SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-14108
360 COMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 47-0649117
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
8725 W. Higgins Road
Chicago, Illinois
60631-2702
(773) 399-2500
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $0.01 par value New York Stock Exchange
Preferred Stock Purchase Rights Chicago Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
On March 26, 1997, 123,310,118 shares of the registrant's Common Stock
were outstanding. The aggregate market value on March 26, 1997 of the
registrant's Common Stock held by non-affiliates of the registrant was
$2,358,306,006.
Documents Incorporated by Reference
Certain portions of the registrant's definitive proxy statement for the
annual meeting of shareowners to be held on May 6, 1997 are incorporated by
reference in Part III of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business........................................................... 1
Item 2. Properties......................................................... 18
Item 3. Legal Proceedings.................................................. 18
Item 4. Submission of Matters to a Vote of Security Holders................ 19
Item 4a.Executive Officers of the Registrant............................... 19
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters............................................................ 21
Item 6. Selected Consolidated Financial Data............................... 23
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 24
Item 8. Financial Statements and Supplementary Data........................ 34
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 59
PART III
Item 10.Directors and Executive Officers of the Registrant................. 60
Item 11.Executive Compensation............................................. 60
Item 12.Security Ownership of Certain Beneficial Owners and Management..... 60
Item 13.Certain Relationships and Related Transactions..................... 60
PART IV
Item 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 64
When used in this Report, the words "intends," "expects," "plans," "estimates,"
"anticipates," "projects," "believes," and similar expressions are intended to
identify forward-looking statements. Specifically, statements included in this
Report that are not historical facts, including statements about the Company's
beliefs and expectations about continued market and industry growth, and ability
to maintain existing churn, customer growth and increased penetration rates, are
forward-looking statements. Such statements are subject to risks and
uncertainties that could cause actual results or outcomes to differ materially.
Such risks and uncertainties include, but are not limited to, the degree to
which the Company is leveraged and the restrictions imposed on the Company under
its existing debt instruments that may adversely affect the Company's ability to
finance its future operations, to compete effectively against better capitalized
competitors and to withstand downturns in its business or the economy generally;
the continued downward pressure on the prices charged for cellular equipment and
services resulting from increased competition in the Company's markets; the lack
of assurance that the Company's ongoing network improvements and scheduled
implementation of digital technology in its markets will be sufficient to meet
or exceed the capabilities and quality of competing networks; the effect on the
Company's operations and financial performance of changes in the regulation of
cellular activities; the degree to which the Company incurs significant costs as
a result of cellular fraud; the impact on the Company's operations that may
arise from concerns suggesting cellular telephones may be linked to cancer; and
the other factors discussed in the Company's filings with the Securities and
Exchange Commission, including the factors discussed under the heading "Certain
Risk Factors" in the Information Statement set forth as Exhibit 99 to the
Company's Form 10 (File No. 1-14108), which section is hereby incorporated by
reference herein. Forward-looking statements included in this Report speak only
as of the date hereof and the Company undertakes no obligation to revise or
update such statements to reflect events or circumstances after the date hereof
or to reflect the occurrence of unanticipated events.
<PAGE>
TERMS
Certain terms used herein are defined as follows.
Airtime: The total time that a cellular telephone channel is occupied
including call time and tear-down time.
Analog: Transmission method employing a continuous (rather than pulsed or
digital) electrical signal that varies in amplitude or frequency in response to
changes in sound, light or position.
Bandwidth: Difference between the top and bottom limiting frequencies of a
continuous frequency band. Also indicates the information-carrying capacity of a
channel. FCC-licensed cellular operators have been allocated a continuous 25 MHz
bandwidth in the 850-900 MHz band.
Broadband: The type of FCC license that has or will be awarded in the PCS
auctions in the 1850-1990 MHz band.
BTA: One of the 493 Basic Trading Areas, which are smaller than MTAs, into
which the licensing for broadband PCS has been divided based on the geographic
divisions in the 1992 Rand McNally Commercial Atlas & Marketing Guide.
Caller Line ID: A call management feature that displays the phone number of
the incoming caller on the cellular telephone handset.
CDMA: Code Division Multiple Access digital technology. Technique that
spreads a signal over a frequency band that is larger than the signal to enable
the use of a common band by many cellular signals and to achieve signal security
and privacy.
Cell site: The entire infrastructure and radio equipment associated with a
cellular transmitting and receiving station, including the land, building,
tower, antennas and electrical equipment.
Cell splitting: Dividing a single cell into a number of smaller cells
served by lower tower transmitters, thereby increasing the ability to reuse
frequency and the number of calls that can be handled in a given area.
Churn: The rate of customer defection, typically expressed as a percentage
of the total customer base.
Cluster: A group of contiguous markets, the provision of which facilitates
wide areas of uninterrupted cellular service, reduced airtime rates, automatic
delivery of inbound calls and simplified dialing patterns.
Communications Act: The Communications Act of 1934, as amended.
Controlled markets: Markets in which the Company's ownership percentage is
50% or greater.
Controlled POPs: The Net POPs in a controlled market.
Digital: Transmission system in which information is transmitted in a
series of pulses.
<PAGE>
EBITDA: Operating income plus depreciation and amortization. EBITDA is
included herein as supplemental disclosure because it is generally considered
useful information regarding a company's ability to service debt. EBITDA,
however, is not a measure determined in accordance with generally accepted
accounting principles ("GAAP") and should not be considered in isolation or as a
substitute for an alternative to net income (loss), cash flow provided by
operating activities or other income or cash flow data prepared in accordance
with GAAP or as a measure of a company's operating performance or liquidity.
ESMR: Enhanced Specialized Mobile Radio communications services, supplied
by converting analog SMR services into an integrated, digital transmission
system providing for call hand-off, frequency reuse and wide call delivery
networks.
FAA: The United States Federal Aviation Administration.
FCC: The United States Federal Communications Commission.
FCC Rules: The rules promulgated by the FCC governing the construction and
operation of cellular communications systems and licensing and technical
standards for the provision of cellular communications service.
Managed market: A cellular telephone market that is managed and operated by
the Company on a day-to-day basis.
Market: An MSA or RSA.
Message Retrieval Service: An enhanced call management feature which
notifies the cellular customer that a voicemail message is waiting.
MSA: One of the Metropolitan Statistical Areas for which the FCC licensed
cellular communications systems.
MSC: A mobile switching center, through which cell sites are connected to
the local landline telephone network.
MTA: One of the 51 Major Trading Areas into which the licensing for
broadband PCS has been divided based on the geographic divisions in the 1992
Rand McNally Commercial Atlas & Marketing Guide.
N-AMPS: Narrowband Advanced Mobile Phone Service, an enhanced analog
technology providing a three-fold capacity increase over conventional analog
technology.
Net POPs: The estimated population with respect to a given service area
multiplied by the percentage interest that the Company owns in the entity
licensed by the FCC to operate a cellular communications system within that
service area.
Non-wireline license: The license for a market initially awarded to a
company or group that was not affiliated with a local landline telephone carrier
in such market.
PCS: Personal Communications Services. PCS is the term commonly used to
describe the services that will be offered by the companies that acquired PCS
licenses.
Penetration rate: Customers divided by POPs in a given area.
POPs: The estimate of the 1996 population of a MSA or RSA, as derived from
the 1995 population estimates prepared by Strategic Mapping, Inc.
RBOCs: The Regional Bell Operating Companies.
Reseller: A company that provides cellular service to customers but does
not hold a FCC cellular license or own cellular facilities. A reseller buys
blocks of cellular telephone numbers from a licensed carrier and, in turn, sells
service through its own distribution network to the public.
RF: Radio Frequency.
Roaming: The ability of cellular customers to make or receive calls when
traveling in another cellular company's system. Roaming occurs when a cellular
customer leaves the cellular carrier's home area and uses his cellular phone.
Roaming agreements: Agreements entered into with other domestic cellular
companies that allow the Company's customers to make or receive calls when
traveling in another cellular company's system.
RSA: One of the Rural Service Areas for which the FCC licensed cellular
communications systems.
Service area: An MSA or RSA.
SMR: Specialized Mobile Radio communications services.
SuperNet: A product offered by the Company which provides seamless hand-off
from the Company's network to a neighboring cellular network and automatic
delivery of inbound calls to the neighboring market. SuperNet is a registered
service mark.
Voice-activated dialing: A feature which allows customers to place a call
by speaking aloud the telephone number they wish to dial.
Wireline license: The license for a market initially awarded to a company
or group that was affiliated with a local landline telephone carrier in such
market.
<PAGE>
PART I
Item 1. Business.
General
360 Communications Company is one of the leading and most established
wireless communications companies in the United States. As of December 31, 1996,
the Company served more than 2.1 million customers in more than 140 markets in
16 states throughout the country. The Company's interests in these markets
represent approximately 20.9 million Net POPs as of December 31, 1996 The
Company also owns, as of December 31, 1996, minority interests in 53 additional
cellular telephone markets representing approximately 4.4 million Net POPs,
including the New York, New York; Chicago, Illinois; Houston, Texas; and
Orlando, Florida MSAs. The Company sells and markets wireless voice and data
services and related products, as well as residential long distance service,
through a distribution network consisting of nationally recognized and local
dealers, full service retail stores and a direct sales force. As used herein,
the term "Company" means 360 Communications Company and its subsidiaries, unless
the context indicates otherwise.
The Company operates in four regions in the United States: Mid-Atlantic,
Midwest, Southeast and West. The Company consolidated a fifth region, the North
Carolina region, with the Southeast region in the fourth quarter of 1996. The
Company's controlled markets comprising each region include a number of
geographic operating clusters which are primarily located in mid-sized
communities.
For the period from January 1, 1990 to December 31, 1996, the Company grew
its customer base by a compounded annual growth rate of 52%. As of December 31,
1996, the Company had a cellular penetration rate of 8.9% in the markets that it
controlled. Twenty-seven of the Company's controlled markets had cellular
penetration rates in excess of 10%, eight of which had penetration rates in
excess of 15%. For the year ended December 31, 1996, the Company's average
monthly churn rate was 1.86%.
The Company was incorporated in October 1982 under the laws of the State of
Delaware by Centel Corporation. The Company, then known as Centel Cellular
Company, received its first operating license from the United States Federal
Communications Commission ("FCC") in 1985. Over the next three years, the
Company received additional licenses to operate wireline systems in 19 small and
medium-sized metropolitan areas, including MSAs in Las Vegas, Nevada;
Greensboro, North Carolina; and Tallahassee, Florida. In 1988, the Company's
aggressive expansion effort included the acquisition of United TeleSpectrum,
Inc. from Sprint Corporation ("Sprint"). Valued at more than $750 million, the
acquisition more than doubled the size of the Company, adding approximately 7.9
million Net POPs and making it the second largest domestic cellular company at
that time in terms of the number of markets served. On March 9, 1993, Centel
Corporation, then the Company's immediate parent, merged with a wholly-owned
subsidiary of Sprint, and the Company changed its name to Sprint Cellular
Company. In February 1996, the Company changed its name to 360 Communications
Company. On March 7, 1996, Sprint completed the spinoff of the Company through a
pro rata distribution to Sprint shareholders of all of the Common Stock, $0.01
par value (the "Common Stock"), of the Company (the "spinoff").
