its Common Stock in the open market or in privately negotiated transactions when it is legally permissible to do so or believed to be in the best interest of Price's shareholders, in addition to previous authorizations. Approximately 644,000 and 1.7 million shares were purchased and retired in 1996 and 1995, respectively, under this new authorization and previous authorizations. 14. STOCK OPTION PLAN Price has a long-term incentive plan, (the "1992 Long Term Incentive Plan") which provides for granting incentive stock options, as defined under current tax law, and other stock-based incentives to key employees and officers. The maximum number of shares of Price that are subject to awards granted under the 1992 Long Term Incentive Plan is 1,250,000. The exercise of such options, other than those granted on December 10, 1992, will be exercisable at a price not less than the fair market value on the date of the grant, for a period up to ten years. The following table sets forth information with respect to Price's stock options for the years ended December 31, 1996 and 1995:
NUMBER OF SHARES UNDER OPTION ----------------------------- OPTION 1996 1995 PRICE RANGE Exercised..................................... 102,666 57,260 $2.15 Canceled...................................... 39,094 -- 2.15-3.00 Granted....................................... 22,000 145,750 3.00-7.88 Outstanding................................... 704,750 824,510 2.15-7.88 Reserved for issuance......................... 240,759 262,759
The above has been restated to reflect the April, 1995 five-for-four common stock split. F-16 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996, 1995 AND 1994 15. COMMITMENTS AND CONTINGENCIES Price is involved in various claims and litigation in the ordinary course of business. In the opinion of legal counsel and management, the ultimate disposition of these matters will not have a material adverse effect on Price's financial condition. Price has an employment agreement with Robert Price covering base salary and incentive compensation. The agreement is for a term of three years commencing October 1994, at a base salary of $300,000 and is extendible for periods of three years at Price's option. Cash performance bonuses and stock option awards are determined solely at the discretion of the Board of Directors or the Stock Option Committee, respectively. Price and its subsidiaries lease a variety of assets used in their operations, including office space. Renewal options are available in the majority of leases. The following is a schedule of Price's minimum rental commitment for operating leases of real and personal property for each of the five years subsequent to 1996 and in the aggregate:
OPERATING LEASES Year: 1997...................................................... $268,009 1998...................................................... 268,009 1999...................................................... 268,009 2000...................................................... 281,905 2001...................................................... 281,905 Thereafter................................................ 536,810
Rental expense, net of sublease income, for operating leases was approximately $158,000, $187,250 and $312,000 for the years ended December 31, 1996, 1995, and 1994, respectively. 16. SUBSEQUENT EVENTS In January and February 1997, Price purchased 50,000 shares of PriCellular's Class A Common Stock for approximately $478,000. In January and February 1997, Price repurchased 1.9 million shares of its Common Stock in the open market and in privately negotiated transactions for approximately $18.1 million. 17. SUPPLEMENTAL CASH FLOW INFORMATION The following is supplemental disclosure cash flow information for the years ended December 31, 1996, 1995, and 1994:
1996 1995 1994 Cash paid for: Income taxes paid, net of refunds...... $23,275,000 $ 339,862 $ 240,102 Interest paid.......................... 712,855 1,534,245 813,493 Non-cash operating activities: Trade/barter revenue................... -- 1,439,760 1,117,218 Trade/barter expense................... -- 1,439,760 962,356
F-17 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, ----------- ------------ 1997 1996 ----------- ------------ (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents.......................... $35,989,185 $ 83,356,748 Investment securities: Trading securities............................... -- 4,045,628 Available-for-sale securities.................... 18,332,809 8,694,966 Securities fair value adjustment................. 1,045,317 -- Accounts receivable, net of allowance for doubtful accounts of $0 in 1997 and $473,579 in 1996....... -- 488,882 Prepaid expenses and other current assets.......... 159,861 18,672 Deferred Costs..................................... 3,000,000 -- ----------- ------------ Total current assets........................... 58,527,172 96,604,896 ----------- ------------ PROPERTY AND EQUIPMENT, AT COST LESS ACCUMULATED DEPRECIATION........................................ 133,944 159,000 LONG-TERM INVESTMENTS................................ 36,379,938 18,204,429 DEFERRED TAX ASSET................................... 350,000 350,000 NOTES RECEIVABLE..................................... 540,000 540,000 OTHER ASSETS......................................... 29,500 29,500 ----------- ------------ Total assets................................... $95,960,554 $115,887,825 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses.............. $ 1,975,883 $ 2,755,497 Deferred tax liability............................. 365,861 1,042,862 Other current liabilities.......................... 3,265,793 3,310,774 ----------- ------------ Total current liabilities...................... 5,607,537 7,109,133 Preferred Stock, Series A, no par value; 728,133 shares authorized, issued and outstanding................................... 25,000 -- Preferred Stock, Series B, no par value; 364,066 shares authorized, issued and outstanding................................... 10,000 -- SHAREHOLDERS' EQUITY: Preferred Stock, par value $.01 per share; authorized 20,000,000, no shares outstanding...... 10,900 Common Stock, par value $.01 per share; authorized 40,000,000 shares, outstanding 6,861,814 shares in 1997 and 9,038,808 shares in 1996................. 72,938 90,388 Additional paid-in capital......................... 19,855,352 12,240,133 Unrealized gain (loss) on marketable equity securities, net of tax effect..................... 679,456 1,936,743 Retained earnings.................................. 95,120,817 94,511,428 Treasury Stock, 2,291,953 shares of common stock at cost.............................................. (25,421,446) -- ----------- ------------ Total shareholders' equity..................... 85,709,227 108,778,692 ----------- ------------ Total liabilities and shareholders' equity..... $95,960,554 $115,887,825 =========== ============
See accompanying notes to consolidated financial statements F-18 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------------- 1997 1996 ----------- ------------ Revenue.............................................. $ -- $ 3,491,441 Agency and representatives' commissions.............. -- 529,577 ----------- ------------ Net revenue.......................................... -- 2,961,864 ----------- ------------ Operating expenses................................... -- 2,131,801 Corporate expenses................................... 1,362,736 1,210,919 Other income, net.................................... (2,464,005) (492,500) Gain on sale of media properties..................... -- (95,451,878) Interest expense..................................... 48,302 212,376 Depreciation and amortization........................ 25,056 442,357 ----------- ------------ (1,027,911) (91,946,923) ----------- ------------ Income (loss) before income taxes.................... 1,027,911 94,908,787 Income tax expense (benefit)......................... 451,964 24,866,075 ----------- ------------ Net income (loss).................................... $ 609,389 $ 70,042,712 =========== ============ Income per share..................................... $ .08 $ 7.03 =========== ============
See accompanying notes to consolidated financial statements F-19 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------------- 1997 1996 ------------ ------------ Net cash provided by (used in) operating activities........................................ $ (269,391) $ 7,323,542 Cash flows provided by (used in) investing activities: Purchase of marketable securities................ (9,539,996) -- Sale of marketable securities.................... 10,138,379 -- Proceeds from sale of media properties........... -- 156,007,011 Gain on sale of media properties................. -- (71,662,104) Purchase of available-for-sale securities and long-term investments........................... (32,496,562) -- Sale of available-for-sale securities and long- term investments................................ 5,577,308 -- Long-term investment in equity securities ....... -- (2,010,000) Capital expenditures............................. -- (100,619) ------------ ------------ Net cash provided by (used in) investing (26,320,871) 82,234,288 activities........................................ ------------ ------------ Cash flows used in financing activities: Repayment of long-term debt...................... -- (28,000,000) Proceeds from Issuance of Preferred Stock, Series A............................................... 25,000 -- Proceeds from Issuance of Preferred Stock, Series B............................................... 10,000 -- Purchase of Company common stock................. (20,877,152) (2,097,200) Proceeds from stock options exercised............ 64,851 293,059 ------------ ------------ Net cash used in financing activities.............. (20,777,301) (29,804,141) ------------ ------------ Net increase (decrease) in cash and cash equivalents....................................... (47,367,563) 45,106,141 Cash and cash equivalents at beginning of quarter.. 83,356,748 1,206,557 ------------ ------------ Cash and cash equivalents at end of quarter........ $ 35,989,185 $ 46,313,162 ============ ============ Supplemental information: Income taxes paid, net of refunds................ $ 53,289 $ 11,789,500 ============ ============ Interest paid.................................... $ 36,604 $ 712,855 ============ ============
See accompanying notes to consolidated financial statements F-20 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Price Communications Corporation ("Price") and its subsidiaries. All significant intercompany items and transactions have been eliminated. The consolidated financial statements have been prepared by Price without audit, in accordance with rules and regulations of the Securities and Exchange Commission. In the opinion of management, the statements reflect all adjustments necessary for a fair presentation of the results for the interim periods. All such adjustments are of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of the results for a full year. 2. REDEEMABLE PREFERRED STOCK In May 1997, Price's Board of Directors and Compensation Committee authorized the issuance to Mr. Price of approximately 728,000 shares of Price's newly authorized Series A Preferred Stock ("Preferred Stock"), in respect of which, in the event of (i) a merger of Price, the sale or exchange of all or substantially all of Price's assets or the occurrence of any other transaction or event as a result of which the holders of Common Stock receive at least $22.00 per share or (ii) the acquisition of more than 50% of the voting power of the securities of Price then outstanding by any person, entity or group, provided the market value of the Common Stock of Price at such time is at least $22.00 per share (the amount per share received by holders of Common Stock or the market price per share of Common Stock described above being referred to as the "Transaction Price"), Mr. Price would receive a payment per each share of the Preferred Stock equal to the sum of 25% of the excess of the Transaction Price per share (up to $32.00) over $9.125, 50% of the excess of the Transaction Price per share (up to $42.00) over $32.00, 100% of the excess of the Transaction Price per share (up to $52.00) over $42.00, and 125% of the excess of the Transaction Price per share over $52.00. Each share of Preferred Stock is entitled to one vote per share, and to receive dividends and liquidation distributions (other than in a transaction resulting in a payment as described above) at the rate of 1% of the dividends and liquidation distributions payable with respect to a share of Common Stock. The shares of Preferred Stock will be repurchased by Price in the event of Mr. Price's death or termination of employment prior to a transaction resulting in a payment as aforesaid, as follows: (i) If his employment with the company terminates because of death or disability or termination by Price not for cause, or his retirement subsequent to the Price's Common Stock trading for an average of at least $22.00 per share over a period of 10 consecutive trading days, Price will repurchase the Preferred Stock at its then fair market value, as determined by appraisal. (ii) If his employment terminates for any reason except as aforesaid, Price will repurchase the Preferred Stock at the lower of the price paid by him for such stock or its then fair market value, as determined by appraisal. The foregoing provisions with respect to the Preferred Stock are subject to appropriate adjustment in the event of a stock split, stock dividend or similar event affecting the Price Common Stock. In May 1997, Price's Board of Directors and Compensation Committee authorized the issuance to Mr. Price of approximately 364,000 shares of Price's newly authorized Series B Preferred Stock, in respect of which, in the event of (i) a merger of Price, the sale or exchange of all or substantially all of Price's assets of the occurrence of any other transaction or event as a result of which the holders of Common Stock receive at least $15.00 per share or (ii) the acquisition of more than 50% of the voting power of the securities of Price then outstanding by any person, entity or group, provided that the market value of the Common Stock of Price at such time is at least $15.00 per share (the amount per share received by holders of Common Stock or the market price per share of Common Stock described above being referred to as "Series B Transaction Price"), Mr. Price would receive a F-21 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. REDEEMABLE PREFERRED STOCK (CONTINUED) payment per each share of Series B Preferred Stock equal to the Series B Transaction Price per share over $10.00. Each share of the Series B Preferred Stock is entitled to one vote per share, and to receive dividends and liquidation distributions (other than in a transaction resulting in the payment as described above) at a rate of 1% of the dividends and liquidation distributions payable with respect to a share of the common stock. The shares of the Series B Preferred Stock will be repurchased by Price upon Mr. Price's request, provided that the trading price of the Price Common Stock during any period of 10 consecutive trading days prior to such request was at least $15.00 per share, for a purchase price equal to its then fair market value, as determined by appraisal. In addition, the shares of Series B Preferred Stock will be repurchased by Price in the event Mr. Price's death or termination of employment prior to the transaction resulting in the payment as set forth in the preceding paragraph, as follows: (i) If his employment with Price terminated because of death or disability or termination by Price not for cause, or his retirement subsequent to the Price Common Stock trading for an average of at least $15.00 per share over a period of 10 consecutive trading days, Price will repurchase the series B Preferred Stock at its then fair market value, as determined by appraisal. (ii) If his employment terminates for any reason as aforesaid, Price will repurchase the Series B Preferred Stock at the lower of the price paid by him for such stock or its then fair market value, as determined by appraisal. 3. THE ACQUISITION On May 23, 1997, Price, Price Communications Wireless, Inc., a wholly-owned indirect subsidiary of Price ("PCW") and Palmer Wireless, Inc. ("Palmer") entered into an Agreement and Plan of Merger (the "Palmer Merger Agreement") which provides, among other things, for the merger of PCW with and into Palmer, with Palmer as the surviving corporation (the "Palmer Merger"). At or subsequent to the Palmer Merger, Palmer will change its name to "Price Communications Wireless, Inc." Pursuant to the Palmer Merger Agreement, Price has agreed to acquire each issued and outstanding share of common stock of Palmer for a purchase price of $17.50 per share in cash and to purchase outstanding options and rights under Palmer's employee and director stock purchase plans for an aggregate purchase price of $488.9 million. In addition, Price has agreed to repay the outstanding indebtedness of Palmer estimated to be up to approximately $389 million. In connection with this transaction, PCW has entered into an agreement to sell (subject to the satisfaction of certain conditions) at the effective time of the Palmer Merger, Palmer's Fort Myers, Florida MSA for $168 million (which will generate proceeds to the Company of approximately $166.3 million) (the "Fort Myers Sale" and, together with the Palmer Merger, the "Acquisition"). The proceeds of the Fort Myers Sale will be used to fund a portion of the Acquisition. The consummation of the Acquisition is subject to the satisfaction of certain conditions contained in the Palmer Merger Agreement, including, among other things, Federal Communications Commission and Palmer shareholder approval. Price also entered into an agreement with Palmer Communications Incorporated ("PCI"), which is the majority shareholder of Palmer, pursuant to which PCI has agreed to vote its share of common stock of Palmer in favor of the Palmer Merger. Price expects the Acquisition to be consummated in October 1997. In order to fund the Acquisition and pay related fees and expenses, on July 2, 1997 PCW issued $175 million aggregate principal amount of 11 3/4% Senior Subordinated Notes due 2007 (the "PCW Offering") and will enter into a syndicated senior loan facility providing for term loan borrowings in the aggregate principal amount of approximately $325 million and revolving loan borrowings of $200 million (the "New Credit Facility"). Although the PCW Offering has been consummated, the notes issued thereunder are subject to F-22 PRICE COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. THE ACQUISITION (CONTINUED) mandatory redemption if the Acquisition has not occurred by December 31, 1997 or if in the sole judgement of Price it appears that the Acquisition will not be consummated by December 31, 1997. At the effective time of the Palmer Merger, PCW is expected to borrow all term loans available under the New Credit Facility and approximately $100 million of revolving loans. The remaining revolving loans will, subject to a borrowing base and certain other conditions, be available to fund the working capital requirements of PCW. On July 2, 1997, Price received an executed commitment letter from a financial institution to provide the New Credit Facility. The commitment is subject to significant conditions, including the absence of material adverse change in the business of Palmer, and negotiation, execution and delivery of definitive documentation and consummation of the Fort Myers Sale (or arrangements satisfactory to the lenders under the New Credit Facility for short-term financing bridging such sale). An additional $47.5 million of the purchase price has been raised through an offering by Price Communications Cellular Holdings, Inc., a wholly-owned indirect subsidiary of Price and the direct parent of PCW, of units consisting of Senior Secured Discount Notes due 2007 and warrants to purchase shares of Common Stock Price. 4. SHAREHOLDER'S EQUITY On April 21, 1997, Mr. Price, exercised 625,000 employee stock options. The options were issued at fair market value. During the quarter ended June 30, 1997, Price repurchased approximately 2,177,000 shares of its common stock at an average price of $9.59 per share. In June 1997, Price entered into a transaction with NatWest Capital Markets Limited ("NatWest"), whereby Price issued to NatWest 1,129 units (the "PIK Units") of PIK Preferred Stock and warrants ("PIK Warrants"), in part, in exchange for 2,291,953 shares of Common Stock held by NatWest and, in part, in payment of $3 million of NatWest's fee in connection with its acting as initial purchaser in connection with the Cellular Holdings Offering. Each PIK Unit consists of 1,000 shares of PIK Preferred Stock, each with a liquidation value of $25.00 per share, and PIK Warrants to purchase an aggregate of 582,112 shares of Price Common Stock, representing in the aggregate 10% of the fully diluted shares of Common Stock of Price at an exercise price of $0.01 per share. The PIK Preferred Stock is callable, together with the PIK Warrants, by Price, at any time in whole or in part on or prior to 90 days from issue date and at any time thereafter if NatWest or an affiliate is the holder of all the PIK Preferred Stock, at a redemption price equal to 100% of the liquidation preference of the PIK Preferred Stock plus accrued dividends. 5. LONG-TERM INVESTMENTS Long-term investments include shares of Palmer common stock that Price acquired on the open market for approximately $13,991,000 in connection with the Acquisition (see Note 3). 6. PER SHARE DATA Primary income per common share is based on income for the period divided by the weighted average number of shares of common stock and common stock equivalents outstanding, which was approximately 7,148,832 and 7,505,616 for the three and six months ended June 30, 1997, respectively, and 9,896,000 and 9,962,000 for the three and six months ended June 30, 1996, respectively. F-23 INDEPENDENT AUDITORS' REPORT The Board of Directors Palmer Wireless, Inc.: We have audited the accompanying consolidated balance sheets of Palmer Wireless, Inc. and subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Palmer Wireless, Inc. and subsidiaries at December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the years in the three- year period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Kpmg Peat Marwick LLP KPMG Peat Marwick LLP Des Moines, Iowa January 30, 1997, except for Note 10 which is as of February 1, 1997 F-24 PALMER WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ----------------------------- 1995 1996 (DOLLAR AMOUNTS IN THOUSANDS) ASSETS (NOTE 4) Current assets: Cash and cash equivalents...................... $ 3,436 $ 1,698 Trade accounts receivable, net of allowance for doubtful accounts of $1,880 in 1995 and $1,791 in 1996....................................... 17,347 18,784 Receivable from other cellular carriers........ 3,936 1,706 Prepaid expenses and deposits.................. 1,111 2,313 Inventory...................................... 2,434 5,106 Deferred income taxes (note 5)................. 821 830 -------------- -------------- Total current assets.......................... $ 29,085 $ 30,437 -------------- -------------- Property, plant and equipment: Land and improvements.......................... 3,796 5,238 Buildings and improvements..................... 5,120 7,685 Equipment, communication systems, and furnishings................................... 127,140 166,735 -------------- -------------- $ 136,056 $ 179,658 Less accumulated depreciation and amortization.................................. 35,120 47,220 -------------- -------------- Net property, plant and equipment.............. $ 100,936 $ 132,438 -------------- -------------- Licenses and goodwill, at cost less accumulated amortization of $20,828 in 1995 and $30,188 in 1996 (note 3).................................. 321,053 375,808 Other intangible assets and other assets, at cost less accumulated amortization of $4,471 in 1995 and $7,311 in 1996........................ 11,797 11,259 -------------- -------------- Total assets.................................. $ 462,871 $ 549,942 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt (note 4)............................................ $ 7,441 $ 5,296 Notes payable (note 4)......................... -- 1,366 Accounts payable............................... 10,795 10,394 Accrued interest payable....................... 2,508 2,341 Accrued salaries and employee benefits......... 2,267 2,432 Other accrued liabilities...................... 4,058 3,626 Deferred revenue............................... 2,860 3,929 Customer deposits.............................. 591 757 -------------- -------------- Total current liabilities..................... $ 30,520 $ 30,141 Long-term debt, excluding current installments (note 4)....................................... 343,000 337,000 Deferred income taxes (note 5).................. 9,636 11,500 Minority interests.............................. 5,162 6,371 -------------- -------------- Total liabilities............................. $ 388,318 $ 385,012 -------------- -------------- Stockholders' equity (note 7): Preferred stock par value $.01 per share; 10,000,000 shares authorized; none issued..... -- -- Class A Common Stock par value $.01 per share; 73,000,000 shares authorized; 6,095,772 shares issued in 1995 and 11,119,681 shares issued in 1996 including shares in treasury and Class B Common Stock par value $.01 per share; 18,000,000 shares authorized; 17,293,578 shares issued in 1995 and 1996................ 234 284 Additional paid-in capital..................... 72,466 166,975 Retained earnings.............................. 1,853 6,535 -------------- -------------- $ 74,553 $ 173,794 Less Class A Common Stock in treasury at cost-- 600,000 shares in 1996......................... -- 8,864 -------------- -------------- Total stockholders' equity.................... $ 74,553 $ 164,930 Commitments and contingencies (note 8). -------------- -------------- Total liabilities and stockholders' equity.... $ 462,871 $ 549,942 ============== ==============
See accompanying notes to consolidated financial statements. F-25 PALMER WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ---------------------------------------------------------- 1994 1995 1996 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenue: Service............... $ 61,021 $ 96,686 $ 151,119 Equipment sales and installation......... 7,958 8,220 8,624 ------------------ ------------------ ------------------ Total revenue..... $ 68,979 $ 104,906 $ 159,743 ------------------ ------------------ ------------------ Operating expenses: Engineering, technical, and other direct............... 12,776 18,184 28,717 Cost of equipment..... 11,546 14,146 17,944 Selling, general, and administrative: Related party, net (note 6)........... (442) (408) (414) Other............... 20,199 31,398 47,306 Depreciation and amortization......... 9,817 15,004 25,013 ------------------ ------------------ ------------------ Total operating expenses......... $ 53,896 $ 78,324 $ 118,566 ------------------ ------------------ ------------------ Operating income........ $ 15,083 $ 26,582 $ 41,177 ------------------ ------------------ ------------------ Other income (expense): Interest income: Investment.......... 93 211 62 Related party (note 6)................. 78 -- -- Interest expense: Long-term debt...... (11,158) (21,424) (31,524) Related party (note 6)................. (1,728) -- -- ------------------ ------------------ ------------------ Interest expense, net................ $ (12,715) $ (21,213) $ (31,462) Other expense, net.... (70) (687) (429) ------------------ ------------------ ------------------ Total other expense.......... $ (12,785) $ (21,900) $ (31,891) ------------------ ------------------ ------------------ Income before minority interest share of income and income tax expense................ $ 2,298 $ 4,682 $ 9,286 Minority interest share of income.............. 636 1,078 1,880 ------------------ ------------------ ------------------ Income before income tax expense................ $ 1,662 $ 3,604 $ 7,406 Income tax expense (note 5)..................... -- 2,650 2,724 ------------------ ------------------ ------------------ Net income.............. $ 1,662 $ 954 $ 4,682 ================== ================== ================== Net income per share of common stock........... $ 0.09 $ 0.04 $ 0.18 ================== ================== ================== Average shares outstanding............ 18,000,000 22,326,613 26,132,455 ================== ================== ==================