Growth and Operating Characteristics of the United States Cellular Industry
The United States cellular telephone industry has operated as a regulated
duopoly. The industry, however, is changing as a result of the emergence of new
wireless competitors, such as PCS licensees. See "Business-Governmental
Regulation-Regulation and Licensing of Cellular Communications Systems" and
"Business-Competition." For the year ended December 31, 1996, the cellular
industry reported total revenues of $23.6 billion versus $19.1 billion in 1995.
The total number of cellular customers grew by 30.0% during 1996, expanding the
customer base from an estimated 33.8 million to an estimated 44.0 million
customers. The cellular industry's penetration rate as of December 31, 1996, was
16.6% for both carriers on a nationwide basis, or 8.3% for the average carrier
on a nationwide basis.
The industry's rapid growth has been aided by vigorous competition and
rapid technological advancement. Industry growth has also been aided by
nationwide roaming agreements which have made it possible for customers to use
their cellular telephones nearly everywhere in the United States. This ubiquity
of service is one of the industry's greatest strengths. While industry growth
continues to be strong, average revenue per customer has declined consistently.
This trend is indicative of the industry's penetration of consumer markets as
well as competitive pressures on airtime rates.
The following table sets forth certain domestic cellular industry
statistics published by the Cellular Telecommunications Industry Association as
of December 31, and for each of the five years in the period ended December 31,
1996.
December 31,
--------------------------------------------------
Cellular Industry Statistics 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
- ----------------------------
Total Service Revenues
(dollars in billions) $23.6 $19.1 $14.2 $10.9 $7.8
Cellular Customers
(millions) 44.0 33.8 24.1 16.0 11.0
Customer Growth
(year-over-year) 30.0% 40.0% 50.8% 45.1% 46.0%
Average Monthly Bill per
Customer (dollars) $47.70 $51.00 $56.21 $61.49 $68.68
Penetration-Average
Carrier* 8.3% 6.5% 4.7% 3.1% 2.2%
- -------------------------
* Represents the total nationwide cellular penetration, divided by two to
reflect two cellular licensees in each market.
In March 1995, the FCC commenced its licensing of Personal Communications
Services ("PCS") by completing the auctioning of two 30 MHz licenses in each of
51 MTAs. Since that time, the FCC has auctioned an additional 60 MHz of spectrum
(three 10 MHz BTA licenses and one 30 MHz BTA license) for such potential
licensees. Licenses for all three 30 MHz frequency blocks have now been issued;
applications of the winning bidders for the three 10 MHz licenses are currently
being processed. PCS is the term commonly used to describe the services that
will be offered by the companies that acquired licenses in the FCC auctions. The
FCC has limited the amount of PCS spectrum which current cellular carriers (and
other commercial mobile radio service licensees) can obtain within their service
areas. As a result, it is possible that in addition to the two cellular
carriers, an additional five or six wireless providers could compete in any
given service area.
Despite the fact that PCS operators compete directly with the Company, the
Company believes that the existence of new competitors and increased capacity
should change the existing competitive dynamics of the industry by significantly
increasing penetration rates and the overall size of the market for wireless
communications services. The Company believes that the entrance of new
competitors caused cellular growth to accelerate in other telecommunications
markets. The United Kingdom wireless market, for example, experienced increased
cellular growth rates following the introduction of PCS services. See
"Business-Competition."
<PAGE>
Markets and Clusters
The following table sets forth as of December 31, 1996 (i) the markets in
which the Company owns an interest in a cellular system by region and by
cluster, (ii) the wireline or non-wireline nature of the market, (iii) the total
population of the market (as derived from 1995 population estimates prepared by
Strategic Mapping, Inc.), (iv) the Company's ownership percentage of the system,
and (v) the Company's Net POPs based on its ownership percentage:
<TABLE>
<CAPTION>
Wireline/ Total Ownership
Non-wireline Population Percentage Net POPs
------------ ---------- ---------- --------
CONTROLLED MARKETS
<S> <C> <C> <C> <C>
Mid-Atlantic Region:
Central Virginia Cluster:
Charlottesville, VA WL 142,009 100.0% 142,009
Danville, VA WL 110,396 75.0 82,797
Lynchburg, VA WL 159,274 100.0 159,274
Virginia RSA 4B2 WL 105,326 100.0 105,326
Virginia RSA 6B2 WL 13,527 100.0 13,527
Virginia RSA 7B2 WL 50,745 100.0 50,745
Virginia RSA 11B2 WL 42,842 100.0 42,842
Pennsylvania Cluster:
Harrisburg, PA WL 496,511 86.8% 430,972
York, PA WL 446,753 86.8 387,782
Lancaster, PA WL 447,498 86.8 388,428
Altoona, PA WL 132,385 100.0 132,385
Johnstown, PA WL 239,532 100.0 239,532
Pennsylvania RSA 3B1 WL 37,639 100.0 37,639
Pennsylvania RSA 4B1 WL 29,692 100.0 29,692
Pennsylvania RSA 8 WL 406,665 98.7 401,378
Pennsylvania RSA 10B1 WL 141,778 100.0 141,778
Pennsylvania RSA 11B1 WL 21,687 100.0 21,687
Pennsylvania RSA 12 WL 117,169 66.7 78,152
Scranton/Wilkes-Barre WL 660,089 78.9 520,810
State College WL 129,835 100.0 129,835
Williamsport WL 121,194 98.7 119,618
Eastern Virginia Cluster:
Norfolk-VA Beach-Portsmouth, VA NWL 1,046,337 100.0% 1,046,337
Newport News-Hampton, VA NWL 476,334 100.0 476,334
Petersburg-Colonial Heights-Hopewell, VA NWL 129,405 73.6 95,242
Virginia RSA 8 NWL 83,224 100.0 83,224
Virginia RSA 9 NWL 85,224 100.0 85,224
Tri-Cities Cluster:
Johnson City-Kingsport-Bristol, TN WL 454,426 100.0% 454,426
Tennessee RSA 4B1 WL 127,633 100.0 127,633
Tennessee RSA 8 WL 15,534 100.0 15,534
Virginia RSA 1 WL 145,584 100.0 145,584
Virginia RSA 2 WL 136,733 71.3 97,491
----------- ----------
Total Region 6,752,980 6,283,237
----------- ----------
Midwest Region:
Eastern Iowa Cluster:
Cedar Rapids, IA WL 178,293 100.0% 178,293
Waterloo-Cedar Falls, IA WL 147,537 88.5 130,570
Iowa City, IA WL 101,034 100.0 101,034
Dubuque, IA WL 88,408 85.0 75,147
Central Illinois Cluster:
Peoria, IL WL 344,596 100.0% 344,596
Illinois RSA 5B1 WL 11,547 100.0 11,547
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Wireline/ Total Ownership
Non-wireline Population Percentage Net POPs
------------ ---------- ---------- --------
<S> <C> <C> <C> <C>
Northern Indiana Cluster:
South Bend-Mishawaka, IN WL 302,072 83.7% 252,834
Elkhart-Goshen, IN WL 165,924 83.7 138,878
Indiana RSA 2 WL 170,438 75.0 127,829
Northwestern Ohio Cluster:
Toledo, OH WL 794,155 74.7% 593,234
Lima, OH WL 221,522 74.7 165,477
Ohio 1 Williams County WL 127,662 100.0 127,662
Ohio RSA 2B1 WL 206,759 67.5 139,562
Ohio RSA 5 WL 235,310 68.3 160,717
Mansfield, OH WL 127,440 100.0 127,440
Ohio RSA 6 WL 447,668 82.5 369,326
Eastern Ohio Cluster:
Youngstown-Warren, OH WL 493,192 96.9% 477,903
Sharon, PA WL 122,524 96.9 118,726
Ohio RSA 11 WL 112,366 100.0 112,366
Pennsylvania RSA 1 WL 197,792 80.0 158,234
Pennsylvania RSA 6B1 WL 221,393 57.1 126,415
West Virginia Cluster
Charleston, WV WL 255,548 85.0% 217,216
Huntington-Ashland WL 317,193 100.0 317,193
West Virginia 6 WL 186,273 100.0 186,273
Ohio Valley Cluster
Ohio 7B2 WL 170,703 100.0% 170,703
Ohio 10B2 WL 111,929 100.0 111,929
Parkersburg-Marietta WL 157,631 100.0 157,631
Stuebenville-Weirton WL 139,988 100.0 139,988
Wheeling WL 157,559 100.0 157,559
---------- ---------
Total Region 6,314,456 5,496,282
---------- ---------
Southeast Region:
North Carolina Cluster:
Fayetteville, NC WL 290,491 85.0% 246,917
North Carolina RSA 5B2 WL 35,298 100.0 35,298
North Carolina RSA 6 WL 154,967 100.0 154,967
North Carolina RSA 11 WL 221,315 100.0 221,315
Greensboro-Winston Salem-High Point, NC.. WL 975,488 61.8 602,852
Hickory, NC WL 235,358 100.0 235,358
North Carolina RSA 2B2 WL 73,549 100.0 73,549
North Carolina RSA 15B1 WL 191,535 67.0 128,328
Raleigh-Durham, NC WL 808,213 85.0 686,981
Burlington, NC WL 114,567 85.0 97,382
North Carolina RSA 7 (B1 and B2) WL 281,907 100.0 281,907
North Carolina RSA 8 WL 286,113 100.0 286,113
North Carolina RSA 9 WL 118,801 100.0 118,801
North Carolina RSA 10 WL 277,843 100.0 277,843
North Carolina RSA 14 WL 238,281 100.0 238,281
Wilmington, NC WL 198,532 100.0 198,532
Jacksonville, NC WL 147,695 100.0 147,695
North Carolina RSA 12 WL 126,327 100.0 126,327
North Carolina RSA 13 WL 239,034 100.0 239,034
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Wireline/ Total Ownership
Non-wireline Population Percentage Net POPs
------------ ---------- ---------- --------
<S> <C> <C> <C> <C>
Charleston Cluster:
Charleston-North Charleston, SC WL 533,720 75.0% 400,290
South Carolina RSA 4 WL 211,383 50.0 105,692
South Carolina RSA 5 WL 241,941 50.0 120,971
South Carolina RSA 6 WL 194,403 50.0 97,202
South Carolina RSA 8 WL 171,356 50.0 85,678
Greenville Cluster:
Greenville-Spartanburg, SC WL 681,419 89.2% 607,826
Anderson, SC WL 154,386 89.2 137,712
South Carolina RSA 1 WL 61,407 100.0 61,407
South Carolina RSA 2 WL 226,371 50.0 113,186
Florida/Alabama Cluster:
Dothan, AL WL 135,755 100.0% 135,755
Ft. Walton Beach, FL WL 165,277 100.0 165,277
Florida RSA 10 WL 111,399 100.0 111,399
Panama City, FL WL 143,194 100.0 143,194
Tallahassee, FL WL 275,108 90.0 247,597
Florida RSA 8B1 WL 46,892 90.0 42,203
----------- ----------
Total Region 8,369,325 6,972,867
-----------
----------
West Region:
Central Texas Cluster:
Killeen-Temple, TX WL 295,225 66.9% 197,506
Waco, TX WL 199,852 66.9 133,701
Texas RSA 9B3 WL 29,522 70.0 20,665
Texas RSA 10 (B2 and B4) WL 189,845 75.0 142,384
Texas RSA 15B1 WL 89,017 100.0 89,017
East Texas Cluster:
Tyler, TX WL 160,995 60.0% 96,597
Longview-Marshall, TX WL 169,191 60.0 101,515
Texas RSA 7B2 WL 44,063 97.5 42,961
New Mexico Cluster:
New Mexico RSA 1 NWL 254,550 100.0% 254,550
New Mexico RSA 2 NWL 23,611 100.0 23,611
New Mexico RSA 4 NWL 258,685 100.0 258,685
New Mexico RSA 5 NWL 58,288 100.0 58,288
Las Vegas, NV WL 982,985 72.2 709,715
------------ ------------
Total Region 2,755,829 2,129,195
------------ ------------
Total Controlled Markets 24,192,590 20,881,581
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Total Ownership
Population Percentage Net POPs
---------- ---------- --------
NON-CONTROLLED MARKETS*
<S> <C> <C> <C>
New York, NY-Long Branch-New Brunswick, NJ 16,327,910 10.0% 1,632,791
Chicago-Aurora/Elgin-Joliet-Kankakee, IL-Gary, IN 8,361,458 5.0 418,073
Houston-Beaumont-Galveston/Texas City, TX 4,533,619 8.8 398,958
Orlando-Melbourne-Daytona Beach, FL 2,077,627 15.0 311,644
Kansas City-Lawrence, KS 1,609,167 19.0 305,742
Richmond, VA 800,217 27.3 218,459
Omaha, NE 627,705 27.6 173,247
Allentown-Bethlehem-Easton, PA 712,049 20.8 148,106
Cleveland-Akron-Canton-Lorain, OH-Erie, PA 3,490,997 3.5 122,185
Ft. Wayne, IN 435,387 25.0 108,847
Virginia RSA 10 231,825 33.0 76,502
Reading, PA 349,909 15.9 55,636
Cincinnati-Dayton-Columbus, OH 3,666,996 1.2 44,004
Georgia RSA 1 216,854 20.0 43,371
Illinois RSA 3** 203,705 18.1 36,871
Pennsylvania 5** 81,417 40.0 32,567
Illinois RSA 2B2 81,156 40.0 32,462
Texas RSA 7B1 126,089 25.0 31,522
Texas RSA 11B2** 107,945 28.0 30,225
Indiana RSA 3 146,034 20.0 29,207
Pennsylvania RSA 3B2 59,275 44.4 26,318
Pennsylvania RSA 4B2 68,529 33.3 22,820
Iowa RSA 13** 66,874 30.0 20,062
St. Joseph, MO 98,370 20.0 19,674
Florida RSA 9** 40,119 49.0 19,658
Iowa RSA 11 111,168 14.1 15,675
Missouri RSA 4 69,208 12.5 8,651
Iowa RSA 16 104,222 8.3 8,650
Iowa RSA 5** 108,909 7.1 7,733
Austin, TX 919,978 0.8 7,360
Missouri RSA 9B1 34,846 19.6 6,830
Missouri RSA 1 42,994 14.3 6,148
Iowa RSA 14 107,540 5.6 6,022
Iowa RSA 15 84,145 6.7 5,638
Iowa RSA 1 62,504 3.9 2,438
Iowa RSA 8 54,713 2.3 1,258
------------ -----------
Total Non-Controlled Markets 46,221,460 4,435,353
============ ===========
Total Company Markets 70,414,050 25,316,934
============ ===========
- --------------------
<FN>
* All non-controlled markets are wireline systems.
** Represents non-controlled markets that are managed by the Company on a
day-to-day basis.
</FN>
</TABLE>
<PAGE>
Business Strategy
The Company will seek to maintain strong growth and improvement in
operating margins by continuing to penetrate its existing markets. The Company
believes that its primary growth will be internally generated through the
implementation of its operating strategies as described below. In addition, a
key part of the Company's growth strategy is to pursue favorable opportunities
to expand its regional market clusters or develop new strategic market clusters
through acquisitions, trades or alliances with other cellular carriers. The
principal components of the Company's strategy to achieve these objectives are
as follows:
--clustering of markets to provide broad areas of uninterrupted service
combined with simplified calling and pricing patterns and operating
efficiencies through economies of scale;
--continuous network improvement to meet customer expectations of
ubiquitous coverage, clarity and reliability;
--aggressive distribution management to provide effective and extensive
marketing of products and services through dealers, Company retail
stores and a direct sales force targeted at high volume users;
--exceptional localized customer service provided by highly motivated,
experienced and trained customer relations personnel who are focused on
satisfying customer needs to build loyalty, improve customer retention
and increase usage;
--targeted pricing strategies and rate plans to increase penetration,
improve customer retention and increase usage;
--targeted product and service deployment to introduce new features and
network solutions to stimulate increased usage and improve customer
satisfaction and retention; and
--integration of multiple telecommunications services such as cellular,
residential long distance and paging into a single product offering,
including one bill, to improve customer retention and to increase sales
and usage of all services offered by the Company.
The Company believes that the strategies employed to meet existing
competition will also be effective in competing against new service providers.
Companies with PCS licenses have begun to offer their products and services in
several of the Company's service areas. The Company has prepared for this new
competitive environment by enhancing its networks, expanding its service
territory, offering new features, products and services to its customers and
simplifying its pricing of services. In addition, the Company will seek to
further capitalize on its incumbent position as a leading wireless provider in
its markets by increasing revenues through aggressive customer acquisition,
further improving localized customer service and enhancing its financial
performance by continuing to improve operating margins.
Recent Acquisitions
The Company's external growth strategy is designed to reinforce its
incumbent position by increasing its customer base as well as to improve
operating margins by achieving significant economies of scale. In February 1997,
the Company signed definitive agreements with BellSouth Corporation
("BellSouth") to combine ownership interests in two cellular partnerships in
each of which the Company currently has a noncontrolling interest and BellSouth
has a controlling interest and to transfer interests in two markets. Under the
terms of the agreements, which are subject to FCC approval, the Company and
BellSouth will combine their respective interests in two partnerships that own
and control cellular licenses and operations in Richmond, Virginia and in
Central Florida, including Orlando. The resulting partnership will be owned
approximately 75% by BellSouth and 25% by the
<PAGE>
Company. In addition, the Company will contribute its 20% ownership interest in
another unconsolidated entity, Georgia RSA #1 in Dalton, Georgia, and cash. Upon
completion of this transaction, the resulting partnership will appoint the
Company as manager of the Richmond, Virginia cellular operation, which
previously was managed by BellSouth. This transaction is expected to
significantly enhance the Company's competitive position in its Mid-Atlantic
region and make the Company the largest cellular operator in Virginia. In a
separate transaction, BellSouth will acquire the Dothan, Alabama MSA from the
Company, and the Company will acquire BellSouth's 10% ownership interest in the
Tallahassee, Florida MSA. Upon completion of this transaction, the Company will
have a 100% ownership interest in the Tallahassee, Florida MSA.
In November 1996, the Company completed its acquisition of Independent
Cellular Network, Inc. and affiliated companies the ("ICN Acquisition") which
own and operate cellular licenses and related systems in Kentucky, Ohio,
Pennsylvania and West Virginia. The ICN Acquisition expands the Company's
existing market clusters in its Midwest and Mid-Atlantic regions and provides
expansion of the Company's cellular coverage over 225 miles of contiguous
interstate highways that lead to New York, New York; Pittsburgh, Pennsylvania;
and Columbus, Ohio.
In February 1996, the Company purchased a 50% interest in South Carolina
RSAs 4, 5 and 6. In January 1996, the Company acquired a 100% interest in the
cellular license and network in North Carolina RSA 14. These acquisitions fill
gaps in the Company's existing North Carolina and South Carolina clusters, and
give the Company continuous coverage along the Atlantic Ocean coastline from
Newport News, Virginia to Hilton Head, South Carolina. The Company also
acquired, in February 1996, a 100% interest in the Ohio RSA 1 market. This
acquisition fills a gap in the Company's Midwest region and gave the Company
continuous coverage from South Bend, Indiana to Mansfield, Ohio. The Company
also purchased additional interests in four Florida markets it currently
controls, increasing its ownership in the Fort Walton Beach MSA and Florida RSA
10 from 70% to 100% and increasing its ownership in the Tallahassee MSA and
Florida RSA 8 from 60% to 90%.
The Company constantly evaluates opportunities to increase its ownership
interests in the markets in which it operates. To the extent feasible, the
Company will explore opportunities to exchange some or all of its minority
investments in cellular communications systems for increased ownership interests
in markets it currently controls or for ownership interests in new markets in
which it could obtain control.
Network Improvement
Network quality is a key factor in retaining customers and generating
revenue, and is generally viewed as a critical competitive factor in the
cellular marketplace. Customers expect their cellular telephones to deliver
ubiquitous coverage, clarity and reliability. The Company continually improves
its systems with the goal of providing network service comparable to that of
local telephone companies. The Company believes that the quality and reliability
of its network significantly exceeds competitors' standards.
The Company believes its quality and reliability, as well as its broad
network coverage, result from an integrated process of network planning,
aggressive cell site construction and rigorous system maintenance. The Company
had over 1,400 cell sites in service as of December 31, 1996 and approximately
400 of the Company's employees are engaged in engineering or network
maintenance. In addition, the Company monitors each cellular market's network
from its Chicago network operations center twenty-four hours a day to ensure
reliable network performance. The Company will continue to stress high quality
portable telephone coverage and the integrity of data transmissions.