See accompanying notes to consolidated financial statements. F-26 PALMER WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK COMMON STOCK (ACCUMULATED CLASS A CLASS B ADDITIONAL DEFICIT) TREASURY STOCK TOTAL ----------------- ----------------- PAID-IN RETAINED --------------- STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY (DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS) Balances at December 31, 1993................... 706,422 $ 7 17,293,578 $173 $ 3,064 $ -- -- $ -- $ 3,244 Partnership earnings before business combination............ -- -- -- -- 1,829 -- -- -- 1,829 Net loss................ -- -- -- -- -- (167) -- -- (167) Capital contribution, net before business combination............ -- -- -- -- 9 -- -- -- 9 ---------- ---- ---------- ---- -------- ------ ------- ------- -------- Balances at December 31, 1994................... 706,422 $ 7 17,293,578 $173 $ 4,902 $ (167) -- $ -- $ 4,915 Partnership loss before business combination... -- -- -- -- (1,066) -- -- -- (1,066) Public offering, net of issuance costs of $8,114................. 5,369,350 54 -- -- 68,345 -- -- -- 68,399 Exercise of stock options................ 20,000 -- -- -- 285 -- -- -- 285 Net income.............. -- -- -- -- -- 2,020 -- -- 2,020 ---------- ---- ---------- ---- -------- ------ ------- ------- -------- Balances at December 31, 1995................... 6,095,772 $ 61 17,293,578 $173 $ 72,466 $1,853 -- $ -- $ 74,553 Public offering, net of issuance costs of $5,826................. 5,000,000 50 -- -- 94,124 -- -- -- 94,174 Exercise of stock options................ 6,666 -- -- -- 95 -- -- -- 95 Employee and non- employee director stock purchase plans......... 17,243 -- -- -- 290 -- -- -- 290 Treasury shares purchased.............. -- -- -- -- -- -- 600,000 (8,864) (8,864) Net income.............. -- -- -- -- -- 4,682 -- -- 4,682 ---------- ---- ---------- ---- -------- ------ ------- ------- -------- Balances at December 31, 1996................... 11,119,681 $111 17,293,578 $173 $166,975 $6,535 600,000 $(8,864) $164,930 ========== ==== ========== ==== ======== ====== ======= ======= ========
See accompanying notes to consolidated financial statements. F-27 PALMER WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------- 1994 1995 1996 (DOLLAR AMOUNTS IN THOUSANDS) Cash flows from operating activities: Net income.................................... $ 1,662 $ 954 $ 4,682 --------- --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................ 9,817 15,004 25,013 Minority interest share of income............ 636 1,078 1,880 Deferred income taxes........................ -- 2,650 1,855 Increase in trade accounts receivable........ (4,195) (2,741) (1,561) (Increase) decrease in inventory............. (3,672) 4,076 (2,595) Increase (decrease) in accounts payable...... 2,508 2,623 (841) Increase (decrease) in accrued interest payable...................................... 1,184 (14) (167) Interest deferred and added to related party borrowings................................... 1,611 -- -- Deferred interest paid to related party...... (6,475) -- -- Interest deferred and added to other debt.... 537 607 355 Payment of deferred interest................. -- -- (1,080) Increase in accrued salaries and employee benefits..................................... 466 241 165 Increase (decrease) in other accrued liabilities.................................. 895 583 (507) Increase in deferred revenue................. 1,163 658 912 Increase (decrease) in customer deposits..... 191 (53) 134 Change in other accounts..................... 910 1,994 1,885 --------- --------- --------- Total adjustments.......................... $ 5,576 $ 26,706 $ 25,448 --------- --------- --------- Net cash provided by operating activities.. $ 7,238 $ 27,660 $ 30,130 --------- --------- --------- Cash flows from investing activities: Cash payment for purchases of non-wireline cellular telephone systems and licenses (note 3)..................................... (91,720) (158,397) (67,588) Purchases of minority interests.............. (3,097) (1,543) (1,854) Capital expenditures......................... (22,541) (36,564) (41,445) Proceeds from sales of property, plant and equipment.................................... 150 38 5 Decrease (increase) in other intangible assets and other assets...................... 358 (310) (2,180) Collection of purchase price adjustment...... -- -- 2,452 --------- --------- --------- Net cash used in investing activities...... $(116,850) $(196,776) $(110,610) --------- --------- --------- Cash flows from financing activities: Advances from Palmer Communications Incorporated................................. 4,176 -- -- Payments on advances from Palmer Communications Incorporated................. (2,359) (1,650) -- Increase in notes payable.................... -- -- 1,366 Proceeds from long-term debt................. 137,000 171,000 100,000 Repayment of long-term debt.................. (75) (65,125) (108,319) Repayment of related party borrowings........ (20,000) -- -- Payment of debt issuance costs............... (6,454) (4,803) -- Public offering proceeds, net................ -- 71,144 95,000 Proceeds from stock options exercised........ -- 285 95 Payment of deferred offering costs........... (1,448) (1,297) (826) Collection of common stock subscriptions receivable................................... 100 -- -- Purchase of treasury stock................... -- -- (8,864) Proceeds from sales under stock purchase plans........................................ -- -- 290 --------- --------- --------- Net cash provided by financing activities.. $ 110,940 $ 169,554 $ 78,742 --------- --------- --------- Net increase (decrease) in cash and cash equivalents................................ $ 1,328 $ 438 $ (1,738) Cash and cash equivalents at beginning of year.......................................... 1,670 2,998 3,436 --------- --------- --------- Cash and cash equivalents at end of year...... $ 2,998 $ 3,436 $ 1,698 ========= ========= =========
See accompanying notes to consolidated financial statements. F-28 PALMER WIRELESS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES During 1994, certain assets net of certain liabilities were transferred between Palmer Wireless, Inc. and Palmer Communications Incorporated. These transfers were treated as contributions to and distributions from equity and amounted to a net contribution of $9 for the year ended December 31, 1994. During 1994, Palmer Wireless, Inc. accrued $188 for unpaid deferred offering costs. During 1995, Palmer Wireless, Inc. committed to purchase certain minority interests in 1996. This commitment totaling $451 was accrued in 1995 and paid in 1996. During 1996, the Company increased the purchase obligations related to the final purchase price adjustment for the controlling interest in a non-wireline cellular telephone system purchased in 1991. This increase amounted to $899 and resulted in an increase in licenses. Acquisitions of non-wireline cellular telephone systems in 1994, 1995 and 1996 (note 3):
1994 1995 1996 Cash payment...................................... $91,720 $158,397 $67,588 ======= ======== ======= Allocated to: Fixed assets.................................... $11,332 $ 22,846 $ 5,678 Licenses........................................ 79,383 136,940 61,433 Deferred income taxes........................... -- (6,165) -- Current assets and liabilities, net............. 1,005 4,776 477 ------- -------- ------- $91,720 $158,397 $67,588 ======= ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
YEARS ENDED DECEMBER 31, ----------------------- 1994 1995 1996 Cash paid for interest.............................. $15,199 $18,435 $29,733 Cash paid for income taxes.......................... -- -- $ 1,591
See accompanying notes to consolidated financial statements. F-29 PALMER WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Palmer Wireless, Inc. and its subsidiaries (the "Company"), all of which the Company has an ownership interest in greater than 50 percent. Palmer Wireless, Inc. ("Wireless") is a Delaware corporation and was incorporated on December 15, 1993 to effect an initial public offering of its Class A Common Stock. At December 31, 1996, Palmer Communications Incorporated ("PCI") owned 61 percent of Wireless' outstanding common stock and had 75 percent of Wireless' voting rights and therefore Wireless is a subsidiary of PCI. In March of 1995, Wireless issued common stock for 100 percent of the partnership interests of Palmer Cellular Partnership (the "Partnership") (see note 2). Since this exchange was between related parties it has been accounted for in a manner similar to a pooling of interests. Therefore, the statements of operations, stockholders' equity and cash flows for the year ended December 31, 1994 have been restated to include the accounts of the Partnership. Losses in subsidiaries, attributable to minority stockholders and partners, in excess of their capital accounts and cash capital call provisions are not eliminated in consolidation. Significant intercompany accounts and transactions have been eliminated in the consolidation. OPERATIONS The Company has majority ownership in corporations and partnerships which operate the non-wireline cellular telephone systems in nine Metropolitan Statistical Areas ("MSA") in three states: Florida (two), Georgia (five) and Alabama (two). The Company's ownership percentages in these entities range from approximately 78 percent to 100 percent. The Company owns directly and operates eight non-wireline cellular telephone systems in Rural Service Areas ("RSA") in Georgia (seven) and Alabama (one). USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS For purposes of the statements of cash flows the Company considers repurchase agreements with a maturity of three months or less to be cash equivalents. TRADE ACCOUNTS RECEIVABLE The Company grants credit to its customers. Substantially all of the customers are residents of the local areas served by the Company. Generally, the Company discontinues service to customers whose accounts are 60 days past due. The activity in the Company's allowance for doubtful accounts for the years ended December 31, 1994, 1995, and 1996 consisted of the following:
ADDITIONS-- BALANCE AT ADDITIONS ALLOWANCE AT BALANCE BEGINNING CHARGED TO DATES OF DEDUCTIONS NET AT END OF YEAR EXPENSES ACQUISITIONS OF RECOVERIES OF YEAR Year ended December 31, 1994................... $ 681 $1,453 $ 211 $ 778 $1,567 ====== ====== ====== ====== ====== Year ended December 31, 1995................... $1,567 $2,078 $ 432 $2,197 $1,880 ====== ====== ====== ====== ====== Year ended December 31, 1996................... $1,880 $3,946 $1,270 $5,305 $1,791 ====== ====== ====== ====== ======
F-30 PALMER WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) INVENTORY Inventory consisting primarily of cellular telephones and telephone parts is stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is provided principally by the straight-line method over the estimated useful lives, ranging from 5 to 20 years for buildings and improvements and 5 to 10 years for equipment, communications systems and furnishings. ACQUISITIONS AND LICENSES The cost of acquired companies is allocated first to the identifiable assets, including licenses, based on the fair market value of such assets at the date of acquisition (as determined by independent appraisers or management of the Company). The excess of the total consideration over the amounts assigned to identifiable assets is recorded as goodwill. Also included in licenses are expenditures related directly to acquiring licenses which were not developed or operating at the time of purchase. Licenses and goodwill are being amortized from the date of commencement of service to customers (with applicable interest capitalized from acquisition date to this date) on a straight-line basis over a 40-year period. Subsequent to the acquisition of the licenses, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining estimated useful life of licenses may warrant revision or that the remaining balance of the license rights may not be recoverable. The Company has undergone an annual independent appraisal of its licenses' value. The Company utilizes projected undiscounted cash flows over the remaining life of the licenses and sales of comparable businesses to evaluate the recorded value of licenses. The assessment of the recoverability of the remaining balance of the license rights will be impacted if projected cash flows are not achieved. OTHER INTANGIBLE ASSETS AND OTHER ASSETS Other intangibles and other assets consist primarily of deferred financing costs, covenants not to compete, subscriber base, and other items. These costs are being amortized by the interest or straight-line method over their respective useful lives, which range from 5 to 10 years. INCOME TAXES The Company accounts for income taxes under the asset and liability method of accounting for deferred income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The 1994 consolidated financial statements made no provision for income taxes, due to the fact that the losses of the Partnership were included in the income tax returns of the individual partners. Also, the consolidated financial statements made no provision for income taxes of subsidiary corporations of the Company since those F-31 PALMER WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) corporations had approximately $16,182 of net operating loss carryforwards at December 31, 1994 for federal income tax purposes. In addition, the 1994 consolidated financial statements made no provision for income taxes on the loss of Wireless due to the non-utilization of Wireless' net operating loss for the year. INTEREST RATE SWAP AND CAP AGREEMENTS The differential to be paid or received in connection with interest rate swap agreements is accrued as interest rates change and is recognized over the life of the agreements. Premiums paid for purchased interest rate cap agreements are amortized to interest expense over the term of the caps. Unamortized premiums are included in other assets in the consolidated balance sheet. Amounts receivable under cap agreements are accrued as a reduction of interest expense. REVENUE RECOGNITION Service revenue includes local subscriber revenue and roamer revenue. The Company earns local subscriber revenue by providing access to the cellular network (access revenue) or, as applicable, for usage of the cellular network (airtime revenue). Access revenue is billed one month in advance and is recognized when earned. Airtime revenue is recognized when the service is rendered. Roamer revenue represents revenue earned by the Company for usage of its cellular network by subscribers of other cellular carriers. Roamer revenue is recognized when the services are rendered. Equipment sales and installation revenue is recognized upon delivery or installation of the equipment to the customer. OPERATING EXPENSES--ENGINEERING, TECHNICAL AND OTHER DIRECT Engineering, technical and other direct operating expenses represent certain costs of providing cellular telephone service to customers. These costs include cost of incollect roaming service. Incollect roaming is the result of the Company's subscribers using cellular networks of other cellular carriers. Incollect roaming revenue is netted against the cost of incollect roaming service to determine net incollect roaming expense. STOCK OPTION PLANS Prior to January 1, 1996, the Company accounted for its stock option plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. F-32 PALMER WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value estimates, methods and assumptions used to estimate the fair value of the Company's financial instruments are set forth below: For cash and cash equivalents, trade accounts receivable, receivable from other cellular carriers, notes payable, accounts payable and accrued expenses, the carrying amount approximates the estimated fair value due to the short- term nature of those instruments. Rates currently available to the Company for long-term debt with similar terms and remaining maturities are used to discount the future cash flows to estimate the fair value for long-term debt. Note 4 presents the fair value for long-term debt and the related interest rate cap and swap agreements. Fair value estimates are made as of a specific point in time, based upon the relevant market information about the financial instruments. Because no market exists for a majority of the Company's financial instruments, fair value estimates are based on judgements regarding current economic conditions and other factors. These estimates are subjective in nature and involve uncertainties and matters of judgement and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. COMPUTATION OF NET INCOME PER SHARE The computation of net income per share is based on the weighted average number of common and dilutive common equivalent shares (common stock options using the treasury stock method) outstanding during the periods presented. Average shares of common stock outstanding has been computed assuming that the 704,755 shares of Class A Common Stock and 17,288,578 shares of Class B Common Stock issued in the Exchange (as defined in note 2) have been outstanding since January 1, 1994 and the 1,667 shares of Class A Common Stock and the 5,000 shares of Class B Common Stock issued in the initial capitalization of Wireless have been outstanding since January 1, 1994. (2) OFFERING AND EXCHANGE On March 21, 1995 and April 18, 1995, Wireless issued 5,000,000 and 369,350 shares, respectively, of Class A Common Stock in an initial public offering (the "Offering") for net proceeds of $68,399. In connection with the Offering, on March 21, 1995, Wireless issued 704,755 shares of Class A Common Stock and 17,288,578 shares of Class B Common Stock in exchange for 100 percent of the Partnership interests of the Partnership (the "Exchange"). The assets and liabilities received in the Exchange were recorded at their historical cost to the Partnership and not revalued at fair value on the date of transfer. Since the Exchange was between related parties it has been accounted for in a manner similar to a pooling of interests (see note 1). (3) ACQUISITIONS AND PURCHASE OF LICENSES On October 31, 1994, the Company acquired the assets of and the licenses to operate the non-wireline cellular telephone systems serving the Georgia Rural Service Area Market Nos. 377, 378, 380 and 382, otherwise known as Georgia-7 RSA, Georgia-8 RSA, Georgia-10 RSA and Georgia-12 RSA, respectively, for an aggregate purchase price of $91,720. The acquisition was accounted for by the purchase method of accounting. In connection with this acquisition, $79,383 of the purchase price was allocated to licenses. From the date of acquisition to December 31, 1994, revenue, depreciation and amortization, operating loss and net loss before interest expense related to the purchase price of the non- wireline cellular telephone systems purchased were $1,803, $744, $(645) and $(644), respectively. On December 1, 1995, the Company purchased all of the outstanding stock of Augusta Metronet, Inc. and Georgia Metronet, Inc., which owned either directly (or in the case of Georgia Metronet, Inc., through its 97.9 percent interest in the Savannah Cellular Limited Partnership) the licenses to operate the non- wireline cellular F-33 PALMER WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) telephone systems in the Savannah and Augusta, Georgia MSAs, respectively, for an aggregate purchase price of $158,397. The acquisition was accounted for by the purchase method of accounting. In connection with this acquisition, $136,940 of the purchase was allocated to licenses. From the date of acquisition to December 31, 1995, revenue, depreciation and amortization, operating income and net income before interest expense related to the purchase price of the non-wireline cellular telephone systems were $2,126, $508, $208 and $202, respectively. On June 20, 1996, the Company acquired the assets of and the license to operate the non-wireline cellular telephone system serving the Georgia Rural Service Area Market No. 371, otherwise known as Georgia-1 RSA for an aggregate purchase price of $31,616. The acquisition was accounted for by the purchase method of accounting. In connection with the acquisition, $27,942 of the purchase price was allocated to licenses. From the date of acquisition to December 31, 1996, revenue, depreciation and amortization, operating loss and net loss before interest expense related to the purchase of the non-wireline cellular telephone system were $1,239, $556, $(278), and $(278), respectively. On July 5, 1996, two of the Company's majority-owned subsidiaries acquired the assets of and the license to operate the non-wireline cellular telephone system serving the Georgia Rural Service Area Market No. 376, otherwise known as Georgia-6 RSA for an aggregate purchase price of $35,972. The acquisition was accounted for by the purchase method of accounting. In connection with the acquisition, $33,491 of the purchase price was allocated to licenses. From the date of acquisition to December 31, 1996, revenue, depreciation and amortization, operating income, and net income before interest expense related to the purchase of the non-wireline cellular telephone system were $2,682, $578, $743, and $743, respectively. Assuming the 1995 and 1996 acquisitions had occurred on January 1, 1995, unaudited pro forma revenue, net (loss) income and net (loss) income per share for the year ended December 31, 1995 would have been $132,958, $(12,437), and $(.56), respectively, and for the year ended December 31, 1996, would have been $163,393, $3,840, and $.15, respectively. These pro forma amounts assume that the financing requirements were met by the incurrence of bank debt and are not necessarily indicative of what the actual consolidated results of operation might have been if the acquisition had been effective on January 1, 1995. (4) NOTES PAYABLE AND LONG-TERM DEBT On December 1, 1995, the Company entered into a loan agreement with a bank which provides for a revolving line of credit of up to $5,000 to facilitate day-to-day cash management needs. The loan agreement provides for interest at the bank's prime rate and matures November 30, 1997. Long-term debt consists of the following:
DECEMBER 31, ----------------- 1995 1996 Credit agreement (a)...................................... $343,000 $337,000 Purchase obligations (b).................................. 7,441 5,296 -------- -------- $350,441 $342,296 Less current installments................................. 7,441 5,296 -------- -------- Long-term debt, excluding current installments............ $343,000 $337,000 ======== ========
- --------------------- (a) On December 1, 1995, the Company entered into an amended and restated credit agreement with 21 banks which provides for a revolving line of credit of up to $500,000, subject to certain limitations through June 30, 2004. This credit agreement increased the Company's previously existing $275,000 revolving line of credit. The credit agreement provides for quarterly commitment reductions commencing September 30, 1998 and commitment reductions of 25 to 50 percent of Excess Cash Flow (as defined in the credit agreement), if any, are F-34 PALMER WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) required on April 15, 1998 and annually thereafter. Interest is payable at variable rates and under various interest rate options. The interest rate at December 31, 1996 ranged from 7.42 to 8.88 percent before the effect of the interest rate swap and cap agreements outlined below. The credit agreement also provides for a commitment fee of .5 percent per year on any unused amounts of the credit agreement. Amounts outstanding are secured by the assets of the Company. The credit agreement provides for various compliance covenants and restrictions, including items related to mergers or acquisition transactions, the declaration or payment of dividends or other payments to stockholders, capital expenditures and maintenance of certain financial ratios. At December 31, 1996, the Company was in compliance with all but one financial ratio covenant. This covenant was based upon operating results for the year ended December 31, 1996. The Company obtained a waiver of the noncompliance with this 1996 financial ratio covenant. The Company has entered into interest rate swap and cap agreements to reduce the impact of changes in interest rates on its floating debt and thus were entered into for purposes other than trading. At December 31, 1996, the Company had outstanding ten interest rate swap agreements and four interest rate cap agreements having a total notional value of $295,000. These interest rate swap and cap agreements effectively change the Company's interest rate exposure on a quarterly basis on $295,000 of credit. The cap and swap agreements are summarized as follows:
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. F-35 PALMER WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Fees in the amount of $240 were incurred in connection with certain of the cap agreements and are being amortized over the lives of the respective cap agreements. The market value of the swap and cap agreements above, which has not been reflected in the consolidated financial statements as of December 31, 1996, is a loss of $1,545. The Company is exposed to interest rate risk in the event of nonperformance by the other party to the interest rate swap and cap agreements. However, the Company does not anticipate nonperformance by any of the banks. (b) In connection with the purchase of controlling interest in a non- wireline cellular telephone system in 1991, the Company incurred certain purchase obligations. The obligations, were retired in July 1996 and January 1997. Based upon current borrowing rates the fair value approximates the carrying value of the long-term debt outstanding under the credit agreement described in (a) above and the purchase obligations described in (b) above. The aggregate maturities of long-term debt are as follows:
DECEMBER 31, AMOUNT 1997........................... $ 5,296 1998........................... -- 1999........................... -- 2000........................... -- 2001........................... 72,000 Thereafter..................... 265,000 -------- $342,296 ======== ===
(5) 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 ====== ==== ======