The Company was the first cellular carrier to employ Narrowband Advanced
Mobile Phone Service ("N-AMPS"). This enhanced analog technology, first offered
in the Company's Las Vegas market, provides a three-fold capacity increase over
conventional analog technology. N-AMPS technology has since been deployed in ten
additional high-traffic markets, serving as an intermediate step to the
implementation of digital technology. The Company has sold N-AMPS capable
telephones in all of its markets since 1991 in anticipation of the deployment of
N-AMPS technology, allowing the migration to N-AMPS to be indiscernible to
customers.
The Company believes that its networks have sufficient capacity to handle
the Company's customer growth rate in the near term. In the future, the Company
intends to relieve any capacity constraints through frequency planning, the
deployment of enhanced analog technology in additional markets and the selective
installation of additional cell sites in densely populated areas. The Company
plans to implement a gradual transition to digital technology on a
market-by-market basis as additional calling capacity is required to accommodate
growth in call volume. This approach should provide time for anticipated
improvements in digital technology to be realized while also avoiding premature
capital expenditures.
In August 1996, the Company began offering Code Division Multiple Access
("CDMA") digital technology in Las Vegas, Nevada. The introduction of CDMA in
Las Vegas followed a six-month trial that began in early 1996. The Company
currently believes that CDMA technology will offer a 6 to 10 fold call carrying
capacity increase over conventional analog technology. In addition, CDMA employs
a "soft hand-off," a technique which makes the process of carrying a call from
cell site to cell site virtually undetectable to the customer. The Company is
currently evaluating the need for CDMA in other markets, and plans to install
CDMA technology in the greater Raleigh, North Carolina service area during 1997.
The Company is also migrating its networks to an Advanced Intelligent
Network architecture. This will enable enhanced personal mobility and service
flexibility for customers. The Company supports the movement toward industry
standards and interoperability between network elements based on Interim
Standard 41. The Company has deployed two Home Location Registers in its systems
to allow for the deployment of advanced features for customers. In addition, the
Company is upgrading the technology in many of its switches for Signaling System
7 ISDN User Part signaling. This signaling technology will allow for out-of-band
signaling and improved trunking efficiencies. This signaling technology will
also allow the Company to offer additional features and services such as Caller
Line ID.
Distribution Management and Marketing
The Company's distribution management and marketing programs have yielded
strong growth results. The Company's rate of penetration is above the industry
average despite its presence in mid-sized markets. Expansion and management of
the Company's distribution channels is expected to result in continued customer
base growth, along with controlled churn and acquisition costs.
The Company utilizes multiple methods of distribution in each of its
markets, and regularly seeks out new distribution channels. The development of
multiple distribution channels in each of its markets enables the Company to
provide effective and extensive marketing of products and services and to reduce
its reliance on any single distribution source. Traditional distribution sources
like dealers and direct sales representatives continue to be important factors
in achieving the Company's growth objectives. The table below shows the
Company's distribution channels as of December 31, 1996.
Distribution Channel Number
-------------------- ------
Dealer Locations 1,470
Company Retail Stores 144
Company Retail Kiosks 272
Direct Sales Representatives 306
The Company is actively seeking to increase the proportion of new customers
acquired through its retail stores channel. While the dealer and direct sales
channels remain important components of the Company's growth strategy, the
Company believes that its retail stores produce the best combination of lower
customer acquisition costs and higher retention rates.
<PAGE>
Retail Sales. The Company currently conducts its retail operations through
over 140 Company retail locations. Stand-alone stores are strategically located
in smaller local and neighborhood retail centers as well as in large shopping
malls to capitalize on favorable demographics and retail traffic patterns. The
Company's retail focus helps accomplish three key goals: the highly visible
retail stores attract new customers from the consumer market segment; new
customers receive training from dedicated cellular sales representatives, which
increases customer retention rates and average revenue per customer; and the
incremental cost of obtaining a customer through a Company retail store is the
lowest of any distribution channel.
The Company focuses its full service, stand-alone retail efforts on using
sophisticated design and merchandising techniques to simplify the selling
process for potential customers. Customers who enter one of the Company's retail
stores are drawn to one of several "lifestyle zones" which display carefully
selected combinations of cellular telephones, accessories, custom calling
features and rate plans. Each "lifestyle zone" is tailored to attract potential
customers from specific market segments. After selecting a phone and service
plan, new customers receive extensive assistance on the use of a cellular phone
and on the Company's various services.
The Company also partners with large national retail stores to sell
cellular service directly through Company kiosks. The Company stations retail
sales representatives at kiosks in larger retailers like Wal-Mart and Sam's Club
to take advantage of high traffic generated by the retailers, to reduce the cost
of the sale, and to ensure proper training and increase the retention rate of
new customers. Existing customers can purchase cellular telephone accessories,
pay bills or inquire about the Company's services and features while in retail
stores or at kiosks. Many retail locations provide vehicle installation services
and while-you-wait cellular telephone troubleshooting and repair.
Dealers. The Company has entered into dealer agreements with several large
electronics retailers and discounters in its markets, including Sears and Radio
Shack. The Company also contracts with local dealers who operate on a smaller
scale and may offer other wireless services like two-way radio or paging.
In exchange for a commission payment, these dealers solicit customers for
the Company's cellular service. Such dealers are paid a commission for each
customer subject to chargeback provisions if the customer fails to maintain
service for a specified period of time. This arrangement increases store traffic
and sales volume for the dealers, and provides a valuable source of new
customers for the Company.
The Company actively supports its dealers with regular training and
promotional support. In certain markets, the Company stations its own employees
at dealer locations to increase sales volume and improve customer retention.
Direct Sales. The Company's direct sales force, comprised of more than 300
employees, focuses its efforts on business customers with high phone usage and
multiple lines of service. This channel produces the lowest churn and highest
revenue per customer compared with any other distribution channel.
The Company's compensation structure for the direct sales force has been
designed to reward long-term relationships with business accounts. Direct sales
representatives provide ongoing customer service to business customers,
including bill analysis, equipment upgrades, accessory sales and training on
features and functions. This distribution channel is also responsible for
selling advanced services like custom calling features, data applications,
wireless office extension service to existing office phone systems, voicemail
notification and message retrieval services.
TeleCare. TeleCare is used to recommend a more cost-effective, and thus
usage-stimulating, rate plan. New and existing customers are contacted regularly
by regional TeleCare teams to measure overall customer satisfaction with the
Company's products and services. During these calls, customers are also offered
revenue-enhancing cellular accessories like batteries, battery chargers,
enhanced antennas or hands-free speaker adapters. In addition, custom calling
features and enhanced products like data applications are telemarketed to the
Company's existing customer base. These customer care efforts are designed to
improve customer retention levels by anticipating questions and problems before
they arise.
<PAGE>
Customer Service
Maintaining low churn rates is a primary goal of the Company, particularly
as new competitors enter the marketplace. Lower churn contributes directly to
acquisition cost savings, since fewer new customers are needed to meet growth
targets. The Company experienced an average monthly churn rate of 1.86% and
1.81% for the year ended December 31, 1996 and 1995, respectively. The Company
attributes its success in this area to its customer support proficiency.
The Company's customer service representatives regularly contact new
customers to answer questions, explain features and service options and gauge
satisfaction levels. Annual third-party customer satisfaction surveys and
periodic focus groups measure overall system quality and provide valuable
insights into customer needs.
Through customer research, the Company has identified speed, accuracy and
simplicity as critical components for success in its customer service
operations. Customers can typically expect to have fully functional service
within fifteen minutes after purchasing a cellular telephone. By employing
advanced computer technology, the Company has further reduced its sales cycle
time. Point of sale terminals provide prompt on-site activation of customer
cellular service. This level of service gives the Company a competitive
advantage as it seeks to partner with dealers in its various markets. The
Company will continue to deliver more flexible customer care and billing,
shorter service activation cycles and increasingly automated processes. These
improvements are intended to reduce churn and lower per-customer operating
costs.
Regional call centers have been established to handle customer service
after business hours and on weekends. The Company offers twenty-four hour, seven
day a week customer service to all of its markets using three or four digit
speed dialing patterns on their cellular telephones free of charge or through a
conventional toll-free number. Airtime and toll-free numbers have been
established to allow customers to call emergency services or roadside
assistance.
Customer service provided by the Company's numerous customer service
facilities generally includes activation of new cellular access lines, response
to billing and service inquiries, assistance to customers from other cellular
markets roaming in the area and response to network outage reports. Customers
can purchase new cellular telephone equipment and service at these facilities,
pay cellular bills, inquire about products and features and obtain cellular
phone repair services.
Pricing
The Company seeks to increase penetration, improve retention rates and
stimulate additional usage through creative pricing strategies. The Company
creates local and expanded service territories designed to meet customer needs.
These range from low-cost, local areas to expanded roaming regions. In February
1997, the Company simplified its cellular roaming rates by offering simple
per-minute rates based on a particular customers home zone, regional zone or
national zone. The Company also simplified its cellular long distance pricing by
offering a single per-minute rate for all long distance cellular calls.
Airtime rate plans are crafted to attract users from all market segments at
profitable margins. The Company offers a variety of cellular rate plans to
prospective customers. These plans typically consist of a fixed monthly rate for
network access, a package of airtime minutes included in the monthly rate and a
per minute rate for airtime used in excess of the included airtime package. The
Company also sells airtime in bulk to resellers in certain markets.
<PAGE>
Multiple monthly rate plans are designed by the Company to meet different
customer needs. Innovative rate plan development enhances the value of cellular
service to the customer and helps the Company achieve its growth and revenue
targets. Customers who frequently use cellular service generally prefer rate
plans with a higher than average fixed monthly rate, a large package of included
minutes and a lower than average per minute airtime rate. The Company offers
several high-end rate plans which include large blocks of airtime and several
usage-enhancing custom calling features. Customers who use cellular service less
frequently prefer a lower monthly fixed rate and will pay a premium for airtime.
Custom calling features are also made available to enhance the Company's
basic airtime product. These features are similar to custom calling features
available from most local exchange companies, and include call waiting, call
forwarding, three way calling, no-answer transfer and voicemail. Custom features
allow customers to better manage calls and messages, and the Company benefits
from increased airtime usage.
The Company has entered into roaming agreements with other domestic
cellular companies to allow its customers to use cellular service nearly
everywhere in the United States. This system increases the utility of the
Company's product to its customers by making it ubiquitous; with few exceptions,
customers can call from anywhere in the United States, to anywhere in the United
States. Although roaming rates are declining, roaming usage is expected to
increase. Consistent with industry trends, the Company has begun to make its
roaming rates more affordable which is expected to increase roaming and usage.
The Company has also established regional network and roaming alliances
with neighboring cellular carriers which permit the expansion of the customers'
home footprint. Marketed under SuperNet and other brands, these wide area
networks offer reduced roaming rates, seamless hand-off from the Company's
network to a neighboring cellular network and automatic delivery of inbound
calls to the neighboring market.
The Company offers competitive residential long distance and paging rates
in those markets where such services are marketed.
Product and Service Deployment
The Company continues to introduce new telecommunications products,
features and services to increase the value of the basic cellular voice product
to the customer and to enhance revenues. Through the deployment of N-AMPS
technology, the Company is able to offer many new products designed to give
customers enhanced call management capability and stimulate usage. For example,
VoiceMail Alert notifies customers of incoming voicemail messages while features
like voice-activated dialing and Caller Line ID further enhance the basic
cellular offering. The Company also has arrangements with other
telecommunications vendors to provide new network solutions to business and
residential customers. These solutions include DirectLink by 360 , a
combination cordless phone and cellular phone, and BusinessLink, a wireless
"extension" service to existing office phone systems. "DirectLink by
360 " and "BusinessLink" are service marks.
Intergration of Multiple Telecommunications Services
In 1996, the Company began reselling residential long distance service and
paging service in 13 of the 16 states in which the Company provides service,
using its existing distribution channels and brand name. The Company expects to
market its cellular, residential long distance and paging services as an
integrated communications solution on a single bill. In addition, the Company
expects to conduct market trials for local exchange telephone service in 1997.
<PAGE>
Human Resource Development
The Company utilizes competitive human resource programs, training and
career development practices and financial incentives tied to performance to
provide superior customer service as well as to successfully implement its
operating strategies.
The Company places a strong emphasis on training at all levels of the
organization to augment experience-based learning and to promote performance at
a high level in each position. Formal succession planning and training is also
employed to provide the knowledge and skills needed to create depth of expertise
and enable career advancement within the organization.
All employees are rewarded for performance in key areas of the business.
The objectives which determine the executive management team's compensation are
shared by the entire organization, and every employee receives incentive pay in
some form. Those employees who do not earn sales commissions are eligible for an
annual incentive payment based on a combination of personal achievement and
performance measured by key objectives at the appropriate operating level (e.g.,
local markets or regions). In 1996, these objectives included increasing service
revenues, net customers and cash flow, and decreasing customer churn.
Cellular Telephone Technology
Cellular communications systems are capable of providing high quality, high
capacity voice and data communications to and from vehicle-mounted and hand-held
radio telephones. Cellular communications systems generally offer customers the
features offered by the most technologically advanced landline telephone
services.
The FCC has allocated two cellular communications system frequencies in the
800 MHz band of the radio spectrum and has promulgated rules governing the
construction and operation of cellular communications systems and licensing for
the provision of cellular telephone service. See "Business-Governmental
Regulation-Regulation and Licensing of Cellular Communications System."
Cellular communications technology is based upon the division of a given
market area into a number of smaller geographic areas or "cells." Each cell is
equipped with transmitter-receivers and other equipment that communicate by
radio signal with cellular telephones located within range of the cell. Cells
generally have an operating range of up to 25 miles. The cells are typically
designed on a grid. Terrain factors, including natural and man-made
obstructions, signal coverage patterns and capacity constraints may result in
irregularly shaped cells and overlaps or gaps in coverage.
Each cell site is connected to a mobile switching center ("MSC"), which, in
turn, is connected to the local landline telephone network. Because cellular
communications systems are fully interconnected with the landline telephone
network and long distance networks, customers can receive and originate both
local and long distance calls from their cellular telephones. When a customer in
a particular cell dials a number, the cellular telephone sends the call by radio
signal to the cell's transmitter-receiver, which in turn transmits it to the
MSC. The MSC then completes the call by connecting it with the landline
telephone network or another cellular telephone unit. Incoming calls are
received by the MSC, which instructs the appropriate cell to complete the
communications link by radio signal between the cell's transmitter-receiver and
the cellular telephone. Cellular communications systems operate under
interconnection agreements with various local exchange carriers and
interexchange carriers. Interconnection agreements establish the manner in which
the cellular telephone system integrates with other telecommunications systems.
The cellular operator and the local landline telephone company must cooperate in
the interconnection between the cellular and landline telephone systems to
permit cellular customers to call landline customers and vice versa. The
technical and financial details of such interconnection arrangements are subject
to negotiation and vary from system to system.
<PAGE>
FCC Rules require that all cellular telephones be functionally compatible
with cellular systems in all markets within the United States and with all
frequencies allocated for cellular use, allowing a cellular telephone to be used
wherever a customer is located, subject to appropriate arrangements for service
charges. Changes to cellular telephone numbers or other technical adjustments to
cellular telephones by the manufacturer or local cellular telephone service
businesses may be required, however, to enable the customer to change from one
cellular service provider to another within a service area.
The rapid growth of the cellular customer base has begun to strain the
call-processing capacity of many existing analog networks. Present analog
technology and assigned spectrum limit the number of signals that can be
transmitted simultaneously in a given area. In highly populated MSAs, the level
of demand for mobile and portable service is often greater than existing
capacity. Because the primary objective of the cellular licensing process is to
address mobile and portable uses, operators in highly populated MSAs may have
capacity constraints which limit their ability to provide alternate cellular
service.
Each cellular network is designed to meet a certain level of customer
density and traffic demand. Once these traffic levels are exceeded, the operator
must take steps to improve the network capacity. This improvement can initially
be accomplished by adding voice channels to cell sites, and later by using
techniques such as sectorization and cell splitting. Network operators and
infrastructure manufacturers are developing a number of additional solutions
which are expected to increase network capacity and coverage.
Within certain limitations, increasing demand may be met by simply adding
available frequency capacity through voice channel additions to cells as
required, or by using directional antennae to divide a cell into discrete
multiple sectors or coverage areas (also known as sectorization), thereby
reducing the required distance between cells using the same frequency. When all
possible channels are in use, further growth can be accomplished through a
process called "cell splitting." Cell splitting entails dividing a single cell
into a number of smaller cells served by lower-tower transmitters, thereby
increasing the reuse factor and the number of calls that can be handled in a
given area.
Network capacity can also be enhanced through the development of newer
network technologies like N-AMPS analog technology (which triples call carrying
capacity over conventional analog technology) and CDMA digital technology (which
increases call carrying capacity over conventional analog technology by an
estimated factor of 6 to 10), which in each case allow cellular carriers to add
customers without degrading service quality. Digital technology offers
advantages, including larger system capacity, and lower incremental costs for
additional customers. The conversion from analog to digital radio technology is
expected to be an industry-wide process that will take a number of years.
The Company believes that its networks have sufficient capacity to handle
the Company's customer growth rate in the near term. In the future, the Company
intends to relieve any capacity constraints through frequency planning,
additional deployment of N-AMPS or CDMA and the prudent installation of
additional cell sites in densely populated areas. As additional calling capacity
is required to accommodate growth in call volume, the Company plans to implement
the transition to digital technology on a market by market basis. See
"Business-Governmental Regulation-State, Local and Other Regulation" for a
discussion on those governmental regulations which may restrict the Company's
ability to install additional cell sites.
Competition
Cellular carriers compete primarily against the other facilities-based
cellular carrier in each MSA and RSA market. The Company also faces competition
from services such as conventional mobile telephone service, ESMR systems, PCS
and resellers. ESMR is a wireless communications service supplied by converting
analog SMR services into an integrated, digital transmission system.
<PAGE>
The Company believes that competition for customers between cellular
licensees is based principally upon the services and enhancements offered, the
quality of the cellular system, customer service, system coverage and capacity
and price. Such competition may increase to the extent that licenses are
transferred from smaller, stand-alone operators to larger, better capitalized
and more experienced cellular operators who may be able to offer consumers
certain network advantages similar to those offered by the Company.
Existing and new users of cellular systems may also find their
communications needs satisfied by other current and developing technologies,
such as PCS. Licensing areas for broadband PCS have been divided into 51 MTAs
and 493 smaller Basic Trading Areas ("BTAs") based on the geographic divisions
in the 1992 Rand McNally Commercial Atlas & Marketing Guide. There could be a
minimum of three and a maximum of six broadband PCS providers in any given area.
Of the six licensees, three will hold 30 MHz of PCS spectrum, one of which will
be licensed for a BTA, and the remaining three licensees of 10 MHz will offer a
broad range of voice, data and related communications services in a BTA.
The FCC has allocated a total of 2,071 broadband licenses by auction,
according to rules that, among other things, prohibit a commercial mobile radio
services ("CMRS") licensee from having an attributable interest in more than 45
MHz of licensed broadband PCS, cellular and SMR spectrum (regulated as CMR's)
with significant overlap in any geographic area. Significant overlap is defined
as covering at least 10 percent of the population of the PCS licensed service
area. Thus, given the 25 MHz of spectrum afforded cellular carriers under the
cellular rules, cellular carriers could acquire up to 20 MHz of PCS spectrum
within their cellular markets (assuming that they had no other CMRS interests in
that geographic area).
PCS services generally consist of wireless two-way telecommunications
services for voice, data and other transmissions employing digital
micro-cellular technology. PCS will operate in the 1850 to 1990 MHz band. It is
expected that 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 customers could have dedicated personal telephone numbers
and would communicate using small digital radio handsets that could be carried
in a pocket or purse. Although the Company currently has the technology and the
engineering ability to offer similar services, there can be no assurance that it
will be able to do so on a timely and profitable basis.
Many new PCS licensees who will compete with the Company have access to
more substantial capital resources than the Company. In addition, many of these
companies, or their predecessors and affiliates, already operate large cellular
telephone networks and thus bring significant wireless experience to this new
marketplace.
The Company has prepared for this new competitive environment by enhancing
its networks, expanding its service territory and offering new features,
products and services to its customers. The Company believes it will benefit
from its position as an incumbent in the cellular field with a high quality
network and extensive footprint that is not capacity constrained, strong
distribution channels, superior customer service capabilities and an experienced
management team. Since the Company operates in medium to small markets, the new
PCS licensees are unlikely to offer comparable wireless service in many of the
Company's territories in the near term because the extensive capital
expenditures required to deploy the infrastructure for PCS are more readily
justifiable from an economic standpoint in larger, more densely populated urban
areas. This may position the Company to offer roaming services to PCS customers
as well as to provide bulk lines of service for resale to certain PCS companies.
<PAGE>
The FCC requires all cellular system operators to provide service to
"resellers." A reseller provides cellular service to customers but does not hold
an FCC cellular license or own cellular facilities. Instead, the reseller buys
blocks of cellular telephone numbers from one or both of the licensed carriers
in a particular market and resells service through its own distribution channels
to the public. Thus, a reseller may be a customer of a cellular licensee's
services, a competitor of that licensee, or both. The Company will explore
additional relationships with resellers to supplement existing distribution
channels and to reach specific market segments. The Company expects to offer
competitive bulk airtime pricing, as well as enhanced billing and marketing
services in order to attract resellers in its markets without eroding airtime
profit margins or inflating acquisition costs. The number of resellers is
currently small, but it is expected to increase in the Company's markets.