F-36 PALMER WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The consolidated effective tax rate differs from the statutory United States federal tax rate for the following reasons and by the following percentages:
YEARS ENDED DECEMBER 31, ------------ 1995 1996 Statutory United States federal tax rate........................ 34.0% 34.0% Partnership loss prior to corporate status...................... 10.1 -- License amortization not deductible for tax..................... 7.7 32.5 Net operating loss carryforwards................................ (59.0) (42.8) State taxes..................................................... -- 8.3 Recognition of deferred income taxes related to the difference between financial statement and income tax bases of certain assets and liabilities in connection with the Exchange......... 73.5 -- Other........................................................... 7.2 4.8 ----- ----- Consolidated effective tax rate................................. 73.5% 36.8% ===== =====
The components of the deferred income tax assets and liabilities are as follows:
DECEMBER 31, ------------------ 1995 1996 Deferred tax assets: Allowance for doubtful accounts..................... $ 658 $ 609 Nondeductible accruals.............................. 163 221 Net operating loss carryforwards.................... 4,314 4,100 -------- -------- Total deferred tax assets......................... $ 5,135 $ 4,930 Valuation allowance................................. (3,898) -- -------- -------- $ 1,237 $ 4,930 -------- -------- Deferred tax liabilities: Property, plant and equipment....................... (7,323) (7,415) Licenses............................................ (2,729) (8,185) -------- -------- Total deferred tax liabilities.................... $(10,052) $(15,600) -------- -------- Deferred tax liability, net......................... $ (8,815) $(10,670) ======== ========
The net change in the total valuation allowance for the year ended December 31, 1996 was a decrease of $3,898. A valuation allowance had been recorded primarily to offset the gross deferred tax assets created by net operating loss carryforwards until such time as earnings of the Company or alternative tax planning strategies warranted full recognition. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize that portion of the deferred tax asset related to the net operating loss carryforwards. The net operating loss carryforwards totaled approximately $11,700 at December 31, 1996 and expire in amounts ranging from approximately $400 to $4,100 through 2011. For carryforwards of approximately $10,900, generated in periods prior to the Exchange, utilization is limited to the subsidiary that generated the carryforwards, unless the Company utilizes alternative tax planning strategies. F-37 PALMER WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (6) RELATED PARTY TRANSACTIONS During 1994, the Company had a subordinated demand note of $20,000 with Palmer Broadcasting Limited Partnership, a majority-owned subsidiary of PCI. Interest expense under the note was $1,611 for the year ended December 31, 1994. The note was paid off in 1994. PCI had previously extended the Company a line of credit in the amount of $3,000 that was used for the initial operations of the Company, to pay organization expenses and to pay expenses of the Offering. The line of credit bore interest at 2 percent above the prime rate. Interest expense on the line of credit amounted to $117 for the year ended December 31, 1994. The borrowings totaling $1,615 were repaid with the proceeds of the Offering. During 1994, the Company earned $78 of interest income from advances to PCI. During 1994, the Company performed certain management functions for PCI. These functions included general management, human resources administration, accounting, and computer services. PCI was charged a fee based on the Company's estimate of its time spent managing PCI and usage of its computer. Concurrently with the Offering and the Exchange, the Company and PCI entered into both a transitional management and administrative services agreement and a computer services agreement that extend each December 31 for additional one- year periods unless and until either party notifies the other. The fees from these arrangements amounted to a total of $509, $492, and $534 for the years ended December 31, 1994, 1995, and 1996, respectively, and are included as a reduction of selling, general and administrative expenses. During 1994, PCI provided certain tax consulting services to the Company. Concurrently with the Offering and the Exchange, the Company and PCI entered into a tax consulting agreement that extends each December 31 for additional one-year periods unless and until either party notifies the other. The fees for tax consulting services amounted to a total of $67, $84, and $120 for the years ended December 31, 1994, 1995, and 1996, respectively, and are included in selling, general and administrative expenses. PCI has a 401(k) plan with a noncontributory retirement feature and a matching provision for employees who meet length of service and other requirements. The Company participates in this plan and was allocated 401(k) retirement and matching expense of $305, $493, and $696 for the years ended December 31, 1994, 1995, and 1996, respectively. (7) COMMON STOCK AND STOCK PLANS During 1994, the Company amended its certificate of incorporation to increase the number of authorized shares of common stock from 60,000,000 to 91,000,000 and to provide for Class A Common Stock and Class B Common Stock. The Class A Common Stock has one vote per share. The Class B Common Stock, which may be owned only by PCI or certain successors of PCI and of which no shares may be issued subsequent to the Offering, has five votes per share, provided, however, that, so long as any Class A Common Stock is issued and outstanding, at no time will the total outstanding Class B Common Stock have the right to cast votes having more than 75 percent of the total voting power of the common stock in the aggregate. Shares of Class B Common Stock shall be converted into Class A Common Stock on a share-for-share basis: (i) at any time at the option of the holder; (ii) immediately upon the transfer of shares of Class B Common Stock to any holder other than a successor of PCI; (iii) immediately if the shares of Class B Common Stock held by PCI or its successors constitute 33 percent or less of the outstanding shares of the Company; (iv) at the end of 20 years from original issuance of those shares of Class B Common Stock; or (v) if more than 50 percent of the equity interests in PCI become beneficially owned by persons other than: (i) beneficial owners of PCI as of December 29, 1994 ("Current PCI Beneficial Owners"); (ii) affiliates of Current PCI Beneficial Owners; (iii) heirs or devisees of F-38 PALMER WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) any individual Current PCI Beneficial Owner, successors of any corporation or partnership which is a Current PCI Beneficial Owner and beneficiaries of any trust which is a Current PCI Beneficial Owner; and (iv) any relative, spouse or relative of a spouse of any Current PCI Beneficial Owner. The Company adopted a Stock Option Plan in connection with the Offering, under which options for an aggregate of 1,600,000 shares of Class A Common Stock are available for grants to key employees. The Company also adopted a Director's Stock Option Plan in connection with the Offering, under which options for an aggregate of 300,000 shares of Class A Common Stock are available for grants to directors who are not officers or employees of the Company. Stock options under both plans are granted with an exercise price equal to the stock's fair value at the date of grant. The stock options granted under the Stock Option Plan have 10-year terms and vest and become exercisable ratably over three years from the date of grant. The stock options granted under the Director's Stock Option Plan are vested and become fully exercisable upon the date of the grant. At December 31, 1996, there were options with respect to 693,334 and 45,000 shares of Class A Common Stock outstanding under the Stock Option Plan and the Director's Stock Option Plan, respectively. At December 31, 1996, there were 880,000 and 255,000 additional shares available for grant under the Stock Option Plan and the Director's Stock Option Plan, respectively. The Company applies APB Opinion No. 25 in accounting for its Stock Option Plan and Director's Stock Option Plan ("the Plans") and accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No.123, the Company's net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below:
YEARS ENDED DECEMBER 31, ------------- 1995 1996 Net income-as reported...................................... $ 954 $4,682 Net (loss) income-pro forma................................. $(777) $2,850 Net income per share-as reported............................ $ .04 $ .18 Net (loss) income per share-pro forma....................... $(.03) $ .11
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the weighted-average assumptions as follows: dividend yield of 0.0%; expected volatility of 101%; risk-free interest rate of 5.5%; and expected lives of five years. The fair value of the option grants in 1995 and 1996 were $11.04 and $13.36 per share, respectively. Stock option activity during the periods indicated is as follows:
WEIGHTED NUMBER OF AVERAGE SHARES EXERCISE PRICE 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 =======
At December 31, 1996, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $14.25--$17.25 and 8.3 years, respectively. F-39 PALMER WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) At December 31, 1995 and 1996, the number of options exercisable was 37,500 and 250,000, respectively, and the weighted average exercise price of those options was $14.25 and $14.34, respectively. The Company adopted a stock purchase plan for employees (the "Employee Stock Purchase Plan") and a stock purchase plan for non-employee directors (the "Non-Employee Director Stock Purchase Plan"). Under the Employee Stock Purchase Plan, 160,000 shares of Class A Common Stock are available for purchase by eligible employees of the Company or any of its subsidiaries. Under the Non-Employee Director Stock Purchase Plan, 25,000 shares of Class A Common Stock are available for purchase by non-employee directors of the Company. The purchase price of each share of Class A Common Stock purchased under the Employee Stock Purchase Plan or the Non-Employee Director Stock Purchase Plan will be the lesser of 90 percent of the fair market value of the Class A Common Stock on the first trading day of the plan year or on the last day of such plan year; provided, however, that in no event shall the purchase price be less than the par value of the stock. Both plans will terminate in 2005, unless terminated at an earlier date by the board of directors. During the year ended December 31, 1996, 15,541 shares were issued under the Employee Stock Purchase Plan and 1,702 shares were issued under the Non-Employee Director Stock Purchase Plan at a purchase price of $16.85. Compensation cost computed under the provisions of SFAS No. 123 related to the shares issued under the Employee Stock Purchase Plan and the Non-Employee Director Stock Purchase Plan is immaterial to the consolidated financial statements. (8) COMMITMENTS AND CONTINGENCIES LEASES The Company occupies certain buildings and uses certain tower sites, cell sites and equipment under noncancellable operating leases which expire through 2014. The operating leases for a building and certain tower sites and cell sites are with related parties. Future minimum lease payments under noncancellable operating leases as of December 31, 1996 are as follows:
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 ---- ------- Total minimum lease payments................... $636 $16,716 ==== =======
Rental expense was $1,609, $2,487, and $3,551 for the years ended December 31, 1994, 1995 and 1996, respectively, of which $253, $269, and $278 was paid to related parties for 1994, 1995 and 1996, respectively. CONTINGENCIES The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial statements. F-40 PALMER WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) EMPLOYMENT AGREEMENTS The Company has employment agreements with six officers of the Company. The agreements have terms of two or three years and provide for aggregate annual salaries of $1,181 in 1997. Each employment agreement provides that if the officer is terminated by the Company without cause (as defined therein) or terminates the agreement for good reason (as defined therein), the Company will pay the officer the full base salary and benefits which would have been paid to such officer during the remaining term of the agreement. (9) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995 FIRST QUARTER(A) SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL Total Revenue........... $22,374 $25,931 $26,055 $30,546 $104,906 ======= ======= ======= ======= ======== Operating Income........ $ 4,872 $ 6,892 $ 8,152 $ 6,666 $ 26,582 ======= ======= ======= ======= ======== Net (Loss) Income....... $(3,958) $ 1,620 $ 2,801 $ 491 $ 954 ======= ======= ======= ======= ======== Net (Loss) Income Per Share*................. $ (.21) $ .07 $ .12 $ .02 $ .04 ======= ======= ======= ======= ======== YEAR ENDED DECEMBER 31, 1996 FIRST QUARTER (B) SECOND QUARTER (B) THIRD QUARTER (B) FOURTH QUARTER TOTAL Total Revenue........... $36,950 $40,031 $41,171 $41,591 $159,743 ======= ======= ======= ======= ======== Operating Income........ $ 8,514 $11,281 $11,977 $ 9,405 $ 41,177 ======= ======= ======= ======= ======== Net Income (Loss)....... $ 76 $ 1,684 $ 2,976 $ (54) $ 4,682 ======= ======= ======= ======= ======== Net Income (Loss) Per Share*................. $ .00 $ .07 $ .10 $ (.00) $ .18 ======= ======= ======= ======= ========
- --------------------- (a) First quarter loss was increased by $2,650 due to the recognition of deferred income taxes relating to the difference between financial statement and income tax return bases of certain assets and liabilities in connection with the Exchange. (b) Certain reclassifications have been made to conform to the fourth quarter presentation. * Weighted average shares outstanding for the quarters are calculated independent of the weighted average shares outstanding for the year; therefore, quarterly net income (loss) per share may not total to annual net income per share. (10) SUBSEQUENT EVENT On February 1, 1997, one of the Company's majority-owned subsidiaries acquired the assets of and license to operate the non-wireline cellular telephone system serving the Georgia Rural Service Area Market No. 383, otherwise known as Georgia-13 RSA for a total purchase price of $30,000, subject to certain adjustments. F-41 PALMER WIRELESS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ($ IN THOUSANDS) (UNAUDITED)
DECEMBER 31, JUNE 30, 1996 1997 ------------ -------- ASSETS Current Assets: Cash and Cash Equivalents............................ $ 1,698 $ 1,740 Trade Accounts Receivable, Net of Allowance for Doubtful Accounts................................... 18,784 19,049 Receivable from Other Cellular Carriers.............. 1,706 3,669 Deferred Income Taxes................................ 830 980 Prepaid Expenses and Deposits........................ 2,313 1,794 Inventory............................................ 5,106 3,181 -------- -------- Total Current Assets............................... $ 30,437 $ 30,413 Net Property, Plant and Equipment...................... 132,438 157,596 Licenses, Net of Amortization.......................... 375,808 398,845 Other Intangible Assets and Other Assets, at Cost Less Accumulated Amortization.............................. 11,259 10,348 -------- -------- $549,942 $597,202 ======== ======== LIABILITIES AND EQUITY Current Liabilities: Notes Payable........................................ $ 1,366 $ 2,321 Current Installments of Long-Term Debt............... 5,296 -- Accounts Payable..................................... 10,394 9,032 Accrued Expenses..................................... 8,399 11,896 Other Liabilities.................................... 4,686 4,874 -------- -------- Total Current Liabilities.......................... $ 30,141 $ 28,123 Long-Term Debt, Excluding Current Installments......... 337,000 378,000 Deferred Income Taxes.................................. 11,500 15,326 Minority Interests..................................... 6,371 7,123 -------- -------- Total Liabilities.................................. $385,012 $428,572 -------- -------- Stockholders' Equity................................... 164,930 168,630 -------- -------- $549,942 $597,202 ======== ========
- --------------------- Note: The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes to condensed consolidated financial statements. F-42 PALMER WIRELESS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, ---------------------- 1996 1997 ---------- ---------- Revenue: Service.............................................. $ 72,741 $ 88,140 Equipment sales and installation..................... 4,239 5,088 ---------- ---------- Total revenue...................................... $ 76,980 $ 93,228 ---------- ---------- Operating expenses: Engineering, technical and other direct.............. 14,939 15,554 Cost of equipment.................................... 8,397 11,057 Selling, general and administrative.................. 21,977 27,204 Depreciation and amortization........................ 11,872 15,129 ---------- ---------- Total operating expenses........................... $ 57,185 $ 68,944 ---------- ---------- Operating income................................... $ 19,795 $ 24,284 ---------- ---------- Other income (expense): Interest expense, net................................ (16,006) (16,113) Other (expense) income, net.......................... (58) 162 ---------- ---------- Total other expense................................ $ (16,064) $ (15,951) ---------- ---------- Income before minority interest share of income and income taxes........................... $ 3,731 $ 8,333 Minority interest share of income ..................... (1,023) (782) ---------- ---------- Income before income taxes........................... $ 2,708 $ 7,551 Income taxes........................................... (948) (3,851) ---------- ---------- Net income........................................... $ 1,760 $ 3,700 ========== ========== Net income per share of common stock................... $ 0.07 $ 0.13 ========== ========== Average shares outstanding............................. 23,940,039 27,813,259 ========== ==========
See accompanying notes to condensed consolidated financial statements. F-43 PALMER WIRELESS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ($ IN THOUSANDS) (UNAUDITED)
COMMON STOCK COMMON STOCK CLASS A CLASS B ADDITIONAL TREASURY STOCK TOTAL ------------------ ----------------- PAID-IN RETAINED --------------- STOCKHOLDERS' SHARES AMOUNTS SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY ---------- ------- ---------- ------ ---------- -------- ------- ------- ------------- Balances at December 31, 1995................... 6,095,772 $ 61 17,293,578 $173 $72,466 $ 1,853 -- $ -- $ 74,553 Public offering, net of issuance costs of $5,826................. 5,000,000 50 -- -- 94,124 -- -- -- 94,174 Exercise of stock op- tions.................. 6,666 -- -- -- 95 -- -- -- 95 Employee and non-em- ployee director stock purchase plans......... 17,243 -- -- -- 290 -- -- -- 290 Treasury shares pur- chased................. 600,000 (8,864) (8,864) Net income.............. -- -- -- -- -- 4,682 -- -- 4,682 ---------- ---- ---------- ---- ------- ------- ------- ------- -------- Balances at December 31, 1996................... 11,119,681 $111 17,293,578 $173 166,975 $ 6,535 600,000 $(8,864) $164,930 Net income.............. -- -- -- -- -- 3,700 -- -- 3,700 ---------- ---- ---------- ---- ------- ------- ------- ------- -------- Balances at June 30, 1997................... 11,119,681 $111 17,293,578 $173 166,975 $10,235 600,000 $(8,864) $168,630 ========== ==== ========== ==== ======= ======= ======= ======= ========
See accompanying notes to condensed consolidated financial statements. F-44 PALMER WIRELESS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($ IN THOUSANDS) (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, ------------------- 1996 1997 --------- -------- Cash flows from operating activities: Net income.............................................. $ 1,760 $ 3,700 --------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................... 11,872 15,129 Minority interest share of income..................... 1,023 782 Deferred income taxes................................. 498 3,676 Loss (gain) on disposal of property................... 59 (9) Interest deferred and added to long-term debt......... 326 -- Payment of deferred interest.......................... -- (1,514) (Increase) decrease in trade accounts receivable...... (809) 500 Decrease in inventory................................. 358 2,085 (Decrease) increase in accounts payable and accrued expenses............................................. (1,629) 1,799 Change in other accounts.............................. 2,345 (576) --------- -------- Total adjustments..................................... $ 14,043 $ 21,872 --------- -------- Net cash provided by operating activities........... $ 15,803 $ 25,572 --------- -------- Cash flows from investing activities: Capital expenditures.................................... (21,639) (31,700) Proceeds from sales of property and equipment........... 4 201 Purchase of cellular systems............................ (31,500) (31,260) Collection of purchase price adjustment................. 2,452 -- Purchases of minority interests......................... (1,254) (794) Increase in other intangible assets and other assets.... (1,710) (1 50) --------- -------- Net cash used in investing activities................. $ (53,647) $(63,703) --------- -------- Cash flows from financing activities: Increase in short term notes payable.................... 2,535 955 Repayment of long-term debt............................. (100,050) (3,782) Proceeds from long-term debt............................ 39,000 41,000 Public offering proceeds, net........................... 94,295 -- --------- -------- Net cash provided by financing activities............. $ 35,780 $ 38,173 --------- -------- Net (decrease) increase in cash and cash equivalents.. $ (2,064) $ 42 Cash and cash equivalents at the beginning of period...... 3,436 1,698 --------- -------- Cash and cash equivalents at the end of period............ $ 1,372 $ 1,740 ========= ======== Supplemental disclosure of cash flow information: Income taxes paid (received), net....................... $ 1,172 $ (617) ========= ======== Interest paid........................................... $ 14,460 $ 16,328 ========= ========
See accompanying notes to condensed consolidated financial statements. F-45 PALMER WIRELESS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of Palmer Wireless, Inc. and subsidiaries (the "Company") have been prepared without audit pursuant to Rule 10-01 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financials. In the opinion of management, all adjustments (none of which were other than normal recurring items) considered necessary for a fair presentation have been included. The results of operations for the interim periods reported are not necessarily indicative of results to be expected for the year. The computation of net income per share is based on the weighted average number of common and, as appropriate, dilutive common equivalent shares (common stock options using the treasury stock method) outstanding during the periods presented. RECLASSIFICATIONS Certain reclassifications have been made to the 1996 Statement of Operations to conform to the 1997 presentation. (2) ACQUISITION AND PURCHASE OF LICENSE On February 1, 1997, one of the Company's majority-owned subsidiaries acquired the assets of and license to operate the non-wireline cellular telephone system serving the Georgia Rural Service Area Market No. 383, otherwise known as Georgia-13 RSA, for a total purchase price of $31,260. (3) PROPOSED SALE On May 23, 1997, the Company entered into an agreement to sell its outstanding shares of common stock to Price Communications Corporation for a purchase price of $17.50 per share, for an aggregate purchase price of approximately $489,000. In addition, Price Communications Corporation has also agreed to repay up to $389,000 of outstanding indebtedness of the Company. F-46 ANNEX I AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into this 23rd day of May, 1997, by and among PALMER WIRELESS, INC., a Delaware corporation (the "Company"), PRICE COMMUNICATIONS CORPORATION, a New York corporation ("Acquiror"), and PRICE COMMUNICATIONS CELLULAR MERGER CORP., a Delaware corporation ("Merger Sub"). WHEREAS, the Boards of Directors of the Company, Acquiror and Merger Sub have each determined that it is fair to, and in the best interests of their respective stockholders that Merger Sub, a wholly-owned subsidiary of Acquiror, merge with and into the Company, pursuant to and subject to the terms and conditions of this Agreement and the Delaware General Corporation Law ("Delaware Law"); and WHEREAS, concurrently with the execution of this Agreement and as an inducement to Acquiror to enter into this Agreement, Palmer Communications Incorporated, a Delaware corporation ("PCI"), has entered into a voting agreement with Acquiror (the "Voting Agreement") pursuant to which, among other things, PCI has agreed to vote its shares of common stock of the Company in favor of this Agreement, the Merger (as defined below) and the other transactions contemplated by this Agreement. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth in this Agreement, the parties hereto agrees as follows: ARTICLE I The Merger Section 1.1. The Merger. Upon the terms and subject to the conditions set forth in this Agreement (including approval of the Federal Communications Commission (the "FCC")), and in accordance with Delaware Law, at the Effective Time (as defined in Section 1.2) Merger Sub shall be merged with and into the Company (the "Merger"). As a result of the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation of the Merger (sometimes referred to herein as the "Surviving Corporation") and a wholly-owned subsidiary of Acquiror. The name of the Company shall continue as the name of the Surviving Corporation. Section 1.2. Effective Time. At the Closing, the parties hereto shall cause the Merger to be consummated by filing a certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, Delaware Law and in such form as approved by the Company and Acquiror prior to such filing (the date and time of the filing of the Certificate of Merger or the time specified therein being the "Effective Time"). Section 1.3. Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, except as otherwise provided herein, all the rights, privileges, powers and franchises of Merger Sub and the Company, shall vest in the Surviving Corporation, and all debts, liabilities and duties of Merger Sub and the Company shall become the debts, liabilities and duties of the Surviving Corporation. 1 Section 1.4. Certificate of Incorporation; Bylaws. At the Effective Time, subject to the terms and conditions of Section 7.8 hereof, (a) the certificate of incorporation of Merger Sub, as in effect immediately prior to the Effective Time and as amended by the Certificate of Merger, shall be the certificate of incorporation of the Surviving Corporation, and (b) the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Corporation. Section 1.5. Directors and Officers. The directors of Merger Sub (or such other or additional individuals as Acquiror may designate prior to Closing) shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation; and the officers of the Company shall continue as the officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified. Section 1.6. Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the "Closing") will take place as promptly as practicable after satisfaction of the latest to occur or, if permissible, waiver of the conditions set forth in Article VIII hereof (the "Closing Date"), at the offices of Hogan & Hartson L.L.P., Columbia Square, 555 13th Street, N.W., Washington, D.C. 20004, unless another date or place is agreed to in writing by the parties hereto. Section 1.7. Subsequent Actions. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to continue in, vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties, privileges, franchises or assets of either of its constituent corporations acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation shall be directed and authorized to execute and deliver, in the name and on behalf of either of such constituent corporations, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of such corporations or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties, privileges, franchises or assets in the Surviving Corporation or otherwise to carry out this Agreement. ARTICLE II Conversion of Securities; Exchange of Certificates Section 2.1. Conversion of Securities. At the Effective Time, by virtue of the Merger and without any action on the part of Acquiror, Merger Sub, the Company or the holders of any of the following securities: (a) Company Common Stock. Subject to the other provisions of this Section 2.1, each share of (i) Class A common stock, par value $.01 per share, of the Company ("Class A Common Stock"), issued and outstanding immediately prior to the Effective Time (excluding any shares described in Sections 2.1(b) and (c) and any Dissenting Shares (as hereinafter defined)), and (ii) Class B common stock, par value $.01 per share, of the Company ("Class B Common Stock"; together with the Class A Common Stock, the "Common Stock"), shall be converted into the right to receive Seventeen Dollars and Fifty Cents ($17.50) in cash, without interest (the "Per Share Amount"). All such shares of Common Stock shall cease to be outstanding and shall automatically be canceled and retired and shall cease to exist, and each certificate previously evidencing any such shares shall thereafter represent only the right to receive the Merger 2 Consideration as described below. The holders of certificates previously evidencing such shares of Common Stock outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such shares of Common Stock, except as otherwise provided herein or by law. Each such certificate previously evidencing such shares of Common Stock shall be exchanged for the Per Share Amount multiplied by the number of shares previously evidenced by the canceled certificate upon the surrender of such certificate in accordance with the provisions of Section 2.2, without interest; (b) Acquiror-Owned Shares. All shares of capital stock of the Company owned, directly or indirectly, by Acquiror, Merger Sub or any Acquiror Subsidiary (as defined in Section 5.1) shall be canceled and extinguished without any conversion thereof and no cash shall be delivered or deliverable in exchange therefor; (c) Treasury Stock. All shares of capital stock of the Company held in the treasury of the Company immediately prior to the Effective Time shall be canceled and extinguished without any conversion thereof and no cash shall be delivered or deliverable in exchange therefor; and (d) Merger Sub Stock. Each share of common stock, par value $.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one (1) duly and validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. Section 2.2. Payment. (a) Paying Agent. As of the Effective Time, Acquiror shall, on behalf of Merger Sub, deposit with a bank theretofore designated by the Company and Acquiror (the "Paying Agent"), for the benefit of the holders of shares of Common Stock (excluding any shares described in Sections 2.1(b) and (c) and any Dissenting Shares), for payment in accordance with this Article II, through the Paying Agent, cash in an amount equal to the Per Share Amount multiplied by the number of shares of Common Stock outstanding immediately prior to the Effective Time (excluding any shares described in Sections 2.1(b) and (c) and any Dissenting Shares) (such cash being hereinafter referred to as the "Payment Fund"). Acquiror shall cause the Paying Agent, pursuant to irrevocable instructions, to deliver the cash contemplated to be paid pursuant to Section 2.1(a) out of the Payment Fund. The Payment Fund shall not be used for any other purpose. (b) Payment Procedures. Promptly after the Effective Time, Acquiror shall cause the Paying Agent to mail to each record holder, as of the Effective Time, of an outstanding certificate (each a "Certificate" and collectively, the "Certificates") that immediately prior to the Effective Time evidenced outstanding shares of Common Stock (excluding any shares described in Sections 2.1(b) and (c) and any Dissenting Shares), a form letter of transmittal and instructions for use in effecting the surrender of the Certificates for payment therefor. Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal duly executed, and any other required documents, the holder of such Certificate shall be entitled to receive in exchange therefor the consideration set forth in Section 2.1(a) (the "Merger Consideration"), and such Certificate shall forthwith be canceled. No interest will be paid or accrued on the cash payable upon the surrender of the Certificates. Until surrendered in accordance with the provisions of this Section 2.2, each Certificate shall represent for all purposes only the right to receive the consideration set forth in Section 2.1(a), without any interest thereon. (c) No Further Rights in Common Stock. All cash paid upon conversion of the shares of Common Stock in accordance with the terms of this Article II, and all cash paid pursuant to Section 2.5, shall be deemed to have been paid in full satisfaction of all rights pertaining to such shares of Common Stock. (d) Termination of Payment Fund. Any portion of the Payment Fund that remains undistributed to the holders of Common Stock for one hundred eighty (180) days after the Effective Time shall be delivered to Acquiror, upon demand, and any holders of Common Stock that have not theretofore complied with this Article II shall thereafter look only to the Surviving Corporation and Acquiror for the Merger Consideration to which they are entitled. 3 (e) No Liability. Neither Acquiror nor the Surviving Corporation shall be liable to any holder of shares of Common Stock for any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. (f) Lost, Stolen or Destroyed Certificates. In the event any Certificate evidencing shares of Common Stock shall have been lost, stolen or destroyed, upon the making of an affidavit setting forth that fact by the person claiming such lost, stolen or destroyed Certificate(s) and granting a reasonable indemnity against any claim that may be made against Acquiror or the Paying Agent with respect to such Certificate(s), Acquiror shall cause the Paying Agent to pay to such person the Merger Consideration with respect to such lost, stolen or destroyed Certificate(s). Section 2.3. Company Options; Stock Purchase Plan. (a) Company Options. Immediately prior to the Effective Time, (i) each outstanding stock option to purchase shares of Class A Common Stock (a "Plan Option") granted under the Company's 1995 Stock Option Plan and 1995 Directors' Stock Option Plan, each as amended to the date of this Agreement (collectively, the "Company Stock Option Plans"), and (ii) each phantom option to purchase shares of Class A Common Stock described on Schedule 3.3 hereto (a "Phantom Option"; together with the Plan Options, the "Options"), whether or not any such Options are exercisable, shall be terminated by the Company, and Acquiror shall, on behalf of Merger Sub, pay to the holder thereof at the Effective Time, in consideration for such termination, an amount in cash equal to the excess, if any, of the Per Share Amount over the per share exercise price of such Option, multiplied by the number of shares of Class A Common Stock into which the Option remains unexercised. Any such payment shall be subject to all applicable federal, state and local tax withholding requirements. The Company shall terminate the Company Stock Option Plans as of the Effective Time, and take all such action as is necessary to terminate the Options as of the Effective Time, so that on and after the Effective Time no holder of an Option shall have any option to purchase shares of Class A Common Stock or any other equity interest in the Company under the Company Stock Option Plans or the Phantom Option agreements. (b) Employee Stock Purchase Plan. Effective as of the Effective Time, the Company's 1995 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") shall be terminated and the then applicable Payroll Deduction Period (as defined in the Employee Stock Purchase Plan) shall be deemed to have ended on the last trading day of the Class A Common Stock immediately prior to the Effective Time. At the Effective Time, Acquiror shall, on behalf of Merger Sub, pay to each Company employee who is a participant in the Employee Stock Purchase Plan as of the Effective Time, an amount in cash equal to the Per Share Amount multiplied by the number of shares of Class A Common Stock which the accumulated funds in such employee's account would have been entitled to purchase under the terms of the Employee Stock Purchase Plan as of the end of such Payroll Deduction Period. Such payments shall be deemed to satisfy all obligations of the Company and the Surviving Corporation to the participants in the Employee Stock Purchase Plan. Such payments shall be subject to all applicable federal, state and local tax withholding requirements. All funds in the accounts of the participants as of the Effective Time after such payments, shall belong to and be disbursed in accordance with the instructions of Acquiror. The Company shall terminate the Employee Stock Purchase Plan as of the Effective Time so that on and after the Effective Time no former participant in the Employee Stock Purchase Plan shall have any right to purchase shares of Class A Common Stock or any other equity interest in the Company under the Employee Stock Purchase Plan. (c) Non-Employee Director Stock Purchase Plan. Effective as of the Effective Time, the Company's 1995 Non-Employee Director Stock Purchase Plan (the "Director Stock Purchase Plan"; together with the Employee Stock Purchase Plan, the "Company Stock Purchase Plans"), shall be terminated and the then applicable Accumulation Period (as defined in the Director Stock Purchase Plan) shall be deemed to have ended on the last trading day of the Class A Common Stock immediately prior to the Effective Time. At the Effective Time, Acquiror shall, on behalf of Merger Sub, pay to each member of the Company's Board of Directors who is a participant in the Director Stock Purchase Plan as of the Effective Time, an amount in cash equal to the Per Share Amount multiplied by the number of shares of Class A Common Stock which the accumulated funds in 4 such director's account would have been entitled to purchase under the terms of the Director Stock Purchase Plan as of the end of such Accumulation Period. Such payments shall be deemed to satisfy all obligations of the Company and the Surviving Corporation to the participants in the Director Stock Purchase Plan. Such payments shall be subject to all applicable federal, state and local tax withholding requirements. All funds in the accounts of the participants as of the Effective Time after such payments, shall belong to and be disbursed in accordance with the instructions of Acquiror. The Company shall terminate the Director Stock Purchase Plan as of the Effective Time so that on and after the Effective Time no former participant in the Director Stock Purchase Plan shall have any right to purchase shares of Class A Common Stock or any other equity interest in the Company under the Director Stock Purchase Plan. Section 2.4. Stock Transfer Books. At the Effective Time, the stock transfer books of the Company with respect to all shares of capital stock of the Company shall be closed and no further registration of transfers of such shares of capital stock shall thereafter be made on the records of the Company. On or after the Effective Time, any Certificates for shares of Common Stock (excluding any shares described in Sections 2.1(b) and (c) and Dissenting Shares) presented to the Paying Agent, the Surviving Corporation or Acquiror for any reason shall be converted into the Merger Consideration. Section 2.5. Dissenting Shares. Notwithstanding any other provisions of this Agreement to the contrary, shares of Class A Common Stock that are issued and outstanding immediately prior to the Effective Time and that are held by stockholders who shall not have voted in favor of the Merger or consented thereto in writing and who shall have demanded properly in writing appraisal for such shares in accordance with Section 262 of Delaware Law (collectively, the "Dissenting Shares") shall not be converted into or represent the right to receive the Merger Consideration. Such stockholders shall be entitled to receive payment of the appraised value of such shares of Class A Common Stock held by them in accordance with the provisions of such Section 262, except that all Dissenting Shares held by stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such shares of Class A Common Stock under such Section 262 shall thereupon be deemed to have been converted into and to have become exchangeable, as of the Effective Time, for the right to receive, without any interest thereon, the Merger Consideration, upon surrender, in the manner provided in Section 2.2, of the certificate or certificates that formerly evidenced such shares of Class A Common Stock. ARTICLE III Representations and Warranties of the Company The Company hereby represents and warrants to Acquiror and Merger Sub as follows: Section 3.1. Organization and Qualification; Subsidiaries. (a) The Company and each Subsidiary (as defined below) of the Company (each a "Company Subsidiary" and collectively, the "Company Subsidiaries") is a corporation or partnership duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. The Company and each Company Subsidiary is duly qualified to conduct its business, and is in good standing, in each jurisdiction where the character of its properties owned, operated or leased or the nature of its activities makes such qualification necessary, except for such failure which would not have a Company Material Adverse Effect (as defined below). The Company and each Company Subsidiary has the requisite power and authority and any necessary governmental authority, franchise, license or permit to own, operate, lease and otherwise to hold and operate its assets and properties and to carry on the businesses as now being conducted, except for such failures which would not in the aggregate have a Company Material Adverse Effect. The Company has no Subsidiaries (as defined below) or any equity or similar interest in any entity other than those listed in Schedule 3.1. As used herein, the term "Company Material Adverse Effect" means any material adverse effect on the business, assets, financial condition or results of operations of the Company and the Company Subsidiaries taken as a whole. 5 (b) For purposes of this Agreement, a "Subsidiary" of any person means any corporation, partnership, joint venture or other legal entity of which such person (either alone or through or together with any other Subsidiary) (i) owns, directly or indirectly, fifty percent (50%) or more of the stock, partnership interests or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation, partnership, joint venture or other legal entity; or (ii) possesses, directly or indirectly, control over the direction of management or policies of such corporation, partnership, joint venture or other legal entity (whether through ownership of voting securities, by agreement or otherwise). Section 3.2. Certificate of Incorporation and Bylaws. The Company has heretofore made available to Acquiror a complete and correct copy of the certificate or articles of incorporation and the bylaws of the Company and each Company Subsidiary that is a corporation, and a correct copy of the partnership agreement for each Company Subsidiary that is a partnership, each as amended to date. Each such certificate or articles of incorporation, bylaws and partnership agreement is in full force and effect. Neither the Company nor any Company Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws, partnership agreement or other organizational document. Section 3.3. Capitalization. The authorized capital stock of the Company consists, as of the date of this Agreement, of: (a) seventy-three million (73,000,000) shares of Class A Common Stock, of which ten million five hundred nineteen thousand six hundred and eighty-one (10,519,681) shares are issued and outstanding; (b) eighteen million (18,000,000) shares of Class B Common Stock, of which seventeen million two hundred ninety-three thousand five hundred and seventy-eight (17,293,578) shares are issued and outstanding; and (c) ten million (10,000,000) shares of preferred stock, par value $.01 per share, of which no shares are issued and outstanding. One million nine hundred thousand (1,900,000) shares of Class A Common Stock have been reserved for issuance upon the exercise of Plan Options granted under the Company Stock Option Plans, of which seven hundred forty-five thousand eight hundred and thirty- four (745,834) shares are issuable upon the exercise of Plan Options outstanding under the Company Stock Option Plans as of the date hereof. The Phantom Options assume the issuance of twenty thousand (20,000) shares of Class A Common Stock upon exercise thereof. One hundred sixty thousand (160,000) shares of Class A Common Stock are reserved for issuance under the Company's 1995 Employee Stock Purchase Plan and twenty-five thousand (25,000) shares of Class A Common Stock are reserved for issuance under the Company's 1995 Non-Employee Director Stock Purchase Plan. Seventeen million two hundred ninety-three thousand five hundred and seventy-eight (17,293,578) shares of Class A Common Stock are reserved for purposes of effecting conversions of Class B Common Stock into Class A Common Stock. Since December 31, 1996, no shares of Class A Common Stock or Class B Common Stock have been issued, except for shares of Class A Common Stock issued upon the exercise of options granted under the Company's Stock Option Plans and shares of Class A Common Stock issued pursuant to the Company's Stock Purchase Plan. Except as set forth in Schedule 3.3, there are no options, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of the Company or any Company Subsidiary or obligating the Company or any Company Subsidiary to issue or sell any shares of capital stock of, or other equity interests in the Company or any Company Subsidiary. Except as set forth in Schedule 3.3, there are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of its capital stock or make any material investment (in the form of a loan, capital contribution or otherwise) in any other person. All of the issued and outstanding shares of Class A Common Stock and Class B Common Stock have been duly authorized and validly issued and are fully paid and nonassessable and not subject to preemptive rights. Except as set forth in Schedule 3.3, with respect to each Company Subsidiary that is a corporation, all of the outstanding shares of capital stock of such Company Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable. Except as set forth in Schedule 3.3, with respect to each Company Subsidiary that is a partnership, all of the partnership interests owned by the Company, and with respect to each Company Subsidiary that is a corporation, all of the outstanding shares of capital stock owned by the Company, are owned by the Company free and clear of any liens, security interests, pledges, agreements, options, rights, claims, charges or encumbrances (the "Encumbrances"). As of the date hereof, the only 6 outstanding indebtedness for borrowed money of the Company and the Company Subsidiaries is as set forth in Schedule 3.3 and all such indebtedness is prepayable in full without premium or penalty in accordance with its terms. Section 3.4. Authority. The Company has the necessary corporate power and authority to enter into this Agreement and subject to obtaining any necessary stockholder approval of the Merger, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions contemplated hereby, other than the approval of this Agreement by the stockholders of the Company in accordance with Delaware Law. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Acquiror and Merger Sub, constitutes a legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws of general applicability relating to or affecting creditors' rights generally and by the application of general principles of equity. Section 3.5. No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement by the Company do not, and the performance by the Company of its obligations under this Agreement will not, subject to compliance with the requirements set forth in Section 3.5(b) below, (i) conflict with or violate the certificate or articles of incorporation, bylaws, partnership agreement or other organizational document of the Company or any Company Subsidiary, (ii) conflict with or violate any law, statute, ordinance, rule, regulation, order, judgment or decree applicable to the Company or any Company Subsidiary or by which any of their respective properties is bound or affected, (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of an Encumbrance on any of the properties or assets of the Company or any Company Subsidiary pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any Company Subsidiary is a party or by which the Company, any Company Subsidiary or any of their respective properties or assets is bound or affected, or (iv) result in any material breach of or constitute a material default (or an event which with notice or lapse of time or both would become a material default) or give rise to any material rights to other parties under any Material Contract described in Section 3.12(a)(i), except, in the case of clauses (ii) and (iii) above for any such conflicts, violations, breaches, defaults or other alterations or occurrences that in the aggregate (A) would not prevent or delay consummation of the Merger in any material respect, or otherwise prevent the Company from performing its obligations under this Agreement in any material respect, and (B) would not have a Company Material Adverse Effect. (b) The execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, domestic or foreign (each a "Governmental Entity"), except (i) for (A) applicable requirements, if any, of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), state takeover laws, the exchange on which the Company's securities are traded, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Communications Act of 1934, as amended, together with the rules, regulations and published decisions of the FCC (collectively, the "Communications Act"), (B) applicable requirements, if any, of the consents, approvals, authorizations or permits described in Schedule 3.5, and (C) filing and recordation of appropriate merger documents as required by Delaware Law and (ii) where failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not in the aggregate prevent or delay consummation of the Merger in any material respect, or otherwise prevent the Company from performing its obligations under this Agreement in any material respect, and would not in the aggregate have a Company Material Adverse Effect. 7 Section 3.6. SEC Filings; Financial Statements. (a) The Company has filed all forms, reports, statements and other documents required to be filed with the Securities and Exchange Commission (the "SEC") since March 21, 1995, and has heretofore made available to Acquiror, in the form filed with the SEC since such date, together with any amendments thereto, its (i) Annual Reports on Form 10-K, (ii) all Quarterly Reports on Form 10-Q, (iii) all proxy statements relating to meetings of stockholders (whether annual or special), (iv) all reports on Form 8-K, and (v) all other reports or registration statements filed by the Company (collectively, the "Company SEC Reports"). As of their respective filing dates the Company SEC Reports (i) complied as to form in all material respects with the requirements of the Exchange Act and the Securities Act of 1933, as amended (the "Securities Act") and (ii) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) The financial statements, including all related notes and schedules, contained in the Company SEC Reports (or incorporated by reference therein) fairly present the consolidated financial position of the Company and the Company Subsidiaries as at the respective dates thereof and the consolidated results of operations and cash flows of the Company and the Company Subsidiaries for the periods indicated in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as may be noted therein) and subject in the case of interim financial statements to normal year-end adjustments. Section 3.7. Absence of Certain Changes or Events. Except as disclosed in the Company SEC Reports filed prior to the date of this Agreement or as set forth in Schedule 3.7, since December 31, 1996, the Company and the Company Subsidiaries have not incurred any material liability, except in the ordinary course of the businesses consistent with their past practices, and there has not been any change in the business, financial condition or results of operations of the Company or any of the Company Subsidiaries or the occurrence of any other event, which has had, or is reasonably likely to have, a Company Material Adverse Effect, and the Company and the Company Subsidiaries have conducted their respective businesses in the ordinary course consistent with their past practices. Section 3.8. Absence of Litigation. Except as set forth in Schedule 3.8, as of the date hereof there are (a) no claims, actions, suits, investigations, or proceedings pending or, to the Company's knowledge, threatened against the Company or any of the Company Subsidiaries before any court, administrative, governmental, arbitral, mediation or regulatory authority or body, domestic or foreign, that (i) if adversely determined would individually involve the payment of more than One Hundred Thousand Dollars ($100,000) by the Company or any Company Subsidiary, (ii) if adversely determined would individually or in the aggregate be reasonably likely to have a Company Material Adverse Effect, (iii) challenge or seek to prevent, enjoin, alter or materially delay the transactions contemplated hereby, or (iv) seek material injunctive relief against the Company or any Company Subsidiary, and (b) no material judgments, decrees, injunctions or orders of any Governmental Entity or arbitrator outstanding against the Company or any Company Subsidiary. Section 3.9. Licenses and Permits; Compliance with Laws. The Company and the Company Subsidiaries hold all permits, licenses and approvals (none of which has been modified or rescinded and all of which are in full force and effect) from all Governmental Entities (collectively, the "Permits") necessary for the Company and the Company Subsidiaries to own, lease and operate their respective properties and to carry on their respective businesses as now being conducted, except for the Permits for which the failure to obtain would not have a Company Material Adverse Effect. The businesses of the Company and the Company Subsidiaries are not being conducted in violation of any applicable law, statute, ordinance, regulation, judgment, Permits, order, decree, concession, grant or other authorization of any Governmental Entity, except for violations that would not be reasonably likely to have a Company Material Adverse Effect. 