Recently, several well-known telecommunications companies have begun reselling
cellular service as a complement to their long distance, local telephone,
paging, cable television or Internet offerings. The Company believes that this
development will stimulate overall market interest in cellular service and thus
is not expected to have a material adverse effect on the Company's business for
the foreseeable future.
Governmental Regulation
Regulation and Licensing of Cellular Communications Systems
The Company is subject to extensive regulation by the Federal government as
a provider of cellular communications services. Pursuant to the Communications
Act of 1934, as amended ("Communications Act"), the licensing, construction,
operation, acquisition and transfer of cellular communications systems in the
United States are regulated by the FCC. The FCC has promulgated rules governing
the construction and operation of cellular communications systems and licensing
and technical standards for the provision of cellular telephone service ("FCC
Rules"). For licensing purposes, the United States is divided into 734 discrete
geographically defined market areas comprised of 306 MSAs and 428 RSAs.
In each market, the frequencies allocated for cellular telephone use are
divided into two equal 25 MHz blocks and designated as Block A and Block B.
Block B licenses were initially reserved for entities affiliated with a wireline
telephone company, such as the Company was at that time, while Block A licenses
were initially reserved for non-wireline entities. Under current FCC Rules, a
Block A or Block B license may be transferred or assigned with FCC approval
without restriction as to wireline affiliation, but generally, no entity may own
a 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, beginning on the dates of the grant of the Initial Operating Authority
and are renewable upon application to the FCC. Licenses may be revoked and
license renewal applications denied for cause after appropriate notice and
hearing. The FCC generally grants current licensees a license renewal if they
have substantially complied with their obligations under the Communications Act
during their license terms. A potential challenger would bear a heavy burden to
demonstrate that a license should not be renewed if the licensee's performance
merits a renewal expectancy.
Cellular service providers must satisfy a variety of FCC requirements
relating to technical and reporting matters. One such requirement is the
coordination of proposed frequency usage with adjacent cellular users,
permittees and licensees in order to avoid interference between adjacent
systems. In addition, the height and power of base station transmitting
facilities and the type of signals they emit must fall within specified
parameters. The FCC also regulates cellular service resale practices and the
terms under which certain ancillary services may be provided through cellular
facilities.
The Company also regularly applies for FCC authority to use additional
frequencies, to modify the technical parameters of existing licenses, to expand
its service territory and to provide new services. The Communications Act
requires prior FCC approval for transfers to or from the Company of a
controlling interest in any license or construction permit, or any rights
thereunder. Although there can be no assurance that any future requests for
approval of applications filed will be approved or acted upon in a timely manner
by the FCC, the Company has no reason to believe such requests or applications
would not be approved or granted in due course.
Near the conclusion of the license term, licensees must file applications
for renewal of licenses to obtain authority to operate for up to an additional
10-year term. Applications for license renewal may be denied if the FCC
determines that the grant of an application would not serve the public interest.
In addition, at license renewal time, other parties may file competing
applications for authorization. In the event that qualified competitors file,
the FCC may be required to hold a hearing to determine whether the incumbent or
the competitor will receive the license. In 1993, the FCC adopted specific
standards to apply to cellular renewals, concluding that it will award a renewal
expectancy to a cellular licensee that meets certain standards of past
performance. If the existing licensee receives a renewal expectancy, it is very
likely that the existing licensee's cellular license will be renewed without a
full comparative hearing. To receive a renewal expectancy, a licensee must show
that it (i) has provided "substantial" service during its past license term, and
(ii) has substantially complied with applicable FCC rules and policies and the
Communications Act. "Substantial" service is defined as service which is sound,
favorable and substantially above a level of mediocre service that might only
minimally warrant renewal.
In 1994, the Company filed for renewal of five expiring licenses which were
originally granted by the FCC during 1985. All five licenses (Harrisburg, PA;
Charleston, SC; Youngstown, OH; Greensboro, NC; and Toledo, OH) were approved
without challenge. In September 1995, the Company filed for renewal of six
expiring FCC licenses (Raleigh, NC; Las Vegas, NV; Norfolk, VA; Newport News,
VA; Johnson City, TN; and Greenville, SC). All six licenses were approved
without challenge. In September 1996, the Company filed for renewal of thirteen
expiring FCC licenses (York, PA; Peoria, IL; Lancaster, PA; Southbend-Mishawaka,
IN; Fayetteville, NC; Lima, OH; Killeen-Temple, TX; Tallahassee, FL;
Elkhart-Goshen, IN; Anderson, SC; Sharon, PA; Dothan, AL; and Burlington, NC).
All thirteen licenses were approved without challenge. In its applications for
renewal, the Company demonstrated not only its compliance with FCC regulations,
but also its service in the public interest. The Company is confident that it
will continue to meet all requirements necessary to secure renewal of its
cellular licenses as they expire.
Character and Citizenship Requirements
Applications for FCC authority may be denied, and in extreme cases licenses
may be revoked, if the FCC finds that an entity lacks the requisite "character"
qualifications to be a licensee. In making that determination, the FCC considers
whether an applicant or licensee has been the subject of adverse findings in a
judicial or administrative proceeding involving felonies, the possession or sale
of unlawful drugs, fraud, antitrust violations or unfair competition, employment
discrimination, misrepresentations to the FCC or other government agencies, or
serious violations of the Communications Act or FCC regulations. The FCC also
requires licensees to comply with statutory restrictions on the direct or
indirect ownership or control of radio licenses by non-U.S. persons or entities.
The FCC has found the Company to be qualified to hold FCC licenses and the
Company has included provisions in its Amended and Restated Certificate of
Incorporation, as amended, which authorize it to redeem its stock from any
person whose ownership would jeopardize the grant, holding or renewal of any
material license held by the Company.
Federal Legislation
Recent legislative changes to the Communications Act and the antitrust
consent decree applicable to the Regional Bell Operating Companies ("RBOCs")
affect the cellular industry. This legislation (known as the Telecommunications
Act of 1996), among other things, affects competition for local
telecommunications services, interconnection arrangements for carriers,
universal service funding and the provision of interexchange services by the
RBOCs wireless systems.
<PAGE>
State, Local and Other Regulation
Congress amended the Communications Act to preempt, as of August 10, 1994,
state or local regulation of the entry of, or the rates charged by, any
commercial mobile service or any private mobile service, which includes cellular
telephone service. As a practical matter, the Company is free to establish rates
and offer new products and service with a minimum of state regulatory
requirements. A few of the Company's 16 states of operation still maintain
nominal oversight jurisdiction, primarily focusing upon resolution of customer
complaints. In such states (primarily Nevada and Ohio), the Company devotes
resources as necessary to maintaining positive relationships with state utility
commissions.
The location and construction of cellular transmitter towers and antennas
are subject to United States Federal Aviation Administration ("FAA") regulations
and may be subject to United States Federal, state and local environmental
regulation as well as state or local zoning, land use and other regulation.
Before a system can be put into commercial operation, the grantee of a
construction permit must obtain all necessary zoning and building permit
approvals for the cell sites and MSC locations and must secure state
certification and tariff approvals, if required. The time needed to obtain
zoning approvals and requisite state permits varies from market to market and
state to state. Likewise, variations exist in local zoning processes. There can
be no assurance that any state or local regulatory requirements currently
applicable to the systems in which the Company's affiliates have an interest
will not be changed in the future or that regulatory requirements will not be
adopted in those states and localities which currently have none.
Zoning and planning regulation may become more restrictive in the future
with the addition of PCS carriers seeking sites for network construction as
well. The Telecommunications Act of 1996, however, has imposed certain
limitations on the arbitrary restriction of the expansion of cellular networks
by state or local government agencies.
Employees
At December 31, 1996 the Company had approximately 4,000 employees,
including non-controlled Company markets that are managed by the Company, none
of whom is represented by a labor organization. Management of the Company
considers its relations with employees to be excellent.
Item 2. Properties.
The Company maintains its corporate headquarters in Chicago, Illinois. The
Company currently leases approximately 468,000 square feet in this facility. For
each cluster of markets served by the Company's operations, the Company
maintains at least one sales or administrative office and a number of cell
transmitter and antenna sites. Most facilities are leased and some are owned. As
of December 31, 1996, the Company had approximately 140 leases for retail stores
used as one of its distribution channels. The Company believes that its
facilities are in good working condition, suitable for its current business and
that additional facilities will be available for its foreseeable needs.
Item 3. Legal Proceedings.
On or about March 29, 1996, a lawsuit was brought in the Chancery Court of
Washington County, Jonesborough, Tennessee (the "Tennessee Action"), on behalf
of all customers in the Company's Tennessee markets regarding customer
notification of the Company's practice with respect to billing for fractional
minutes of service. In April 1996, the original complaint was amended to enlarge
the class of plaintiffs to include all customers in all of the Company's service
areas. In late April 1996, the Tennessee Action was removed to the United States
District Court for the Eastern District of Tennessee, Northern Division. The
Company moved to dismiss the action and the plaintiff filed a motion to remand.
On July 16, 1996, the Tennessee District Court granted the plaintiff's motion to
remand and returned the case to the Chancery Court of Washington County. The
Company's Motion to Dismiss is currently pending before the Chancery Court.
On or about May 28, 1996, a lawsuit was brought in the Common Pleas Court
of Erie County, Ohio (the "Ohio Action"), on behalf of all customers in all of
the Company's service areas regarding notification of the Company's practice
with respect to billing for fractional minutes of service. On June 25, 1996, the
Ohio Action was removed to the United States District Court for the Northern
District of Ohio, Western Division. Thereafter, the Company filed a Motion to
Dismiss Or In The Alternative, Stay pending resolution of the Tennessee Action
and the plaintiff filed a Motion to Remand. By Order dated December 17, 1996,
the Ohio District Court granted plaintiff's motion to remand and the Ohio Action
was returned to the Common Pleas Court. Plaintiff has recently commenced
discovery by serving a document request and interrogatories. On January 17,
1997, the Company filed a Motion to Stay This Action And For A Protective Order
seeking to stay the Ohio Action, including all discovery, pending resolution of
the Tennessee Action. The basis for the Motion to Stay, which is currently
pending before the Common Pleas Court, is the duplicity of the Ohio Action and
the Tennessee Action.
The Company is party to various other legal proceedings in the ordinary
course of its business. Although the ultimate resolution of these various other
proceedings cannot be ascertained, management of the Company does not believe
that such proceedings, individually or in the aggregate, will have a material
adverse effect on the results of operations or financial position of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders of the Company
during the quarter ended December 31, 1996.
Item 4a. Executive Officers of the Registrant.
Set forth below is certain information concerning the executive officers of
the Company. The executive officers' continued service is determined solely by
the Company's Board of Directors.