8 Section 3.10. Taxes. Except as set forth in Schedule 3.10, the Company and the Company Subsidiaries have prepared and filed on a timely basis with all appropriate Governmental Entities all material returns in respect of taxes that they are required to file on or prior to the Effective Time or by the date therefor including extensions, and all such returns are correct and complete in all material respects. Except as set forth in Schedule 3.10, the Company and the Company Subsidiaries have paid in full all taxes due on or before the Effective Time and, in the case of taxes accruing on or before the Effective Time that are not due on or before the Effective Time, the Company has made adequate provision in its books and records and financial statements for such payment. Except as set forth in Schedule 3.10, the Company and the Company Subsidiaries have withheld from each payment made to any of its present or former employees, officers and directors all amounts required by law to be withheld and has, where required, remitted such amounts within the applicable periods to the appropriate Governmental Entities. In addition, except as set forth in Schedule 3.10, (a) there are no assessments of the Company or any Company Subsidiary with respect to taxes that have been issued and are outstanding; (b) no Governmental Entity has examined or audited the Company or any Company Subsidiary in respect of taxes; (c) neither the Company nor any Company Subsidiary has executed or filed any agreement extending the period of assessment or collection of any taxes; and (d) neither the Company nor any Company Subsidiary has received written notification from any Governmental Entity of its intention to commence any audit or investigation. Except as set forth in Schedule 3.10, neither the Company nor any Company Subsidiary is a party to, is bound by or has any obligation under any tax sharing or tax indemnification agreement, provision or arrangement, whether formal or informal, and no power of attorney, which is currently in effect, has been granted with respect to any matter relating to taxes of the Company or any Company Subsidiary. Except as set forth in Schedule 3.10, neither the Company nor any Company Subsidiary is presently required or will be required to include any adjustment in taxable income under Section 481 of the Internal Revenue Code of 1986, as amended (the "Code"), (or any similar provision of the tax laws of any jurisdiction) as a result of any change in method of accounting or otherwise. Except as set forth in Schedule 3.10, neither the Company nor any Company Subsidiary has entered into any "intercompany transaction" as to which any item of deferred gain or loss has not been restored, and no "excess loss account" exists with respect to the stock of any Company Subsidiary, as those terms are defined in the Treasury Regulations issued under Section 1504 of the Code. For the purpose of this Agreement, the term "tax" (including, with correlative meaning, the terms "taxes" and "taxable") shall include except where the context otherwise requires, all federal, state, local and foreign income, profits, franchise, gross receipts, payroll, sales, employment, use, property, withholding, excise, occupancy and other taxes, duties or assessments of any nature whatsoever, together with all interest, penalties and additions imposed with respect to such amounts. Section 3.11. Intellectual Property. Except as set forth in Schedule 3.11, the Company or one of the Company Subsidiaries owns or possesses all rights to use of the service marks, copyrights, franchises, trademarks, trade names, jingles, slogans, logotypes and other similar intangible assets (the "Intellectual Property") maintained, owned, used, held for use or otherwise held by the Company and the Company Subsidiaries, and all of the rights, benefits and privileges associated therewith material to the conduct of the business of the Company and the Company Subsidiaries as currently conducted. To the knowledge of the Company, neither the Company nor any Company Subsidiary is infringing upon any Intellectual Property right or other legally protectable right of another. To the knowledge of the Company, no person is materially infringing upon any Intellectual Property right of the Company or any Company Subsidiary. Section 3.12. Material Contracts. (a) Schedule 3.12 sets forth a complete and correct list, as of the date of this Agreement, of all agreements of the following type to which the Company or a Company Subsidiary is a party or may be bound (collectively, the "Material Contracts"): (i) agreements filed as an exhibit to the Company SEC Reports and each agreement that would have been required to be filed as an exhibit to the Company SEC Reports had such agreement been entered into as of the date of filing any such SEC Report; (ii) employment, severance, termination, consulting and retirement agreements; (iii) loan agreements, indentures, letters of credit, mortgages, notes and other debt 9 instruments evidencing indebtedness in excess of Five Hundred Thousand Dollars ($500,000); (iv) agreements that require aggregate future payments to or by the Company or any Company Subsidiary of more than Five Hundred Thousand Dollars ($500,000) (other than purchase orders and advertising sales contracts entered into in the ordinary course of business); (v) agreements containing any "change of control" provisions which, if triggered, would involve payments by the Company or any Company Subsidiary in excess of Two Hundred Fifty Thousand Dollars ($250,000) or other material rights or obligations; (vi) material agreements with any key employee, director, officer, or person known to the Company to be a direct or indirect stockholder of the Company; (vii) agreements prohibiting the Company or any Company Subsidiary from engaging or competing in any line of business or limiting such competition; (viii) except for the partnership agreements of the Company Subsidiaries, any joint venture, partnership and similar agreements involving a sharing of profits; (ix) acquisition or divestiture agreements relating to the (A) sale of assets or stock of the Company or any Company Subsidiary (other than sales of inventory in the ordinary course of business) or (B) the purchase of assets or stock of any other person (other than the purchase of inventory in the ordinary course of business and acquisitions of additional interests in Company Subsidiaries involving payments by the Company of less than Five Hundred Thousand Dollars ($500,000) in the aggregate); (x) brokerage, finder's or financial advisory agreements; (xi) guarantees of indebtedness for borrowed money of any person (other than a Company Subsidiary); (xii) interconnection agreements and switch sharing agreements; and (xiii) agreements under which the Company or any Company Subsidiary manages a cellular system of any third party. (b) Except as set forth in Schedule 3.12, all the Material Contracts are valid and in full force and effect on the date hereof except to the extent they have previously expired in accordance with their terms, and neither the Company nor any Company Subsidiary has (or has any knowledge that any other party thereto has) violated any provision of, or committed or failed to perform any act which with or without notice, lapse of time or both would constitute a default under the provisions of, any Material Contract, except for defaults which would not in the aggregate reasonably be expected to have a Company Material Adverse Effect. True and complete copies of all Material Contracts have been delivered to Acquiror or made available for inspection. Section 3.13. Employee Benefit Plans. (a) Schedule 3.13 sets forth a list of all of the pension, retirement, profit-sharing, deferred compensation, stock option, employee stock ownership, severance pay, vacation, bonus or other material incentive plans, all other material written employee programs, arrangements or agreements and all other material employee benefit plans or fringe benefit plans, including, without limitation, all "employee benefit plans" as that term is defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), currently adopted, maintained by, sponsored in whole or in part by, or contributed to by the Company or for which the Company could incur a liability or any entity required to be aggregated with the Company (each, a "Commonly Controlled Entity") pursuant to Section 414 of the Code for the benefit of present and former employees or directors of the Company and of each Company Subsidiary or their beneficiaries, or providing benefits to such persons in respect of services provided to any such entity (collectively, the "Benefit Plans"). Any of the Benefit Plans which is an "employee pension benefit plan", as that term is defined in Section 3(2) of ERISA, is referred to herein as an "ERISA Plan". (b) Each of the Benefit Plans intended to be "qualified" within the meaning of Section 401(a) or 501 of the Code has been determined by the Internal Revenue Service to be so qualified and to the Company's knowledge, no circumstances exist that could reasonably be expected by the Company to result in the revocation of any such determination. Each of the Benefit Plans is in compliance with their terms and the applicable terms of ERISA and the Code and any other applicable laws, rules and regulations the breach or violation of which could result in a material liability to the Company or any Commonly Controlled Entity. (c) No ERISA Plan which is a defined benefit pension plan has any "unfunded current liability", as that term is defined in Section 302(d)(8)(A) of ERISA, and the present fair market value of the assets of any such plan equals or exceeds the plan's "benefit liabilities", as that term is defined in Section 4001(a)(16) of ERISA, when determined under actuarial factors that would apply if the plan terminated in accordance with all applicable legal requirements. 10 (d) Except as disclosed in Schedule 3.13, no Benefit Plan is or has been a multiemployer plan within the meaning of Section 3(37) of ERISA (a "Multiemployer Plan"). Neither the Company nor any Commonly Controlled Entity has completely or partially withdrawn from any Multiemployer Plan. No termination liability to the Pension Benefit Guaranty Corporation or withdrawal liability to any Multiemployer Plan that is material in the aggregate has been or is reasonably expected to be incurred with respect to any Multiemployer Plan by the Company or any Commonly Controlled Entity. (e) The Company has made available to Acquiror complete copies, as of the date hereof, of all of the Benefit Plans that have been reduced to writing, together with all documents establishing or constituting any related trust, annuity contract, insurance contract or other funding instrument. The Company has made available to Acquiror complete copies of current plan summaries, employee booklets, personnel manuals and other material documents or written materials concerning the Benefit Plans that are in the possession of the Company as of the date hereof. (f) To the Company's knowledge, except as set forth in Schedule 3.13 and except for claims for benefits in the ordinary course of business, no claim, lawsuit, arbitration or other action has been threatened or instituted against any Benefit Plan. (g) Except as set forth in Schedule 3.13, Schedule 7.9 or as otherwise contemplated by the terms of this Agreement, the consummation of the transactions contemplated by this Agreement will not give rise to any liability, including, without limitation, liability for severance pay or termination pay, or accelerate the time of payment or vesting or increase the amount of compensation or benefits due to any employee, director or stockholder of the Company (whether current, former, or retired) or their beneficiaries solely by reason of such transactions. No amounts payable under any Benefit Plan will fail to be deductible for federal income tax purposes by virtue of Section 280G or 162(m) of the Code. (h) Except as set forth in Schedule 3.13 or Schedule 7.9, neither the Company nor any Company Subsidiary maintains, contributes to, or in any way provides for any benefits of any kind (other than under Section 4980B of the Code, the Federal Social Security Act, or a plan qualified under Section 401(a) of the Code) to any current or future retiree or terminee. (i) Neither the Company, any Company Subsidiary nor any Commonly Controlled Entity has (or could incur) any liability under Title IV of ERISA. Section 3.14. Properties; Assets. Except as set forth in Schedule 3.14, the Company or one of the Company Subsidiaries (a) has good and marketable title to all the properties and assets reflected in the latest consolidated balance sheet of the Company dated as of March 31, 1997 (the "Balance Sheet") as being owned by the Company or one of the Company Subsidiaries (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business), or acquired after the date thereof which are material to the Company's business on a consolidated basis, free and clear of all Encumbrances except (i) statutory liens securing payments not yet due, and (ii) such imperfections or irregularities of title, claims, liens, charges, security interests or encumbrances as do not materially affect the use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties, and (b) is the lessee of all leasehold estates which are material to its business on a consolidated basis and is in possession of the properties purported to be leased thereunder, and to the knowledge of the Company, each such lease is valid without default thereunder by the lessee or lessor. The assets and properties of the Company and the Company Subsidiaries, taken as a whole, are in good operating condition and repair (ordinary wear and tear excepted), and constitute all of the assets and properties which are required for the businesses and operations of the Company and the Company Subsidiaries as presently conducted. Section 3.15. Labor Relations. Neither the Company nor any Company Subsidiary is a party to any collective bargaining agreement or other contract or agreement with any labor organization or other representative of any of the employees of the 11 Company or any Company Subsidiary. Except as set forth in Schedule 3.15, the Company and each Company Subsidiary is in compliance in all material respects with all laws relating to the employment or the workplace, including, without limitation, provisions relating to wages, hours, collective bargaining, safety and health, work authorization, equal employment opportunity, immigration and the withholding of income taxes, unemployment compensation, worker's compensation, employee privacy and right to know and social security contributions. Section 3.16. Environmental Matters. (a) Except as specifically set forth in those environmental reports previously made available to Acquiror in the Company's due diligence data room (the "Environmental Reports"), and except for matters which would not in the aggregate have a Company Material Adverse Effect, (i) the Company and each Company Subsidiary is in compliance with all applicable Environmental Laws (as defined below) in effect on the date hereof; (ii) all Permits and other governmental authorizations currently held by the Company and each Company Subsidiary pursuant to the Environmental Laws are in full force and effect, the Company and each Company Subsidiary is in compliance with all of the terms of such Permits and authorizations, and no other Permits or authorizations are required by the Company or any Company Subsidiary for the conduct of their respective businesses on the date hereof; and (iii) the management, handling, storage, transportation, treatment, and disposal by the Company and each Company Subsidiary of any Hazardous Materials (as defined below) has been in compliance with all applicable Environmental Laws. Neither the Company nor any Company Subsidiary has received any written communication that alleges that the Company or any Company Subsidiary is not in compliance in all material respects with all applicable Environmental Laws in effect on the date hereof. As of the date hereof, the Environmental Reports do not set forth any facts or circumstances which have had or are reasonably likely to have a Company Material Adverse Effect. (b) Except as specifically set forth in the Environmental Reports, there is no material Environmental Claim (as defined below) pending or, to the knowledge of the Company, threatened against or involving the Company or any of the Company Subsidiaries or against any person or entity whose liability for any material Environmental Claim the Company or any of the Company Subsidiaries has or may have retained or assumed either contractually or by operation of law. (c) Except as specifically set forth in the Environmental Reports and except for matters which would not in the aggregate have a Company Material Adverse Effect, to the knowledge of the Company, there are no past or present actions or activities by the Company or any Company Subsidiary including the storage, treatment, release, emission, discharge, disposal or arrangement for disposal of any Hazardous Materials, that could reasonably form the basis of any Environmental Claim against the Company or any of the Company Subsidiaries or against any person or entity whose liability for any Environmental Claim the Company or any Company Subsidiary may have retained or assumed either contractually or by operation of law. (d) As used herein, these terms shall have the following meanings: (i) "Environmental Claim" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, directives, claims, liens, investigations, proceedings or notices of noncompliance or violation (written or oral) by any person or governmental authority alleging potential liability arising out of, based on or resulting from the presence, or release or threatened release into the environment, of any Hazardous Materials at any location owned or leased by the Company or any Company Subsidiary or other circumstances forming the basis of any violation or alleged violation of any Environmental Law. (ii) "Environmental Laws" means all applicable foreign, federal, state and local laws (including the common law), rules, requirements and regulations relating to pollution, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or protection of human health as it relates to the environment including, without limitation, laws and regulations relating to releases of Hazardous Materials, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials or relating to management of asbestos in buildings. 12 (iii) "Hazardous Materials" means wastes, substances, or materials (whether solids, liquids or gases) that are deemed hazardous, toxic, pollutants, or contaminants, including without limitation, substances defined as "hazardous substances", "toxic substances", "radioactive materials", or other similar designations in, or otherwise subject to regulation under, any Environmental Laws. Section 3.17. Insurance. Schedule 3.17 contains a list of all insurance policies of title, property, fire, casualty, liability, life, workmen's compensation, libel and slander, and other forms of insurance in force at the date thereof with respect to the Company and the Company Subsidiaries. All such insurance policies: (a) insure against such risks, and are in such amounts, as appropriate and reasonable considering the Company and the Company Subsidiaries' properties, businesses and operations; (b) are in full force and effect; and (c) are valid, outstanding, and enforceable. Neither the Company nor any of the Company Subsidiaries has received or given notice of cancellation with respect to any of the material insurance policies. Section 3.18. FCC Matters and Governmental Matters. (a) The Company and the Company Subsidiaries hold all licenses, permits and other authorizations issued by the FCC to the Company and the Company Subsidiaries for the operation of their respective businesses (the "FCC Licenses") as set forth in Schedule 3.18. The FCC Licenses constitute all of the licenses, permits and authorizations from the FCC that are required for the operations and businesses of the Company and the Company Subsidiaries as they are now operated, except where the FCC has not issued a written microwave authorization. Without limiting the foregoing, the Company and the Company Subsidiaries have received all necessary authorizations from the Federal Aviation Administration ("FAA") for all existing towers that are part of the cellular systems operated by the Company and the Company Subsidiaries and for any facilities the construction of which have been approved by the FCC or of which applications or notifications have been filed for such approval. (b) Schedule 3.18 sets forth each application and notification that the Company and the Company Subsidiaries have pending before the FCC and sets forth the expiration date for each of the cellular FCC Licenses. The Company and the Company Subsidiaries have provided a copy to Acquiror of each of the FCC Licenses and the applications and notifications listed in Schedule 3.18, except where the FCC has not issued a written microwave authorization. (c) The FCC Licenses are valid and in full force and effect, unimpaired by any condition or restriction or any act or omission by the Company or any of the Company Subsidiaries which would reasonably be likely to have a Company Material Adverse Effect. Except as set forth in Schedule 3.18, there are no modifications, amendments, applications, revocations, or other proceedings, or complaints pending or, to the knowledge of the Company, threatened, with respect to the FCC Licenses (other than proceedings that apply to the cellular industry generally). All fees due and payable to the FCC have been paid and no event has occurred which, with or without the giving of notice or lapse of time or both, would constitute grounds for revocation or modification of the FCC Licenses. (d) All material reports required by the Communications Act or required to be filed with the FCC by the Company and the Company Subsidiaries have been timely filed and are accurate and complete in all material respects. All material reports required to be filed by the Company and the Company Subsidiaries with all other governmental or administrative authorities, federal, state and local, have been timely filed and are accurate and complete in all material respects. (e) Except where a lack of compliance would not have a Company Material Adverse Effect, the Company and the Company Subsidiaries are in compliance with, and their cellular systems have been operated in compliance with, the Communications Act and the rules, regulations, policies and orders of the relevant state public utilities commissions and the FAA, including, without limitation, the FCC's time and coverage requirements of 47 C.F.R. (S)(S) 22.142, 22.911, 22.912 and 22.946 (the "Statutes"). The Company and the 13 Company Subsidiaries have in operation validly licensed and adequate cellular base stations required to provide 32 dBu contour coverage, as calculated under the formula prescribed by the FCC in 47 C.F.R. (S) 22.911, to all areas of their cellular markets except for coverage gaps that are less than 50 contiguous square miles in size. Except as set forth in Schedule 3.10 and 3.18, the Company and the Company Subsidiaries have not received any written notice to the effect, or otherwise been advised in writing, that they are not in compliance with any Statutes and do not have any reason to anticipate that any presently existing circumstances are reasonably likely to result in violations of any Statutes. (f) Without limiting the generality of the foregoing, except as set forth in Schedule 3.8, no adverse finding has been made, no consent decree entered, no adverse action has been approved or taken by the FCC or any court or other administrative body, and no admission of liability has been made with respect to the Company or any of the Company Subsidiaries or any of the Company's stockholders or any management employee of the Company or the Company Subsidiaries concerning any civil or criminal suit, action or proceeding brought under the provision of any federal, state, territorial or local law relating to any of the following: any felony; unlawful restraint of trade or monopoly; unlawful combination; contract or agreement in restraint of trade; the use of unfair methods of competition; fraud; unfair labor practice; or discrimination. (g) Neither the Company nor any of the Company Subsidiaries has engaged in any course of conduct that could reasonably be expected to impair the ability of Merger Sub or its subsidiaries to be the holder of the FCC Licenses or is aware of any reason why the FCC Licenses might not be renewed in the ordinary course, why any of the FCC Licenses might be revoked, or why any pending applications or notifications might not be approved. Section 3.19. Board Approval; Vote Required. The Board of Directors of the Company has determined that the transactions contemplated by this Agreement are in the best interests of the Company and its stockholders and has resolved to recommend to such stockholders that they vote in favor thereof. The affirmative vote of a majority of the votes entitled to be cast by the holders of outstanding shares of the Class A Common Stock and Class B Common Stock (voting as a single class) is the only vote of any class or series of capital stock of the Company necessary to approve the transactions contemplated under this Agreement and the Merger. Section 3.20. Opinion of Financial Advisor. The Company's Board of Directors has received the opinion of Goldman, Sachs & Co. that the consideration to be received in the Merger by the stockholders of the Company is fair to such stockholders from a financial point of view, a written copy of which opinion will be provided to Acquiror when received by the Company, and such opinion has not been withdrawn or modified in any material respect. Section 3.21. Brokers. Except for Goldman, Sachs & Co., no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. ARTICLE IV Representations and Warranties of Merger Sub Acquiror and Merger Sub jointly and severally represent and warrant to the Company as follows: Section 4.1. Organization and Qualification. Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Merger Sub was formed solely for the purpose of engaging in the transactions contemplated by this Agreement. As of the date of this Agreement, except for obligations or liabilities incurred 14 in connection with its incorporation or organization and the transactions contemplated by this Agreement, Merger Sub has not incurred, directly or indirectly, any obligations or liabilities or engaged in any business activities of any type or kind whatsoever or entered into any agreements or arrangements with any person. Section 4.2. Certificate of Incorporation and Bylaws. Merger Sub has heretofore made available to the Company a complete and correct copy of the certificate of incorporation and the bylaws of Merger Sub, each as amended to date. Such certificate of incorporation and bylaws are in full force and effect. Merger Sub is not in violation of any of the provisions of its certificate of incorporation or bylaws. Section 4.3. Authority. Merger Sub has the necessary corporate power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Merger Sub and the consummation by Merger Sub of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action and no other corporate proceedings on the part of Merger Sub are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Merger Sub and, assuming the due authorization, execution and delivery by the Company and Acquiror, constitutes a legal, valid and binding obligation of Merger Sub, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws of general applicability relating to or affecting creditors' rights generally and by the application of general principles of equity. Section 4.4. No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement by Merger Sub do not, and the performance by Merger Sub of its obligations under this Agreement will not, subject to compliance with the requirements set forth in Section 4.4(b) below, (i) conflict with or violate the certificate of incorporation or bylaws of Merger Sub, (ii) conflict with or violate any law, statute, ordinance, rule, regulation, order, judgment or decree applicable to Merger Sub or by which any of its properties is bound or affected, or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of any Encumbrance on any of the properties or assets of Merger Sub pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Merger Sub is a party or by which Merger Sub or any of its properties or assets is bound or affected, except, in the case of clauses (ii) and (iii) above for any such conflicts, violations, breaches, defaults or other alterations or occurrences that would not prevent or delay consummation of the Merger in any material respect, or otherwise prevent Merger Sub from performing its obligations under this Agreement in any material respect. (b) The execution and delivery of this Agreement by Merger Sub does not, and the performance of this Agreement by Merger Sub will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity, except (i) for (A) applicable requirements, if any, of the Exchange Act, state takeover laws, exchanges on which Acquiror's securities are traded, the HSR Act and the Communications Act, (B) applicable requirements, if any, of the consents, approvals, authorizations or permits described in Schedule 4.4, and (C) filing and recordation of appropriate merger documents as required by Delaware Law and (ii) where failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or delay consummation of the Merger in any material respect. Section 4.5. Vote Required. The affirmative vote of Acquiror, the sole stockholder of Merger Sub, is the only vote of the holders of any class or series of Merger Sub capital stock necessary to approve any of the transactions contemplated hereby. 15 ARTICLE V Representations and Warranties of Acquiror Acquiror represents and warrants to the Company as follows: Section 5.1. Organization and Qualification; Subsidiaries. Acquiror is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation. Acquiror is duly qualified to conduct its business, and is in good standing, in each jurisdiction where the character of its properties owned, operated or leased or the nature of its activities makes such qualification necessary, except for such failure which would not have an Acquiror Material Adverse Effect (as defined below). Acquiror has the requisite power and authority and any necessary governmental authority, franchise, license or permit to own, operate, lease and otherwise to hold and operate its assets and properties and to carry on the business as now being conducted, except for such failure which would not have an Acquiror Material Adverse Effect. As used herein, the term "Acquiror Material Adverse Effect" means any material adverse effect on the business, assets, financial condition or results of operations of Acquiror and its subsidiaries (collectively, the "Acquiror Subsidiaries") taken as a whole. Section 5.2. Organizational Documents. Acquiror has heretofore made available to the Company a complete and correct copy of the certificate of incorporation and bylaws of Acquiror, each as amended to date. Such certificate of incorporation and bylaws are in full force and effect. Acquiror is not in violation of any of the provisions of its certificate of incorporation or bylaws. Section 5.3. Authority. Acquiror has the necessary power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Acquiror and the consummation by Acquiror of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action and no other proceedings on the part of Acquiror are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by Acquiror and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of Acquiror, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws of general applicability relating to or affecting creditors' rights generally and by the application of general principles of equity. Section 5.4. No Conflict; Required Filings and Consents. (a) The execution and delivery of this Agreement by Acquiror do not, and the performance by Acquiror of its obligations under this Agreement will not, subject to compliance with the requirements set forth in Section 5.4(b) below, (i) conflict with or violate the certificate of incorporation or bylaws of Acquiror, (ii) conflict with or violate any law, statute, ordinance, rule, regulation, order, judgment or decree applicable to Acquiror or by which any of its properties is bound or affected, or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of an Encumbrance on any of the properties or assets of Acquiror pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Acquiror is a party or by which Acquiror or any of its properties or assets is bound or affected, except, in the case of clauses (ii) and (iii) above for any such conflicts, violations, breaches, defaults or other alterations or occurrences that would not prevent or delay consummation of the Merger in any material respect, or otherwise prevent Acquiror from performing its obligations under this Agreement in any material respect, and would not have an Acquiror Material Adverse Effect. 16 (b) The execution and delivery of this Agreement by Acquiror does not, and the performance of this Agreement by Acquiror will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity, except (i) for (A) applicable requirements, if any, of the Exchange Act, state takeover laws, exchanges on which Acquiror's securities are traded, the HSR Act and the Communications Act, (B) applicable requirements, if any, of the consents, approvals, authorizations or permits described in Schedule 5.4, and (C) filing and recordation of appropriate merger documents as required by Delaware Law and (ii) where failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or delay consummation of the Merger in any material respect, or otherwise prevent Acquiror from performing its obligations under this Agreement in any material respect, and would not have an Acquiror Material Adverse Effect. Section 5.5. Vote Required. No vote of the stockholders of Acquiror is necessary to approve any of the transactions contemplated hereby. Section 5.6. Financing. Acquiror will have available on the Effective Time sufficient funds to consummate the Merger and to make all the payments necessary to consummate the transactions contemplated hereby, including, without limitation, payments under Article II hereof for the Common Stock, Options and Dissenting Shares, and payments necessary to satisfy all amounts outstanding as of the Closing Date under the Company's credit facilities described on Schedule 3.3 hereto. Section 5.7. Qualification of Acquiror. Acquiror is and pending the Effective Time will be legally, technically, financially and otherwise qualified under the Communications Act and all rules, regulations and policies of the FCC to acquire, own and operate the assets and business of the Company and the Company Subsidiaries. There are no facts or proceedings which would reasonably be expected to disqualify Acquiror under the Communications Act or otherwise from acquiring or operating any of the assets and business of the Company and the Company Subsidiaries or would cause the FCC not to approve the FCC Application (as defined in Section 7.5(a)). Acquiror has no knowledge of any fact or circumstance relating to Acquiror or any of its affiliates that would reasonably be expected to (a) cause the filing of any objection to the FCC Application, or (b) lead to a delay in the processing by the FCC of the FCC Application. No waiver of any FCC rule or policy is necessary to be obtained for the approval of the FCC Application, nor will processing pursuant to any exception or rule of general applicability be requested or required in connection with the consummation of the transactions herein. Section 5.8. Absence of Litigation. Except as set forth in Schedule 5.8, there are (a) no claims, actions, suits, investigations, or proceedings pending or, to Acquiror's knowledge, threatened against Acquiror or any of its properties or assets before any court, administrative, governmental, arbitral, mediation or regulatory authority or body, domestic or foreign, that challenge or seek to prevent, enjoin, alter or materially delay the transactions contemplated hereby, and (b) no judgments, decrees, injunctions or orders of any Governmental Entity or arbitrator outstanding against Acquiror or any of its properties or assets that would prevent or materially delay the transactions contemplated hereby. Section 5.9. Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Acquiror. Section 5.10. SEC Filings; Financial Statements. (a) Acquiror has filed all forms, reports, statements and other documents required to be filed with the SEC since December 31, 1996, and has heretofore made available to the Company, in the form filed with the SEC 17 since such date, together with any amendments thereto, its (i) Annual Reports on Form 10-K, (ii) all Quarterly Reports on Form 10-Q, (iii) all proxy statements relating to meetings of stockholders (whether annual or special), (iv) all reports on Form 8-K, and (v) all other reports or registration statements filed by Acquiror (collectively, the "Acquiror SEC Reports"). As of their respective filing dates the Acquiror SEC Reports (i) complied as to form in all material respects with the requirements of the Exchange Act and the Securities Act and (ii) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) The financial statements, including all related notes and schedules, contained in the Acquiror SEC Reports (or incorporated by reference therein) fairly present the consolidated financial position of Acquiror and Acquiror Subsidiaries as at the respective dates thereof and the consolidated results of operations and cash flows of Acquiror and Acquiror Subsidiaries for the periods indicated in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as may be noted therein) and subject in the case of interim financial statements to normal year-end adjustments. Section 5.11. Absence of Certain Changes or Events. Except as disclosed in the Acquiror SEC Reports filed prior to the date of this Agreement or as set forth in Schedule 5.11, since March 31, 1997, Acquiror and Acquiror Subsidiaries have not incurred any material liability, except in the ordinary course of their businesses consistent with their past practices, and there has not been any change in the business, financial condition or results of operations of Acquiror or any of Acquiror Subsidiaries, which has had, or is reasonably likely to have, an Acquiror Material Adverse Effect, and Acquiror and Acquiror Subsidiaries have conducted their respective businesses in the ordinary course consistent with their past practices. The representations and warranties contained in this Section 5.11 shall be deemed to speak only as of the date hereof. ARTICLE VI Covenants Section 6.1. Affirmative Covenants of the Company. The Company hereby covenants and agrees that, prior to the Effective Time, unless otherwise expressly contemplated by this Agreement or consented to in writing by Acquiror, the Company shall, and shall cause each Company Subsidiary to, (a) operate its business in the usual and ordinary course consistent with past practices; (b) use its reasonable efforts to preserve substantially intact its business organization, maintain its rights and franchises, retain the services of its respective principal officers and key employees and maintain its relationship with its respective principal customers and suppliers; (c) use its reasonable efforts to maintain and keep its properties and assets in as good repair and condition as at present, ordinary wear and tear excepted; and (d) use its reasonable efforts to keep in full force and effect insurance comparable in amount and scope of coverage to that currently maintained; provided, however, that in the event the Company or any of the Company Subsidiaries deems it necessary to take certain actions that would otherwise be prohibited by clauses (a)-(d) of this Section 6.1, the Company shall consult with Acquiror and Acquiror shall consider in good faith the Company's request to take such action and not unreasonably withhold or delay its consent for such action. Section 6.2. Negative Covenants of the Company. Except as expressly contemplated by this Agreement and except as set forth in Schedule 6.2, or otherwise consented to in writing by Acquiror, from the date hereof until the Effective Time, the Company shall not, and shall cause each Company Subsidiary not to, do any of the following: (a) (i) increase the compensation payable to or to become payable to any of its directors, executive officers or employees, except for increases in salary, wages or bonuses payable or to become payable in the ordinary course of business and consistent with past practice; (ii) grant any severance or termination pay 18 (other than pursuant to existing severance arrangements or policies as in effect on the date of this Agreement) to, or enter into or modify any employment or severance agreement with, any of its directors, officers or employees; or (iii) adopt or amend any employee benefit plan or arrangement, except as may be required by applicable law; (b) declare or pay any dividend on, or make any other distribution in respect of, outstanding shares of its capital stock; (c) (i) redeem, repurchase or otherwise reacquire any share of its capital stock or any securities or obligations convertible into or exchangeable for any share of its capital stock, or any options, warrants or conversion or other rights to acquire any shares of its capital stock or any such securities or obligations (except in connection with the exercise of outstanding Options referred to in Schedule 3.3 in accordance with their terms); (ii) effect any reorganization or recapitalization; or (iii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of, or in substitution for, shares of its capital stock; (d) (i) issue, deliver, award, grant or sell, or authorize or propose the issuance, delivery, award, grant or sale (including the grant of any Encumbrances) of, any shares of any class of its capital stock (including shares held in treasury), any securities convertible into or exercisable or exchangeable for any such shares (including any phantom options or stock appreciation rights), or any rights, warrants or options to acquire, any such shares (except for the issuance of shares upon the exercise of outstanding Options and the issuance of shares under the Company Stock Purchase Plans); or (ii) amend or otherwise modify the terms of any such rights, warrants or options in a manner inconsistent with the provisions of this Agreement or the effect of which shall be to make such terms more favorable to the holders thereof; (e) acquire or agree to acquire, by merging or consolidating with, by purchasing an equity interest in or a portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division (other than a wholly-owned Subsidiary) thereof, or otherwise acquire or agree to acquire any assets of any other person (other than the purchase of assets in the ordinary course of business and consistent with past practice), or make or commit to make any capital expenditures other than capital expenditures in the ordinary course of business consistent with past practice; (f) sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose of, any of its material assets except for the grant of purchase money security interests not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate and dispositions in the ordinary course of business and consistent with past practice; (g) propose or adopt any amendments to its certificate of incorporation or, as to its bylaws or partnership agreement, as the case may be, any amendments that would have an adverse impact on the consummation of the transactions contemplated by this Agreement or would be adverse to Acquiror's interests; (h) (i) change any of its methods of accounting in effect at January 1, 1997, or (ii) make or rescind any express or deemed election relating to taxes, settle or compromise any claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to taxes (except where the amount of such settlements or controversies, individually or in the aggregate, does not exceed Five Hundred Thousand Dollars ($500,000), or change any of its methods of reporting income or deductions for federal income tax purposes from those employed in the preparation of the federal income tax returns for the taxable year ending December 31, 1996, except, in the case of clause (i) or clause (ii), as may be required by law or generally accepted accounting principles; (i) incur any obligation for borrowed money, whether or not evidenced by a note, bond, debenture or similar instrument, other than (i) purchase money indebtedness not to exceed Five Hundred Thousand Dollars ($500,000) in the aggregate, (ii) indebtedness incurred in the ordinary course of business under the existing loan agreements described on Schedule 3.3 hereto, and (iii) capitalized leases not to exceed One Million Dollars ($1,000,000) in the aggregate; 19 (j) without the written consent of Acquiror (which consent shall not be unreasonably withheld, delayed or conditioned), enter into or modify in any material respect any agreement which, if in effect as of the date hereof, would have been required to be disclosed on Schedule 3.12 as a Material Contract; or (k) agree in writing or otherwise to do any of the foregoing. Section 6.3. Negative Covenants of Acquiror. From the date hereof until the Effective Time, Acquiror shall not (a) declare or pay any dividend on or make any other distribution of cash or property in respect of, outstanding shares of its capital stock; or (b) redeem, repurchase or otherwise reacquire any shares of its capital stock or any securities or obligations convertible into or exchangeable for any shares of its capital stock. Section 6.4. Control of Operations. Nothing contained in this Agreement shall give Acquiror or Merger Sub, directly or indirectly, except as expressly provided in this Agreement, the right to control or direct the Company's operations prior to the Effective Time. Prior to the Effective Time, each of the Company and Acquiror shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its respective operations. ARTICLE VII Additional Agreements Section 7.1. Access and Information. From the date hereof to the Effective Time, the Company shall, and shall cause the Company Subsidiaries to, afford to Acquiror and its officers, employees, accountants, consultants, legal counsel, representatives of current and prospective sources of financing for the Merger and other representatives of Acquiror (collectively, the "Acquiror Representatives"), reasonable access during normal business hours to the properties, executive personnel and all information concerning the business, properties, contracts, records and personnel of the Company and the Company Subsidiaries as Acquiror may reasonably request. The Company further agrees to reasonably cooperate with Acquiror in connection with Acquiror's obtaining financing for this transaction (including making appropriate officers of the Company available on a reasonable basis for road show presentations). Section 7.2. Confidentiality. Acquiror acknowledges and agrees that all information received from or on behalf of the Company or any of the Company Subsidiaries in connection with the Merger shall be deemed received pursuant to the confidentiality agreement, dated as of May 21, 1997, between the Company and Acquiror (the "Confidentiality Agreement") and Acquiror shall, and shall cause the Acquiror Representatives to comply with the provisions of the Confidentiality Agreement with respect to such information and the provisions of the Confidentiality Agreement are hereby incorporated herein by reference with the same effect as if fully set forth herein. Section 7.3. Stockholder Approval. The Company shall, promptly after the date of this Agreement, take all action necessary in accordance with Delaware Law and its certificate of incorporation and bylaws to convene a meeting of the Company's stockholders (the "Stockholders' Meeting"), to approve and adopt this Agreement and the Merger. The Company shall use its best efforts to solicit from stockholders of the Company proxies in favor of the approval and adoption of this Agreement and the Merger and to take all other actions reasonably necessary or in Acquiror's reasonable judgment advisable to secure such vote as promptly as practicable, unless otherwise required by applicable fiduciary duties of the directors of the Company, as determined by such directors in good faith after consultation with independent legal counsel. 20 Section 7.4. Proxy Statement. (a) As promptly as practicable after the execution and delivery of this Agreement, the Company shall prepare and file with the SEC a proxy statement in connection with the matters to be considered at the Stockholders' Meeting (the "Proxy Statement"). The Company shall use its best efforts to cause the Proxy Statement to be "cleared" by the SEC for mailing to the stockholders of the Company as promptly as practicable and shall mail the Proxy Statement to its stockholders as promptly as practicable thereafter. Acquiror shall furnish all information concerning it and the holders of its capital stock as the Company may reasonably request in connection with such actions. The Proxy Statement shall include the recommendation of the Company's Board of Directors in favor of approval and adoption of this Agreement and the Merger, unless otherwise required by applicable fiduciary duties of the directors of the Company, as determined by such directors in good faith after consultation with independent legal counsel. Acquiror shall have the right to review the Proxy Statement before it is filed with the SEC. (b) The information supplied by Acquiror for inclusion in the Proxy Statement shall not, at the date the Proxy Statement (or any supplement thereto) is first mailed by stockholders or at the time of the Stockholders' Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. If at any time prior to the Stockholders' Meeting any event or circumstance relating to Acquiror or any of its affiliates, or its or their respective officers or directors, should be discovered by Acquiror that should be set forth in a supplement to the Proxy Statement, Acquiror shall promptly inform the Company. (c) All information contained in the Proxy Statement (other than information provided by Acquiror for inclusion therein) shall not, at the date the Proxy Statement (or any supplement thereto) is first mailed to stockholders or at the time of the Stockholders' Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. If at any time prior to the Stockholders' Meeting any event or circumstance relating to the Company or any of the Company Subsidiaries, or to its or their respective officers or directors, should be discovered by the Company that should be set forth in a supplement to the Proxy Statement, the Company shall promptly inform Acquiror. All documents that the Company is responsible for filing with the SEC in connection with the transactions contemplated herein will comply as to form and substance in all material respects with the applicable requirements of the Exchange Act and the rules and regulations thereunder. Section 7.5. FCC Application. (a) As promptly as practicable after the execution and delivery of this Agreement, Acquiror, Merger Sub and the Company shall prepare all appropriate applications for FCC consent, and such other documents as may be required, with respect to the transfer of control of the Company to Acquiror (collectively, the "FCC Application"). Not later than the fifth (5th) business day following execution and delivery of this Agreement, Acquiror and Merger Sub shall deliver to the Company their respective completed portions of the FCC Application. Not later than the tenth (10th) business day following the execution and delivery of this Agreement, the Company shall file, or cause to be filed, the FCC Application. Acquiror, Merger Sub and the Company shall prosecute the FCC Application in good faith and with due diligence in order to obtain such FCC consent as expeditiously as practicable. If the Closing shall not have occurred for any reason within the initial effective period of the granting of approval by the FCC of the FCC Application, and neither Acquiror nor the Company shall have terminated this Agreement pursuant to Section 9.1, Acquiror and the Company shall jointly request one or more extensions of the effective period of such grant. No party hereto shall knowingly take, or fail to take, any action the intent or reasonably anticipated consequence of which action or failure to act would be to cause the FCC not to grant approval of the FCC Application. (b) Acquiror and the Company shall each pay one-half ( 1/2) of any FCC fees that may be payable in connection with the filing or granting of approval of the FCC Application. Acquiror and the Company shall each 21 oppose any request for reconsideration or judicial review of the granting of approval of the FCC Application. The Company shall pay any cost incurred in connection with complying with the FCC notice and advertisement requirements in connection with the transfer of control of the Company. Section 7.6. Further Action; Best Efforts. (a) Each of the parties shall use best efforts to take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable under applicable laws or otherwise to consummate and make effective the transactions contemplated by this Agreement as promptly as practicable, including, without limitation, using its best efforts to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Entities and parties to contracts with the Company and Acquiror as are necessary for the transactions contemplated herein. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall use commercially reasonable efforts to take all such action. (b) From the date of this Agreement until the Effective Time, each of the parties shall promptly notify the other in writing of any pending or, to the knowledge of such party, threatened action, proceeding or investigation by any Governmental Entity or any other person (i) challenging or seeking damages in connection with the Merger or the conversion of the Common Stock into the Merger Consideration pursuant to the Merger or (ii) seeking to restrain or prohibit the consummation of the Merger or otherwise limit the right of Acquiror to own or operate all or any portion of the business or assets of the Company. (c) The Company shall give prompt written notice to Acquiror, and Acquiror and Merger Sub shall give prompt written notice to the Company, of the occurrence, or failure to occur, of any event, which occurrence or failure to occur would be likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Effective Time. Each party shall use its best efforts to not take any action, or enter into any transaction, which would cause any of its representations or warranties contained in this Agreement to be untrue or result in a breach of any covenant made by it in this Agreement. Section 7.7. Public Announcements. Acquiror and the Company shall consult with each other before issuing any press release or otherwise making any public statements with respect to the Merger and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by law or any listing agreement of Acquiror or the Company with any exchange on which the securities of the Company or Acquiror are traded. Section 7.8. Indemnification; Directors' and Officers' Insurance. (a) The certificate of incorporation and bylaws of the Surviving Corporation shall contain the provisions with respect to indemnification set forth in the certificate of incorporation and bylaws of the Company on the date of this Agreement, which provisions shall not be amended, repealed or otherwise modified for a period of six (6) years after the Effective Time in any manner that would adversely affect the rights thereunder of persons who at any time prior to the Effective Time were identified as prospective indemnities under the certificate of incorporation or bylaws of the Company in respect of actions or omissions occurring at or prior to the Effective Time (including, without limitation, the transactions contemplated by this Agreement), unless such modification is required by applicable law. (b) From and after the Effective Time, the Surviving Corporation shall indemnify, defend and hold harmless the present and former officers, directors and employees of the Company and the Company Subsidiaries (collectively, the "Indemnified Parties") against all losses, expenses, claims, damages, liabilities or amounts that are paid in settlement of, with the approval of Acquiror and the Surviving Corporation (which approval shall not be unreasonably withheld), or otherwise in connection with, any claim, action, suit, proceeding or investigation (a "Claim"), based in whole or in part on the fact that such person is or was such a director, officer or employee and arising out of actions or omissions occurring at or prior to the Effective Time (including, without limitation, 22 the transactions contemplated by this Agreement), in each case to the fullest extent permitted under Delaware Law (and shall pay expenses in advance of the final disposition of any such action or proceeding to each Indemnified Party to the fullest extent permitted under Delaware Law, upon receipt from the Indemnified Party to whom expenses are advanced of the undertaking to repay such advances contemplated by Section 145(e) of Delaware Law). (c) Without limiting the foregoing, in the event any Claim is brought against any Indemnified Party (whether arising before or after the Effective Time) after the Effective Time (i) the Indemnified Parties may retain its regularly engaged independent legal counsel as of the date of this Agreement, or other independent legal counsel satisfactory to them provided that such other counsel shall be reasonably acceptable to Acquiror and the Surviving Corporation, (ii) the Surviving Corporation shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received, and (iii) the Surviving Corporation will use its reasonable efforts to assist in the vigorous defense of any such matter, provided that the Surviving Corporation shall not be liable for any settlement of any Claim effected without its written consent, which consent shall not be unreasonably withheld. Any Indemnified Party wishing to claim indemnification under this Section 7.8, promptly upon learning of any such Claim, shall notify the Surviving Corporation (although the failure so to notify the Surviving Corporation shall not relieve the Surviving Corporation from any liability which the Surviving Corporation may have under this Section 7.8, except to the extent such failure prejudices the Surviving Corporation), and shall deliver to the Surviving Corporation the undertaking contemplated by Section 145(e) of Delaware Law. The Indemnified Parties as a group may retain one law firm (in addition to local counsel) to represent them with respect to each such matter unless there is, under applicable standards of professional conduct (as reasonably determined by counsel to such Indemnified Parties) a conflict on any significant issue between the position of any two or more of such Indemnified Parties, in which event, an additional counsel as may be required may be retained by such Indemnified Parties. (d) Acquiror shall cause to be maintained in effect for not less than six (6) years after the Effective Time the current policies of directors' and officers' liability insurance and fiduciary liability insurance maintained by the Company with respect to matters occurring prior to the Effective Time; provided, however, that (i) Acquiror may substitute therefor policies of substantially the same coverage containing terms and conditions that are substantially the same for the Indemnified Parties to the extent reasonably available and (ii) Acquiror shall not be required to pay an annual premium for such insurance in excess of three hundred percent (300%) of the last annual premium paid prior to the date of this Agreement, but in such case shall purchase as much coverage as possible for such amount. (e) This Section 7.8 is intended to be for the benefit of, and shall be enforceable by, the Indemnified Parties referred to herein, their heirs and personal representatives and shall be binding on Acquiror and Merger Sub and the Surviving Corporation and their respective successors and assigns. Acquiror hereby guarantees the Surviving Corporation's obligations pursuant to this Section 7.8. Section 7.9. Employee Benefits Matters. (a) For a period of two (2) years after the Effective Time, Acquiror shall cause the Surviving Corporation to provide employee benefits under plans, programs and arrangements, which, in the aggregate, will provide benefits to the employees of the Company and the Company Subsidiaries which are no less favorable, in the aggregate, than those provided pursuant to the plans, programs and arrangements of the Company in effect and disclosed to Acquiror on the date hereof; provided, however, that nothing herein shall interfere with the Surviving Corporation's right or obligation to make such changes to such plans, programs or arrangements as are necessary to conform with applicable law; provided, further, however, that with respect to any such plan, program or arrangement that provides for the issuance of the Company's Common Stock, or options or securities exercisable or convertible into the Company's Common Stock, the Surviving Corporation shall be required to adopt equity compensation programs providing for the issuance of common stock of Acquiror to such employees. (b) In furtherance of the provisions of Section 7.9(a), Acquiror shall cause the Surviving Corporation to provide to those executives listed on Schedule 7.9 hereto with the employee benefits provided to each such 23 executive on the date hereof and for the time period set forth in the Company's employment and/or severance agreements with such executives as set forth on Schedule 7.9 hereto; provided, however, that notwithstanding the foregoing, to the extent that any contributions under a qualified retirement plan would be prohibited by applicable law, Acquiror shall cause the Surviving Corporation to make cash payments from time to time to such executives equal to the value of such contributions which can not be so made under applicable law, as and when such contributions would have been made as noted on Schedule 7.9. The employee benefits provided to such executives on the date hereof under the Company's employment and/or severance agreements with such executives are detailed on Schedule 7.9 hereto. (c) Acquiror acknowledges and agrees that prior to the Effective Time, the Company will take all such actions as may be necessary to cause (i) all participants to become fully vested in their benefits under the Company's 401(k) Plan, and (ii) employer contributions to be made with respect to periods prior to the Effective Time to the Company's 401(k) Plan to the extent that such contributions would be made if the participants were employed by the Company on the last day of the calendar year in which the Closing occurs. Acquiror will allow employees of PCI to continue to participate in the Company's 401(k) Plan at least until the end of the calendar year in which the Closing occurs. (d) On or prior to the Effective Time, the Company shall pay a pro-rated portion of the annual bonuses and gainshare that would have otherwise been payable to the eligible employees of the Company after the end of the year, such bonuses and gainshare to be consistent with the Company's 1997 Management and Professional Bonus Plan and the Company's Gainshare Program, with past practice, and the estimates contained in Schedule 7.9(d). (e) Acquiror agrees that it will not allow the Surviving Corporation to amend or terminate the Palmer Wireless, Inc. Change of Control Severance Program for a period of one (1) year after the Effective Time. (f) Prior to Closing, the Company shall make, or shall make accruals on its financial statements for, all payments required to be made by the Company under the terms of any Benefit Plan or by any law applicable to any Benefit Plan with respect to all periods through the Closing Date. (g) On or prior to the Effective Time, the Company shall take, or cause to be taken, such actions as are reasonably necessary to: (i) cause the Company to adopt the PCI plans providing medical, dental, vision, prescription drug, flexible spending account, pre-tax premium contribution, travel accident, accidental death and dismemberment, long term disability, and life insurance benefits for the benefit of Company employees; (ii) add the Company as a contractholder under insurance contracts providing insurance coverage, and administrative contracts relating to, for one or more of the benefits listed in the immediately preceding paragraph (i) above as well as workers compensation liability coverage and provide that such contracts continue as to the Company after the Effective Time; (iii) substitute the Company for PCI as the party to the Palmer Communications Health Care Expense Fund which is a Code Section 501(c)(9) trust used to fund certain of the benefits listed in paragraph (i) above and any other trust or account which is used with respect to flexible spending accounts or pre-tax premium contributions for Company employees; and (iv) except as provided in Section 7.9(c) hereof, cease participation and coverage in the Company plans, trusts and insurance contracts referred to in paragraphs (i) through (iii) above with respect to all individuals who are not Company employees as of the Effective Time. Section 7.10. HSR Act Matters. Acquiror, Merger Sub and the Company (as may be required pursuant to the HSR Act) promptly will complete all documents required to be filed with the Federal Trade Commission and the United States Department of Justice in order to comply with the HSR Act and, not later than fifteen (15) days after the date 24 hereof, together with the persons who are required to join in such filings, shall file the same with the appropriate Governmental Entities. Acquiror, Merger Sub and the Company shall promptly furnish all materials thereafter required by any of the Governmental Entities having jurisdiction over such filings, and shall take all reasonable actions and shall file and use best efforts to have declared effective or approved all documents and notifications with any such Governmental Entity, as may be required under the HSR Act or other Federal antitrust laws for the consummation of the Merger and the other transactions contemplated hereby. Section 7.11. Negotiation With Others. (a) Unless and until this Agreement shall have been terminated in accordance with its terms, the Company shall not, through any officer, director, employee, representative, agent or direct or indirect stockholder of the Company or any Company Subsidiaries, directly or indirectly, encourage or solicit any proposal that constitutes an Acquisition Proposal (as defined below), engage in any discussions or negotiations or provide any information to any person relating thereto or in furtherance thereof or accept any Acquisition Proposal; provided, however, that nothing contained in this Section 7.11 shall prohibit the Company, or its Board of Directors, from making any disclosure to its stockholders that, in the judgment of its Board of Directors in accordance with, and based upon, the advice of outside counsel, is required under applicable law. For purposes of this Agreement, "Acquisition Proposal" means any offer to acquire (or meaningful indication of interest in the acquisition of) all or any substantial part of the business and properties or capital stock of the Company or the Company Subsidiaries, whether by merger, consolidation, sale of assets or stock, tender offer or similar transaction or series of transactions involving the Company, the Company Subsidiaries or their direct or indirect stockholders. (b) Notwithstanding Section 7.11(a), the Board of Directors of the Company, in the exercise of and as required by its fiduciary duties as determined in good faith by the Board of Directors of the Company in accordance with and based upon the advice of outside counsel, may (i) furnish information (including, without limitation, confidential information) concerning the Company to a third party who makes an unsolicited request for such information for the purpose of making an Acquisition Proposal, provided that such third party executes and delivers a confidentiality agreement substantially the same as the Confidentiality Agreement, and (ii) engage in discussions or negotiations with a third party who submits in writing an interest in making an Acquisition Proposal that the Board of Directors believes, based on advice of its financial advisors, is reasonably capable of being consummated and is reasonably likely to be superior to the transactions contemplated by this Agreement from a financial point of view to all stockholders of the Company, provided, however, that in the case of clause (i) or (ii) hereof, the Company shall promptly notify Acquiror in writing of such request for information or Acquisition Proposal, providing reasonable details with respect thereto, and shall keep Acquiror informed as to the status of any discussions or negotiations referred to in clause (ii) above. ARTICLE VIII Closing Conditions Section 8.1. Conditions to Obligations of Acquiror, Merger Sub and the Company to Effect the Merger. The respective obligations of Acquiror, Merger Sub and the Company to effect the Merger and the other transactions contemplated herein shall be subject to the satisfaction at or prior to the Effective Time of the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by applicable law: (a) Stockholder Approval. This Agreement and the Merger shall have been approved and adopted by the requisite vote of the stockholders of the Company in accordance with applicable law. (b) No Order. No Governmental Entity or federal or state court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, judgment, injunction or other order (whether temporary, preliminary or permanent), in any case which is in effect and which prevents or prohibits consummation of the Merger or any other transactions contemplated in this Agreement; provided, however, that the parties shall use their reasonable efforts to cause any such decree, judgment, injunction or other order to be vacated or lifted. 25 (c) HSR Act. Any waiting period with any extensions thereof under the HSR Act shall have expired or been terminated. (d) FCC Approval. All consents, waivers, approvals and authorizations (the "FCC Transfer Approvals") required to be obtained, and all filings or notices required to be made, by Acquiror, Merger Sub and the Company prior to consummation of the transactions contemplated in this Agreement shall have been obtained from, and made with, the FCC. Each of the FCC Transfer Approvals shall have become a Final Order. For purposes of this Agreement, "Final Order" shall mean an action by the FCC: (i) that is not reversed, stayed, enjoined, set aside, annulled or suspended within the deadline, if any, provided by applicable statute or regulation; (ii) with respect to which no request for stay, motion or petition for reconsideration or rehearing, application or request for review, or notice of appeal or other judicial petition for review that is filed within such period is pending, and (iii) as to which the deadlines, if any, for filing any such request, motion, petition, application, appeal or notice, and for the entry of orders staying, reconsidering or reviewing on the FCC's own motion have expired. Notwithstanding anything to the contrary contained herein or otherwise, Acquiror may, at is option by written notice to the Company: (i) waive on behalf of the parties the requirement that each of the FCC Transfer Approvals shall have become a Final Order; and (ii) acquire the microwave licenses pursuant to special temporary authority granted to Acquiror by the FCC. Section 8.2. Additional Conditions to Obligations of Acquiror. The obligations of Acquiror to effect the Merger and the other transactions contemplated in this Agreement are also subject to the following conditions, any or all of which may be waived, in whole or in part, to the extent permitted by applicable law: (a) Representations and Warranties. The representations and warranties of the Company made in this Agreement shall be true and correct in all material respects, on and as of the Effective Time with the same effect as though such representations and warranties had been made on and as of the Effective Time (provided that any representation or warranty contained herein that is qualified by a materiality standard shall not be further qualified hereby), except for representations and warranties that speak as of a specific date or time other than the Effective Time (which need only be true and correct in all material respects as of such date or time). Acquiror shall have received a certificate of the Chief Executive Officer or Chief Financial Officer of the Company to that effect. (b) Agreements and Covenants. The agreements and covenants of the Company required to be performed on or before the Effective Time shall have been performed in all material respects. Acquiror shall have received a certificate of the Chief Executive Officer or Chief Financial Officer of the Company to that effect. (c) Legal Opinions. Acquiror shall have received (i) an opinion from Hogan & Hartson L.L.P., counsel to the Company, in form and substance reasonably satisfactory to Acquiror, and (ii) an opinion from the Company's FCC counsel in substantially the form attached hereto as Exhibit A. (d) Dissenting Shares. The Dissenting Shares shall constitute not greater than ten percent (10%) of the shares of Class A Common Stock outstanding on the Closing Date. (e) No Company Material Adverse Effect. Since the date of this Agreement, no Company Material Adverse Effect shall have occurred and be continuing. Section 8.3. Additional Conditions to Obligations of the Company. The obligations of the Company to effect the Merger and the other transactions contemplated in this Agreement are also subject to the following conditions any or all of which may be waived, in whole or in part, to the extent permitted by applicable law: (a) Representations and Warranties. The representations and warranties of Acquiror and Merger Sub made in this Agreement shall be true and correct in all material respects, on and as of the Effective 26 Time with the same effect as though such representations and warranties had been made on and as of the Effective Time (provided that any representation or warranty contained herein that is qualified by a materiality standard shall not be further qualified hereby), except for representations and warranties that speak as of a specific date or time other than the Effective Time (which need only be true and correct in all material respects as of such date or time). The Company shall have received a certificate of the Chief Executive Officer or Chief Financial Officer of Acquiror to that effect. (b) Agreements and Covenants. The agreements and covenants of Acquiror and Merger Sub required to be performed on or before the Effective Time shall have been performed in all material respects. The Company shall have received a certificate of the Chief Executive Officer or Chief Financial Officer of Acquiror to that effect. (c) Legal Opinion. The Company shall have received an opinion from Proskauer Rose Goetz & Mendelsohn LLP, counsel to Acquiror and Merger Sub, in form and substance reasonably satisfactory to the Company. ARTICLE IX Termination, Amendment and Waiver Section 9.1. Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of this Agreement and the Merger by the stockholders of the Company: (a) by mutual written consent of each of Acquiror and the Company; (b) by Acquiror if the Company shall have breached, or failed to comply with, in any material respect any of its obligations under this Agreement or any representation or warranty made by the Company shall have been incorrect in any material respect when made or shall have since ceased to be true and correct in any material respect, such that as a result of such breach, failure or misrepresentation the conditions set forth in Section 8.2(a), 8.2(b) or 8.2(e) would not be satisfied, and such breach, failure or misrepresentation is not cured within thirty (30) days after notice thereof; (c) by the Company if Acquiror or Merger Sub shall have breached, or failed to comply with, in any material respect any of its obligations under this Agreement or any representation or warranty made by Acquiror or Merger Sub shall have been incorrect in any material respect when made or shall have since ceased to be true and correct in any material respect, such that as a result of such breach, failure or misrepresentation the conditions set forth in Section 8.3(a) or 8.3(b) would not be satisfied, and such breach, failure or misrepresentation is not cured within thirty (30) days after notice thereof; (d) by either Acquiror or the Company if any decree, permanent injunction, judgment, order or other action by any court of competent jurisdiction or any Governmental Entity preventing or prohibiting consummation of the Merger shall have become final and nonappealable; (e) by either Acquiror or the Company if the Agreement shall fail to receive the requisite vote for approval and adoption by the stockholders of the Company at the Stockholders' Meeting and the Merger shall not have been consummated within forty-five (45) days thereafter; and (f) by either the Company or Acquiror if the merger shall not have been consummated before December 31, 1997 (the "Termination Date"); provided, however, that the right to terminate this Agreement under this Section 9.1(f) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before the Termination Date. 27 Section 9.2. Effect of Termination. Except as provided in Section 9.3 or Section 10.1, in the event of the termination of this Agreement pursuant to Section 8.1, this Agreement shall forthwith become void, there shall be no liability on the part of Acquiror, Merger Sub or the Company or any of their respective officers or directors to the other parties hereto and all rights and obligations of any party hereto shall cease, except that nothing herein shall relieve any party for any breach of this Agreement. Section 9.3. Expenses; Fee. (a) Except as otherwise expressly provided herein, all expenses incurred by the parties hereto shall be borne solely by the party that has incurred such expenses. All FCC annual regulatory fees which are due and payable prior to Closing shall be paid by the Company prior to Closing. (b) Without in any way limiting the Company's obligations under this Agreement (including without limitation under Sections 1.1, 1.2, 1.6, 2.3, 6.1, 6.2, 7.1, 7.3, 7.4, 7.5, 7.6, 7.10 and 7.11 hereof) or Acquiror's rights under Section 10.7 hereof, the Company shall pay, or shall cause to be paid to, Acquiror a Fee (the "Fee") of Fifteen Million Dollars ($15,000,000), if this Agreement is (i) terminated either (A) by Acquiror under Section 9.1(b) as a result of the Company's breach of its obligations under Sections 1.1, 1.2, 1.6, 2.3, 6.1, 6.2, 7.1, 7.3, 7.4, 7.5, 7.6, 7.10 or 7.11, (B) by the Company or Acquiror under Section 9.1(e) and (ii) either (A) an Alternative Transaction (as defined below) has been publicly announced and has not been withdrawn at the time of such termination (in which event the Fee shall be paid simultaneously with such termination) or (B) an Alternative Transaction is consummated on or prior to the date that is one (1) year after the date of this Agreement (in which event the Fee shall be paid simultaneously with such consummation); provided, however, that payment of such Fee shall be deemed to satisfy in full all of the liabilities and obligations of the Company under this Agreement. As used herein, an "Alternative Transaction" shall mean any transaction or proposed transaction or related series of transactions (including without limitation any merger, consolidation, sale of assets or stock, tender offer or other transaction) providing for the receipt by the Company and/or the holders of more than fifty percent (50%) of its Common Stock of consideration equivalent to a value in excess of Seventeen Dollars and Fifty Cents ($17.50) per share of Common Stock. Section 9.4. Amendment. This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time; provided, however, that, after approval of this Agreement and the Merger by the stockholders of the Company, no amendment may be made which would reduce the amount or change the type of consideration into which each share of Common Stock shall be converted pursuant to this Agreement upon consummation of the Merger. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. Section 9.5. Waiver. At any time prior to the Effective Time, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement and (c) waive compliance by the other party with any of the agreements or conditions contained in this Agreement. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE X General Provisions Section 10.1. Nonsurvival of Representations, Warranties and Agreements. The representations, warranties and agreements in this Agreement (and in any certificate delivered in connection with the Closing) shall be deemed to be conditions to the Merger and shall not survive the Effective Time or termination of this Agreement, except for the agreements set forth in Articles I (the Merger) and II 28 (Conversion of Securities; Exchange of Certificates) and Sections 7.8 (Indemnification and Insurance) and 7.9 (Employee Benefits Matters), each of which shall survive the Effective Time indefinitely, and Sections 7.2 (Confidentiality), 9.2 (Effect of Termination) and 9.3 (Expenses; Fee), each of which shall survive termination of this Agreement indefinitely. Section 10.2. Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered, mailed or transmitted, and shall be effective upon receipt, if delivered personally, mailed by registered or certified mail (postage prepaid, return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like changes of address) or sent by electronic transmission to the telecopier number specified below: (a) If to Acquiror: Price Communications Corporation 45 Rockefeller Plaza Suite 3200 New York, New York 10020 Telecopier No.: (212) 397-3755 Attention: Robert Price With a copy (which shall not constitute notice) to: Proskauer Rose Goetz & Mendelsohn LLP 1585 Broadway New York, New York 10036-8299 Telecopier No.: (212) 969-2900 Attention: Peter G. Samuels, Esq. (b) If to the Company: Palmer Wireless, Inc. 12800 University Drive Fort Myers, Florida 33014 Telecopier No.: (941) 433-8213 Attention: Pat Meehan, Esq. With a copy (which shall not constitute notice) to: Hogan & Hartson L.L.P. Columbia Square 555 Thirteenth Street, N.W. Washington, DC 20004 Telecopier No.: (202) 637-5910 Attention: David B.H. Martin, Jr., Esq. Section 10.3. Certain Definitions. For purposes of this Agreement, the term: (a) "affiliate" means a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first mentioned person; (b) "beneficial owner" means with respect to any shares of Common Stock a person who shall be deemed to be the beneficial owner of such shares (i) which such person or any of its affiliates or associates beneficially owns, directly or indirectly, (ii) which such person or any of its affiliates or associates (as such term is defined in Rule 12b-2 of the Exchange Act) has, directly or indirectly, (A) the right to acquire (whether such right is exercisable immediately or subject only to the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, 29 warrants or options, or otherwise, or (B) the right to vote pursuant to any agreement, arrangement or understanding, (iii) which are beneficially owned, directly or indirectly, by any other persons with whom such person or any of its affiliates or associates has any agreement, arrangement or understanding for the purpose of acquiring, holding voting or disposing of any such shares or (iv) pursuant to Section 13(d) of the Exchange Act and any rules or regulations promulgated thereunder; (c) "business day" shall mean any day other than a day on which banks in the State of Florida are authorized or obligated to be closed; (d) "control" (including the terms "controlled by" and "under common control with") means, other than for purposes of the Communications Act, the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of stock or as trustee or executor, by contract or credit arrangement or otherwise; and (e) "person" means an individual, corporation, partnership, association, trust, unincorporated organization, other entity or group (as defined in Section 13(d) of the Exchange Act). Section 10.4. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 10.5. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible. Section 10.6. Entire Agreement. This Agreement (together with the Exhibits, the Schedules and the other documents delivered pursuant hereto) and the Confidentiality Agreement constitute the entire agreement of the parties and supersede all prior agreements and undertakings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof and, except as otherwise expressly provided herein, are not intended to confer upon any other person any rights or remedies hereunder. Section 10.7. Specific Performance. The transactions contemplated by this Agreement are unique. Accordingly, each of the parties acknowledges and agrees that, in addition to all other remedies to which it may be entitled, each of the parties hereto is entitled to a decree of specific performance, provided such party is not in material default hereunder. Section 10.8. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other party. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Section 10.9. Third Party Beneficiaries. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement except for (a) the Indemnified Parties 30 under Section 7.8, (b) the rights of the holders of Common Stock to receive the Merger Consideration payable in the Merger pursuant to Article II, and (c) the rights of the individuals listed on Schedule 7.9 under Section 7.9. Section 10.10. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law. Section 10.11. Counterparts. This Agreement may be executed and delivered in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. In Witness Whereof, the parties hereto have caused this Agreement and Plan of Merger to be executed and delivered as of the date first written above. Price Communications Corporation /s/ Robert Price By: _________________________________ Name: Robert Price Title:President Price Communications Cellular Merger Corp. /s/ Robert Price By: _________________________________ Name: Robert Price Title:President Palmer Wireless, Inc. /s/ William J. Ryan By: _________________________________ William J. Ryan President and Chief Executive Officer 31 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 721 of the New York Business Corporation Law provides that the indemnification and advancement of expenses of directors and officers may be provided by the certificate of incorporation or by-laws of a corporation, or when authorized by the certificate of incorporation or by-laws, a resolution of shareholders, a resolution of directors or an agreement providing for indemnification (except in cases where a judgment or other final adjudication establishes that such acts were committed in bad faith or were the result of active or deliberate dishonesty and were material to the cause of action so adjudicated or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled). Section 722 of the New York Business Corporation Law provides that a corporation may indemnify any person, made, or threatened to be made, a party of an action or proceeding other than one by or in the right of the corporation to procure a judgment in its favor, whether civil or criminal, including an action by or in the right of any other corporation, partnership, joint venture, trust, employee benefit plan or other entity which any director or officer of the corporation served in any capacity at the request of the corporation, by reason of the fact that he was a director or officer of the corporation, or served such other corporation, partnership, joint venture, trust, employee benefit plan or other entity in any other capacity, against judgments, fines, amounts paid in settlement and reasonable expenses if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or in the case of service for any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, not opposed to, the best interests of the corporation and, in criminal acts or proceedings, in addition, had no reasonable cause to believe that his conduct was unlawful. Section 722 of the New York Business Corporation Law also states that a corporation may indemnify any person made, or threatened to be made, a party to an action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation or any other corporation, partnership, joint venture, trust, employee benefit plan or other entity at the request of the corporation, against amounts paid in settlement and reasonable expenses actually and necessarily incurred by him in connection with the defense or settlement of such action, or in connection with an appeal therein if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in, or in the case of service for any other corporation, partnership, joint venture, employee benefit plan or other entity, not opposed to, the best interests of the corporation, except that no indemnification shall be made in respect to a threatened or pending action which is settled or otherwise disposed of, or any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless the court determines the person is fairly and reasonably entitled to indemnity for such portion of the settlement amount and expenses as the court deems proper. Section 726 of the New York Business Corporation Law provides that a corporation shall have the power to purchase and maintain insurance for indemnification of directors and officers. However, no insurance may provide for any payment, other than cost of defense, to or on behalf of any director or officer for a judgment or a final adjudication adverse to the insured director or officer if (i) a judgment or other final adjudication establishes that his acts of active and deliberate dishonesty were material to the cause of action adjudicated or that he personally gained a financial profit or other advantage to which he was not legally entitled or (ii) if prohibited under the insurance law of New York. Section 724 of the New York Business Corporation Law provides that indemnification shall be awarded by a court to the extent authorized under Sections 722 and 723(a) of the New York Business Corporation Law notwithstanding the failure of a corporation to provide indemnification, and despite any contrary resolution of the board or of the shareholders. II-1 The Certificates of Incorporation and By-laws of the Company and Holdings exonerate directors of the Company and Holdings from personal liability to the Company or Holdings, as the case may be, and their respective stockholders, for monetary damages for breach of the fiduciary duty of care as a director, but it does not eliminate or limit liability for any breach of the directors' duty of loyalty for acts or omissions not in good faith or which involve intentional misconduct or knowing violations of law, for any improper declaration of dividends or for any transaction from which the directors derived an improper personal benefit. The Certificates of Incorporation do not eliminate a stockholder's right to seek nonmonetary, equitable remedies, such as an injunction or rescission, to redress an action taken by the directors. However, as a practical matter, equitable remedies may not be available in all situations, and there may be instances in which no effective remedy is available. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS
EXHIBIT NO. DESCRIPTION ------- ----------- 2.1 Agreement and Plan of Merger among the Company, Holdings and PCC Sub, Inc. (the "Plan of Merger") (incorporated by reference to Exhibit 3.3). 3.1 Certificate of Incorporation of Holdings. 3.2 By-laws of Holdings. 3.3 The Plan of Merger. 4.1 Certificate of Incorporation of Holdings (incorporated by reference to Exhibit 3.1). 4.2 By-Laws of Holdings (incorporated by reference to Exhibit 3.2). 5.1 Opinion of Proskauer Rose LLP. 8.1 Opinion of Proskauer Rose LLP.* 10.1 1992 Long Term Incentive Plan, incorporated by reference to Exhibit 10(a) to the Company's Form 10-K for the year ended December 31, 1992. 10.2 Warrant Agreement dated April 12, 1990 between the Company and Warner Communications Investors, Inc., incorporated by reference to Exhibit (4) to the Company's Form 8-K filed to report an event of April 12, 1990. 10.3 Form of Amendment to Time Warner Warrant, incorporated by reference to Exhibit 10(i) to the Company's Form 10-K for the year ended December 31, 1992. 10.4 Stock Purchase Agreement, dated as of April 27, 1987, among the Company, Republic Broadcasting Corporation and Fairfield Broadcasting, Inc., as amended July 16, 1987, incorporated by reference to Annex I to the Company's Definitive Proxy Statement dated July 27, 1987. 10.5 Notes and Stock Purchase Agreement between and among Fairfield Broadcasting, Inc., the Company and Republic Broadcasting Corporation dated as of September 30, 1987, as amended, incorporated by reference to Exhibit 10(a) to Registration Statement on Form S-1 (File No. 33-30318). 10.6 Stockholders' Agreement among Fairfield Broadcasting, Inc., the Company, Citicorp Venture Capital Ltd., Osborn Communications Corporation and Prudential-Bache Interfunding Inc., dated as of September 30, 1987, incorporated by reference to Exhibit 10(b) to Registration Statement on Form S-1 (File No. 33-30318). 10.7 Form of Indemnification Agreement between the Company and its officers and directors, incorporated by reference to Exhibit 10(y) to the Company's Form 10-K for the year ended December 31, 1993. 10.8 Employment Agreement, dated as of October 6, 1994, between the Company and Robert Price, incorporated by reference to Exhibit 10(aa) to the Company's Form 10-K for the year ended December 31, 1994. 10.9 Employment Agreement, dated as of January 5, 1995, between the Company and Kim Pressman, incorporated by reference to Exhibit 10(bb) to the Company's Form 10-K for the year ended December 31, 1994.
- -------- * Filed herewith. II-2
EXHIBIT NO. DESCRIPTION ------- ----------- 10.10 Stock Option Agreement, dated as of February 10, 1994, between the Company and Robert Price, incorporated by reference to Exhibit 10(cc) to the Company's Form 10-K for the year ended December 31, 1994. 10.11 Rights Agreement dated as of October 6, 1994 between the Company and Harris Trust Company of New York, incorporated by reference to Exhibit 4 to Registrant's Form 8-K filed to report an event on October 6, 1994. 10.12 Amendment dated January 12, 1995 to Rights Agreement dated as of October 6, 1994 between the Company and Harris Trust Company of New York, incorporated by reference to Exhibit 4 to the Company's Form 8-K filed to report an event on January 12, 1995. 10.13 Securities Purchase Agreement, dated as of February 15, 1994, between the stockholders and warrant holders of Smith Acquisition Corp. and the Registrant, incorporated by reference to Exhibit 10 to the Company's Form 8-K filed to report an event of September 16, 1994. 10.14 Asset purchase agreement dated as of August 8, 1995 by and between USA Broadcast Group L.L.C. and Price Communications Corporation, Texoma Broadcasting Corp., Southeast Texas Broadcasting Corp. and Tri-State Broadcasting Corp., incorporated by reference to Exhibit 10(gg) to the Company's Form 10-Q for the Quarter ended September 30, 1995. 10.15 Asset purchase agreement dated as of October 18, 1995 by and between WHTM-TV, Inc. and Allbritton Communications Company, incorporated by reference to Exhibit 10(hh) to the Company's Form 10-Q for the Quarter ended September 30, 1995. 10.16 Agreement and Plan of Merger, dated May 23, 1997, by and among Palmer Wireless, Inc., the Company and Price Communications Cellular Merger Corp. (incorporated by reference from Annex I to the proxy statement and prospectus included in the Company's Registration Statement on Form S-4 (File No. 333-33299)). 10.18 Commitment Letter, dated July 2, 1997, among DLJ Capital Funding, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ Securities"), Price Communications Wireless Inc. ("PCW") and the Company, incorporated by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-4 (File No. 333- 33299). 10.19 Purchase Agreement, dated July 3, 1997, among the Company, PCW, the Purchasers named therein and DLJ Securities, as Representative of the Purchasers, incorporated by reference to Exhibit 10.19 to the Company's Registration Statement on Form S- 4 (File No. 333-33299). 10.20 Purchase Agreement, dated July 31, 1997, among the Company, Price Communications Cellular Inc., Price Communications Cellular Holdings, Inc., NatWest Capital Markets Limited ("NatWest") and Wasserstein Perella Securities, Inc. ("Wasserstein Perella"), incorporated by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-4 (File No. 333-33299). 10.21 Registration Rights Agreement, dated July 10, 1997, by and among PCW and DLJ Securities, Wasserstein Perella, NatWest, Lehman Brothers, Inc. and PaineWebber Incorporation as Purchasers, incorporated by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-4 (File No. 333-33299). 10.22 Indenture, dated as of July 10, 1997, between PCW and Bank of Montreal Trust Company, as trustee, incorporated by reference to Exhibit 10.22 to the Company's Registration Statement on Form S- 4 (File No. 333-33299). 21.1 Subsidiaries of the Registrant.* 23.1 Consent of Proskauer Rose LLP (included in Exhibits 5.1 and 8.1). 23.2 Consent of Arthur Andersen LLP. 23.3 Consent of KPMG Peat Marwick LLP. 23.4 Consent of KPMG Peat Marwick LLP. 24.1 Powers of Attorney are set forth on the signature page hereof.
- -------- * Filed herewith. II-3 ITEM 22. UNDERTAKINGS The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. The registrant undertakes that every prospectus (i) that is filed pursuant to (1) immediately preceeding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as part of an amendment to the registration statement and will not be used until such amendment is effected, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned registrant hereby undertakes to supply by means of a post- effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. II-4 (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-5 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON SEPTEMBER 4, 1997. PRICE COMMUNICATIONS CORPORATION By /s/ Robert Price ___________________________________ ROBERT PRICE PRESIDENT PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE /s/ Robert Price President and - ------------------------------------- Director (Principal September 4, (ROBERT PRICE) Executive Officer, 1997 Financial Officer and Accounting Officer) Director /s/ George H. Cadgene* September 4, - ------------------------------------- 1997 (GEORGE H. CADGENE) Director /s/ Robert F. Ellsworth* September 4, - ------------------------------------- 1997 (ROBERT F. ELLSWORTH) *By Robert Price, as Attorney in Fact. II-6 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON SEPTEMBER 4, 1997. PRICE HOLDINGS CORPORATION By /s/ Robert Price ___________________________________ ROBERT PRICE PRESIDENT PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE /s/ Robert Price President and - ------------------------------------- Director (Principal September 4, (ROBERT PRICE) Executive Officer, 1997 Financial Officer and Accounting Officer) Director /s/ George H. Cadgene* September 4, - ------------------------------------- 1997 (GEORGE H. CADGENE) Director /s/ Robert F. Ellsworth* September 4, - ------------------------------------- 1997 (ROBERT F. ELLSWORTH) *By Robert Price, as Attorney in Fact. II-7 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO. ------- ----------- -------- 2.1 Agreement and Plan of Merger among the Company, Holdings and PCC Sub, Inc. (the "Plan of Merger") (incorporated by reference to Exhibit 3.3). 3.1 Certificate of Incorporation of Holdings. 3.2 By-laws of Holdings. 3.3 The Plan of Merger. 4.1 Certificate of Incorporation of Holdings (incorporated by reference to Exhibit 3.1). 4.2 By-Laws of Holdings (incorporated by reference to Exhibit 3.2). 5.1 Opinion of Proskauer Rose LLP. 8.1 Opinion of Proskauer Rose LLP.* 10.1 1992 Long Term Incentive Plan, incorporated by reference to Exhibit 10(a) to the Company's Form 10-K for the year ended December 31, 1992. 10.2 Warrant Agreement dated April 12, 1990 between the Company and Warner Communications Investors, Inc., incorporated by reference to Exhibit (4) to the Company's Form 8-K filed to report an event of April 12, 1990. 10.3 Form of Amendment to Time Warner Warrant, incorporated by reference to Exhibit 10(i) to the Company's Form 10-K for the year ended December 31, 1992. 10.4 Stock Purchase Agreement, dated as of April 27, 1987, among the Company, Republic Broadcasting Corporation and Fairfield Broadcasting, Inc., as amended July 16, 1987, incorporated by reference to Annex I to the Company's Definitive Proxy Statement dated July 27, 1987. 10.5 Notes and Stock Purchase Agreement between and among Fairfield Broadcasting, Inc., the Company and Republic Broadcasting Corporation dated as of September 30, 1987, as amended, incorporated by reference to Exhibit 10(a) to Registration Statement on Form S-1 (File No. 33-30318). 10.6 Stockholders' Agreement among Fairfield Broadcasting, Inc., the Company, Citicorp Venture Capital Ltd., Osborn Communications Corporation and Prudential- Bache Interfunding Inc., dated as of September 30, 1987, incorporated by reference to Exhibit 10(b) to Registration Statement on Form S-1 (File No. 33- 30318). 10.7 Form of Indemnification Agreement between the Company and its officers and directors, incorporated by reference to Exhibit 10(y) to the Company's Form 10-K for the year ended December 31, 1993. 10.8 Employment Agreement, dated as of October 6, 1994, between the Company and Robert Price, incorporated by reference to Exhibit 10(aa) to the Company's Form 10- K for the year ended December 31, 1994. 10.9 Employment Agreement, dated as of January 5, 1995, between the Company and Kim Pressman, incorporated by reference to Exhibit 10(bb) to the Company's Form 10- K for the year ended December 31, 1994. 10.10 Stock Option Agreement, dated as of February 10, 1994, between the Company and Robert Price, incorporated by reference to Exhibit 10(cc) to the Company's Form 10-K for the year ended December 31, 1994. 10.11 Rights Agreement dated as of October 6, 1994 between the Company and Harris Trust Company of New York, incorporated by reference to Exhibit 4 to Registrant's Form 8-K filed to report an event on October 6, 1994. 10.12 Amendment dated January 12, 1995 to Rights Agreement dated as of October 6, 1994 between the Company and Harris Trust Company of New York, incorporated by reference to Exhibit 4 to the Company's Form 8-K filed to report an event on January 12, 1995.
- ------- * Filed herewith.
EXHIBIT NO. DESCRIPTION PAGE NO. ------- ----------- -------- 10.13 Securities Purchase Agreement, dated as of February 15, 1994, between the stockholders and warrant holders of Smith Acquisition Corp. and the Registrant, incorporated by reference to Exhibit 10 to the Company's Form 8-K filed to report an event of September 16, 1994. 10.14 Asset purchase agreement dated as of August 8, 1995 by and between USA Broadcast Group L.L.C. and Price Communications Corporation, Texoma Broadcasting Corp., Southeast Texas Broadcasting Corp. and Tri- State Broadcasting Corp., incorporated by reference to Exhibit 10(gg) to the Company's Form 10-Q for the Quarter ended September 30, 1995. 10.15 Asset purchase agreement dated as of October 18, 1995 by and between WHTM-TV, Inc. and Allbritton Communications Company, incorporated by reference to Exhibit 10(hh) to the Company's Form 10-Q for the Quarter ended September 30, 1995. 10.16 Agreement and Plan of Merger, dated May 23, 1997, by and among Palmer Wireless, Inc., the Company and Price Communications Cellular Merger Corp. (incorporated by reference from Annex I to the proxy statement and prospectus included in the Company's Registration Statement on Form S-4 (File No. 333- 33299)). 10.18 Commitment Letter, dated July 2, 1997, among DLJ Capital Funding, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ Securities"), Price Communications Wireless Inc. ("PCW") and the Company, incorporated by reference to Exhibit 10.18 to the Company's Registration Statement on Form S-4 (File No. 333-33299). 10.19 Purchase Agreement, dated July 3, 1997, among the Company, PCW, the Purchasers named therein and DLJ Securities, as Representative of the Purchasers, incorporated by reference to Exhibit 10.19 to the Company's Registration Statement on Form S-4 (File No. 333-33299). 10.20 Purchase Agreement, dated July 31, 1997, among the Company, Price Communications Cellular Inc., Price Communications Cellular Holdings, Inc., NatWest Capital Markets Limited ("NatWest") and Wasserstein Perella Securities, Inc. ("Wasserstein Perella"), incorporated by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-4 (File No. 333-33299). 10.21 Registration Rights Agreement, dated July 10, 1997, by and among PCW and DLJ Securities, Wasserstein Perella, NatWest, Lehman Brothers, Inc. and PaineWebber Incorporation as Purchasers, incorporated by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-4 (File No. 333- 33299). 10.22 Indenture, dated as of July 10, 1997, between PCW and Bank of Montreal Trust Company, as trustee, incorporated by reference to Exhibit 10.22 to the Company's Registration Statement on Form S-4 (File No. 333-33299). 21.1 Subsidiaries of the Registrant.* 23.1 Consent of Proskauer Rose LLP (included in Exhibits 5.1 and 8.1). 23.2 Consent of Arthur Andersen LLP. 23.3 Consent of KPMG Peat Marwick LLP. 23.4 Consent of KPMG Peat Marwick LLP. 24.1 Powers of Attorney are set forth on the signature page hereof.
- ------- * Filed herewith. EX-8.1 2 OPINION OF PROSKAUER ROSE EXHIBIT 8.1 September 5, 1997 Price Holdings Corporation Price Communications Corporation 45 Rockefeller Plaza New York NY 10020 Re: Form S-4, Registration Statement under The Securities Act of 1933 ----------------------------------------------------------------- Dear Sirs : We have acted as your counsel in connection with the proposed acquisition (the "Acquisition") by Price Communications Corporation, a New York corporation, and Price Communications Wireless, Inc., a Delaware corporation, of Palmer Wireless, Inc. ("Palmer"), a Delaware corporation, pursuant to an Agreement and Plan of Merger dated as of May 23, 1997 (the "Palmer Merger Agreement"). In that connection we have participated in the preparation of a registration statement under the Securities Act of 1933 on Form S-4 (the "Prospectus"), with regard to an offer by Price Holdings Corporation, a New York corporation ("Price"), to exchange its Price common stock for Palmer common stock (the "Offer"). We have examined the Palmer Merger Agreement, the Prospectus, the representation letter of Price delivered to us for purposes of this opinion, and such other documents and corporate records as we have deemed necessary or appropriate for purposes of this opinion. In addition, we have assumed (i) the Acquisition will be consummated in the manner contemplated in the Prospectus and in accordance with the Palmer Merger Agreement, (ii) the statements concerning the Acquisition set forth in the Prospectus are accurate and complete and (iii) the representations made to us by Price in the representation letter to us are accurate and complete. Based upon the foregoing, it is our opinion that the description of the Federal income tax consequences to certain holders of outstanding shares of Palmer common stock who participate in the Offer, contained in the Prospectus under the heading "THE OFFER--Certain Federal Income Tax Consequences", correctly sets forth the material Federal income tax consequences for such holders. In addition, based upon the foregoing, we confirm our opinion set forth in the fourth paragraph under the heading "THE OFFER--Certain Federal Income Tax Consequences" in the Prospectus. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this Firm in the section captioned "THE OFFER--Certain Federal Income Tax Consequences" in the Prospectus constituting a part of the Registration Statement. In giving this consent we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, PROSKAUER ROSE LLP EX-21.1 3 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 Subsidiaries of the Registrant Jurisdiction of Incorporation Price Holdings Corporation New York PCCSub, Inc. New York Price Communications Wireless, Inc. Delaware Price Communications Cellular Holdings, Inc. Delaware Price Communications Cellular Inc. Delaware -----END PRIVACY-ENHANCED MESSAGE-----