Name Age Position and Offices Held
- ------------------ --- --------------------------------------------------------
Dennis E. Foster 56 President and Chief Executive Officer and Director
Kevin L. Beebe 38 Executive Vice President-Operations
Michael J. Small 39 Executive Vice President and Chief Financial Officer
Susan L. Amato 38 Senior Vice President-Engineering and Network Operations
Gary L. Burge 43 Senior Vice President-Finance
Kevin C. Gallagher 49 Senior Vice President, General Counsel and Secretary
Debra L. Ferrari 39 Vice President-Human Resources
Mr. Foster was elected President of the Company in March 1993 and President
and Chief Executive Officer of the Company in February 1996. He was elected
director of the Company on March 7, 1996. Mr. Foster had been President and
Chief Operating Officer of the Cellular and Wireless Division of Sprint since
March 1993, a position he resigned from effective with the spinoff, and prior to
that he was Senior Vice President of the Local Telecommunications Division of
Sprint beginning in May 1992. Prior to joining Sprint, he was President and
Chief Operating Officer of GTE Mobilnet, a position he had held since June 1991.
Mr. Foster had been Area Vice President and General Manager of GTE North since
September 1989.
<PAGE>
Mr. Beebe was elected Executive Vice President-Operations of the Company on
February 6, 1996. Prior to the spinoff, Mr. Beebe had been employed by Sprint or
its subsidiaries for over 11 years, joining the Company in February 1994 as Vice
President-Marketing and Administration. In April 1995, he became Vice President
Operations. Prior to joining the Company and beginning in June 1991, he served
with Sprint's United North Central as Director of Marketing. In November 1990,
Mr. Beebe became Director of the Engineering and Operations Staff at United
Telephone Systems-Southeast Group and became Director of Product Management
Business Development in June 1988.
Mr. Small was elected Executive Vice President and Chief Financial Officer
of the Company effective December 1, 1995. Prior to that time he served as a
member of the Office of the President of Lynch Corporation as well as President
and Chief Executive Officer of Lynch Multimedia since January 1994. Prior to his
positions with Lynch Corporation, he was employed by Sprint or its subsidiaries
and Centel Corporation, a predecessor corporation, or its subsidiaries for over
12 years. He joined the cellular organization in March 1991 as Executive Vice
President-Administration and Engineering and prior to that served as Vice
President of Investor Relations at Centel Corporation since September 1989.
Ms. Amato was elected Senior Vice President-Engineering and Network
Operations of the Company on February 6, 1996. Prior to the spinoff, Ms. Amato
had been employed by Sprint or its subsidiaries and Centel Corporation, a
predecessor corporation, or its subsidiaries for over 14 years. She joined the
cellular organization in September 1990 as Regional Vice President of the
Mid-Atlantic region and became Vice President-Wireless Business Development in
February 1994 and Vice President-Engineering and Network Operations in February
1995.
Mr. Burge was elected Senior Vice President-Finance of the Company on
February 6, 1996. Prior to the spinoff, Mr. Burge had been employed by Sprint or
its subsidiaries and Centel Corporation, a predecessor corporation, or its
subsidiaries for over 14 years. He joined the cellular organization in November
1989 as Controller and became Vice President and Controller in April 1991 and
Vice President - Finance and Administration in March 1995.
Mr. Gallagher was elected Senior Vice President, General Counsel and
Secretary of the Company on February 6, 1996. Prior to the spinoff, Mr.
Gallagher had been employed by Sprint or its subsidiaries and Centel
Corporation, a predecessor corporation, or its subsidiaries for over 14 years.
He joined the cellular organization in January 1990 as Vice President of Legal,
became Vice President of Legal and External Affairs in May 1991 and Vice
President and General Counsel in September 1992.
Ms. Ferrari was elected Vice President - Human Resources of the Company on
February 6, 1996. Prior to the spinoff, Ms. Ferrari had been employed by Sprint
or its subsidiaries and Centel Corporation, a predecessor corporation, or its
subsidiaries for over 12 years. She joined the Company in September 1993 as
Director of Human Resources. Prior to joining the Company and beginning in
January 1987, she was with Centel Corporation as General Staff Manager of
Compensation Planning.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The outstanding shares of the Company's Common Stock are listed on the New
York Stock Exchange, the Chicago Stock Exchange and the Pacific Stock Exchange
and trade under the symbol XO.
Trading of the Common Stock commenced on the New York Stock Exchange on a
when-issued basis on February 23, 1996, and commenced on a regular-way basis on
March 7, 1996. Prior to the spinoff, the Company was an indirect, wholly-owned
subsidiary of Sprint and there was no trading market for the Common Stock. The
following table sets forth the high and low sale prices of the Common Stock as
reported on the New York Stock Exchange Composite Tape for each quarter in 1996.
1996 High Low
--------------- ------- -------
First Quarter 27 21 1/2
Second Quarter 25 1/8 22 1/8
Third Quarter 24 3/4 22
Fourth Quarter 25 7/8 22 1/4
On March 26, 1997, there were approximately 67,766 holders of record of
the Common Stock.
The Company currently does not anticipate paying cash dividends on the
Common Stock in the foreseeable future. The future dividend policy will be
determined on the basis of various factors, including the Company's results of
operations, financial condition, capital requirements, and investment
opportunities. In addition, the Company's existing debt instruments limit the
Company's ability to pay dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation-Liquidity and Capital Resources."
Rights Plan
Prior to the spinoff, the Company's Board of Directors adopted a rights
plan pursuant to which the Company distributed a dividend of one right (a
"Right") to purchase certain shares of capital stock of the Company under
certain circumstances, for each outstanding share of the Common Stock (the
"Rights Plan"). The Rights are currently traded with the Common Stock and detach
and become exercisable only if, in a transaction not approved by the Company's
Board of Directors, a person or entity acquires 15% or more of the outstanding
shares of the Common Stock or announces a tender offer the consummation of which
would result in ownership by a person or group of 15% or more of such shares.
Once the Rights detach and become exercisable, unless subsequently
redeemed, each Right then entitles its holder to purchase one one-hundredths of
a share of the Company's Preferred Stock, First Series Junior Participating
Preferred Stock (the "First Series Preferred Stock"), for an exercise price of
$100.00, subject to certain adjustments. If the Company is involved in a merger
or other business combination transaction after the Rights become exercisable,
each Right will entitle its holder to purchase, for the Right's exercise price,
a number of the acquiring or surviving company's shares of common stock having a
market value equal to twice the exercise price. The Company will be entitled to
redeem the Rights at $.01 per Right at any time until ten business days
following a public announcement that a person or group of persons has acquired
beneficial ownership of 15% or more of the outstanding shares of the Common
Stock ("Acquiring Person"). Following such an announcement, or,
<PAGE>
subject to certain exceptions, the acquisition of beneficial ownership of 15% or
more of the outstanding shares of the Common Stock by the Acquiring Person or
certain related persons, the Rights acquired by such person or persons shall be
null and void. Prior to the date upon which the Rights detach, the terms of the
Rights Plan may be amended by the Company's Board of Directors without the
consent of the holders of the Rights. The Rights will expire in 2006, unless
earlier redeemed by the Company. The Rights Plan was not intended to deter all
takeover bids for the Company. To the extent an acquirer is discouraged by the
Rights Agreement from acquiring an equity position in the Company, stockholders
may be deprived from receiving a premium for their shares. The issuance of
additional shares of the Common Stock prior to the time the Rights become
exercisable will result in an increase in the number of Rights outstanding.
The First Series Preferred Stock, if issued, will rank junior to all other
series of the Company's Preferred Stock, $0.01 par value, (the "Preferred
Stock"), as to the payment of dividends and the distribution of assets in
liquidation, unless the terms of any such other series shall provide otherwise.
Each share of the First Series Preferred Stock will have a quarterly dividend
rate per share equal to the greater of $1.00 or 100 times the per share amount
of any dividend (other than a dividend payable in shares of the Common Stock or
a subdivision of the Common Stock) declared from time to time on the Common
Stock, subject to certain adjustments. The holders of the First Series Preferred
Stock will be entitled to receive a preferred liquidation payment per share of
$10.00 (plus accrued and unpaid dividends) or, if greater, an amount equal to
100 times the payment to be made per share of the Common Stock. Generally, the
holder of each share of the First Series Preferred Stock will vote together with
the Common Stock (and any other series of the Preferred Stock entitled to vote
on such matter) on any matter as to which the Common Stock is entitled to vote,
including the election of directors. The holder of each share of the First
Series Preferred Stock will be entitled to 100 votes. In the event of any
merger, consolidation, combination or other transaction in which shares of the
Common Stock are exchanged for or changed into other stock or securities, cash
and/or property, the holder of each share of the First Series Preferred Stock
will be entitled to receive 100 times the aggregate amount of stock, securities,
cash and/or property into which or for which each share of the Common Stock is
changed or exchanged.
The foregoing dividend, voting and liquidation rights of the First Series
Preferred Stock are protected against dilution in the event that additional
shares of the Common Stock are issued pursuant to a stock split or stock
dividend. Because of the nature of the First Series Preferred Stock's dividend,
voting, liquidation and other rights, the value of the one one-hundredths of a
share of the First Series Preferred Stock purchasable with each Right is
intended to approximate the value of two shares of the Common Stock.
The foregoing summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement
dated as of March 5, 1996 between the Company and Chemical Bank, as Rights
Agent, a copy of which is incorporated by reference as Exhibit 4.4 to this
Report.
Recent Sales of Unregistered Securities
On November 1, 1996, the Company issued to Independent Cellular Network
Partners and certain of its affiliates (collectively, "ICNP"), 6,500,000 shares
of the Company's Common Stock and $122 million in aggregate principal amount of
the Company's subordinated non-negotiable promissory notes as a portion of the
purchase price paid in connection with the ICN Acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation-Cash
Flows-Investing Activities."
In issuing such securities, the Company relied on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended.
The Company's reliance was based on, among other things, representations made by
ICNP contained in the Exchange and Merger Agreement, dated as of May 31, 1996, a
copy of which is incorporated by reference as Exhibit 2.2 to this Report.
<PAGE>
<TABLE>
Item 6. Selected Consolidated Financial Data.
<CAPTION>
For the Year Ended December 31,
------------------------------------------------------------------------------------------
1996 (1) 1995 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- ----------- ----------- ------------
(in thousands) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Operating Revenues $ 1,095,872 $ 834,415 $ 626,475 $ 410,480 $ 280,119 $ 213,515 $ 161,915
Net Income (Loss) $ 59,519 $ (1,695) $ (19,757) $ (51,484) $ (65,522) $ (64,277) $ (74,961)
Net Income (Loss)
Per Share (in Dollars) (2) $ 0.50 $ (0.01) $ (0.17) $ (0.45) $ (0.58) $ (0.58) $ (0.68)
Total Assets $ 2,812,069 $1,973,246 $1,728,344 $1,505,221 $1,494,648 $1,390,245 $1,270,563
Long-Term Debt (3) $ 1,699,778 $1,517,729 $1,354,116 $1,246,822 $1,249,168 $1,109,796 $ 969,544
- ----------
<FN>
(1) On March 7, 1996, the spinoff from Sprint Corporation was consummated.
Additionally, on November 1, 1996, the Company completed its acquisition of
Independent Cellular Network, Inc. and affiliated companies. See Notes to
Consolidated Financial Statements for more information regarding these events.
(2) In 1995 and prior years, Net Income (Loss) per Share has been calculated
based upon the number of Sprint Corporation weighted average shares outstanding
for each respective period, adjusted for a conversion ratio of one share of the
Company's Common Stock to three shares of Sprint common stock.
(3) Represents advances from and notes to affiliates for 1995 and prior years.
</FN>
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
of Operations.
General
The following is a discussion and analysis of the historical results of
operations and financial condition of 360 Communications Company and
Subsidiaries (the "Company") and factors affecting the Company's financial
resources. This discussion should be read in conjunction with the consolidated
financial statements, including the notes thereto, included elsewhere in this
Report. This discussion contains forward-looking statements which are qualified
by reference to, and should be read in conjunction with, the Company's
discussion regarding forward-looking statements as set under "Forward-Looking
Statements."
Spinoff
On July 26, 1995, Sprint Corporation ("Sprint") announced that its Board of
Directors decided to pursue a tax-free spinoff of the Company to Sprint
shareholders ("spinoff"). In the Federal Communications Commission ("FCC")
auction of wireless Personal Communications Services ("PCS") licenses, Sprint
Spectrum LP won the rights to several markets that overlap service territories
operated by the Company. Under FCC rules, Sprint was required to divest or
reduce its cellular holdings in certain markets to clear conflicts with the PCS
licenses awarded to Sprint Spectrum LP. For these reasons, Sprint and its Board
of Directors decided to pursue a spinoff of the cellular operations of Sprint.
On March 7, 1996, the spinoff was consummated.
Results of Operations
The following table sets forth the Company's cellular service revenues, the
components of certain operating expenses and the related percentage of cellular
service revenues represented by each component for the years indicated (in
thousands).
Results of Cellular Service Operations
Year Ended December 31,
--------------------------------------------------------
1996 1995 1994
------------------ ----------------- ----------------
Cellular Service
Revenues $1,052,726 100.0% $789,459 100.0% $569,793 100.0%
Cost of Service 99,745 9.5 68,223 8.6 51,071 9.0
Other Operations Expense 55,776 5.3 40,591 5.1 30,905 5.4
Sales, Marketing and
Advertising Expenses 206,147 19.6 141,505 17.9 136,501 24.0
General, Administrative
and Other Expenses 263,191 25.0 214,536 27.2 150,985 26.5
Depreciation 124,024 11.8 95,540 12.1 73,054 12.8
Customer Growth Rate
The number of cellular customers increased to 2,156,000 in 1996 from
1,502,000 in 1995 and 1,040,000 in 1994, an increase of 43.6% and 44.4% in 1996
and 1995, respectively. In 1996 and 1995, the Company added 470,000 and 462,000
customers, respectively, through internal growth. In 1996, the Company added
185,000 customers through acquisitions. The Company's penetration rate, which is
the number of customers divided by the total population in its licensed service
areas, reached 8.9% at December 31, 1996, compared with 7.6% at December 31,
1995. Annual penetration improvement from internal growth was 2.1% in 1996 and
2.3% in 1995. Customer churn, the average monthly rate of customer disconnects,
was 1.86%, 1.81% and 1.80% for the years ended December 31, 1996, 1995 and 1994,
respectively.
Historically, the Company and the industry in general have experienced
significant customer growth during the fourth quarter. The Company attained
35.7% and 33.2% of its annual internal growth customer gain in the 1996 and 1995
fourth quarter, respectively, and expects this trend to continue. This trend is
attributable to increases in cellular communications service activations during
the holiday season. Revenue benefits associated with significant fourth quarter
customer growth, however, are not experienced until subsequent quarters. During
the fourth quarter of each year, the Company experiences significant increases
in sales commission expenses as a result of the significant customer growth,
which causes a deterioration in fourth quarter operating margins. The Company
believes that more meaningful operating margins are reflected in subsequent
periods after it experiences the revenue benefits of its significantly increased
customer base.
Cellular Service Revenues
Cellular service revenues increased in 1996 and 1995, principally from
growth in the number of cellular customers. Increased distribution channels,
expanded network capacity, declining prices for cellular telephone equipment and
service, increased consumer awareness and acceptance of wireless communications,
and pricing plans targeted at particular market segments are key factors
contributing to the Company's customer growth. The industry-wide trend for lower
negotiated roaming rates among carriers and generally lower revenue per customer
has partially offset the revenue growth resulting from the increased customer
base. In addition, acquisitions completed in the first and fourth quarters of
1996 contributed $53.1 million of service revenues.
Consistent with the rest of the industry, the Company has experienced
increased penetration in the consumer market - a trend attributable to declining
cellular telephone equipment and service prices and increased promotional
activities (i.e., packaging, special rate plans), an increased awareness of
cellular communications, widespread distribution channels in consumer-oriented
retail locations and expanded network coverage and capacity. The Company expects
this trend to continue. New customers generally use less airtime than existing
customers, causing the average service revenue per customer per month to
decline. As a result, cellular revenue growth has not kept pace with the level
of growth in the number of customers. Service revenue per average customer per
month was $49.39 in 1996, $53.01 in 1995 and $58.57 in 1994. The Company
anticipates that service revenue per average customer per month will continue to
decline as penetration rates continue to increase.
The Company expects that roaming rates between carriers will continue to be
reduced as part of the industry-wide effort to increase cellular telephone usage
through increased roaming airtime, which may reduce revenues derived from
cellular service users who roam into the Company's systems. The Company projects
roaming airtime will increase as reduced roaming rates between carriers are
ultimately passed on to customers, thus stimulating increased usage. Roaming
airtime minutes increased during 1996 and 1995 when compared with the prior
years, resulting in increases of $51.8 million and $30.1 million in roaming
revenue in those years.
Future revenue growth will be impacted by the Company's success in
maintaining customer growth in existing markets, generating additional revenue
from the increasing availability of a variety of enhanced and related services
and products, and acquiring additional cellular communications systems to
further strengthen its existing regional clusters. The growth rate of new
customers is expected to decline as the Company's customer base grows. Future
revenue growth also will be impacted by the Company's entrance into the
residential long distance and paging businesses. In 1996, the Company began
marketing residential long distance service and reselling paging service in 13
of the 16 states in which the Company provides wireless service. An improved
competitive position, reduced cellular churn and increased brand awareness are
expected as the Company's long distance and paging services businesses mature.
Equipment Sales
Equipment sales decreased 4.0% in 1996 and 20.7% in 1995 compared with the
prior years, despite an increase in the number of telephone units sold. The
price of cellular telephones is a key factor influencing the rate of customer
growth. Although declining cellular telephone prices have generated increased
activations of cellular service, negative gross margins on equipment sales
continue to impact operating results as the Company sells cellular telephones at
or below cost. Competitive market pressures are expected to result in a
continued trend of negative gross margins on equipment sales.
Cost of Service
Excluding the impact of roaming activities, cost of service as a percentage
of cellular service revenues was 8.1% in 1996, 8.6% in 1995 and 9.0% in 1994.
Economies of scale and the favorable effects of renegotiated terms and
conditions of a new long distance contract with Sprint are key factors favorably
impacting the trend in cost of service as a percentage of cellular service
revenues. Long distance telecommunications and operator services are provided to
the Company by Sprint based on terms and conditions of a contract governing such
charges. In March 1996, a renegotiated agreement with a three-year term was
entered into between the Company and Sprint on an exclusive basis (provided that
Sprint is able to provide such services at competitive terms and conditions) on
terms that are believed to be comparable to those which could be obtained from
unaffiliated third parties.
In August 1996, in an effort to level the competitive telecommunications
field, the FCC issued an order that will result in a reduction in costs for
wireless companies to interconnect with local telephone companies. In addition,
wireless companies will be compensated by landline carriers for calls
terminating on wireless networks. The new structure is intended to achieve
reciprocal, cost-based interconnection rates. The Company currently is
renegotiating its interconnection arrangements with major telephone companies.
The Company believes it will benefit from reduced interconnection rates.
Roaming margins associated with the Company's customers roaming into other
carriers' markets declined in 1996, resulting in an increase in cost of service
as a percent of cellular service revenues. The decline in margins is
attributable to increased competitive pressures to reduce rates for such roaming
traffic and an increase in unbillable fraudulent roaming activities. The Company
expects that the industry-wide trend to reduce rates will continue, thus
stimulating an increase in cellular telephone usage, resulting in an increase in
roaming airtime. To the extent reduced retail rates stimulate increased usage
and the Company is able to negotiate reduced wholesale roaming rates with other
carriers, the effects of discounted rates will be somewhat mitigated.
Unauthorized usage of customers' telephone numbers, commonly referred to in
the industry as cloning fraud, resulted in unbillable fraudulent roaming
activities that approximated 1.5%, 1.0% and 0.5% of cellular service revenues in
1996, 1995 and 1994, respectively. Significant fraud activity in several markets
caused the increase in unbillable fraudulent roaming activity in 1995. In 1996,
the increase in unbillable fraudulent roaming activity was the result of a
significant increase in the level of fraud activity in several markets during
the fourth quarter of 1996. Unbillable fraudulent roaming activities reached
approximately 3% of cellular service revenues in the three months ended December
31, 1996. The Company believes it will continue to be impacted by fraudulent
roaming activities on a going-forward basis and continues to productively invest
in new systems and technologies to reduce the incidence of fraud.
Other Operations Expense
Other operations expense as a percent of cellular service revenues was 5.3%
in 1996, 5.1% in 1995 and 5.4% in 1994. In 1996, nonrecurring charges and the
effects of an overall increase in the level of customer debt delinquencies
nationwide more than offset realized economies of scale, causing an increase in
other operations expense as a percent of cellular service revenues. In 1996, the
Company incurred approximately $700,000 of additional maintenance expense caused
by two major hurricanes and $900,000 of increased expense for the testing of
cell sites to ensure compliance with new environmental protection laws. Bad debt
expense as a percentage of cellular service revenues increased to 2.3% in 1996
from 2.1% in 1995 and 2.2% in 1994. The decrease in costs as a percentage of
cellular service revenues in 1995 compared with 1994 was due primarily to the
growth in the number of cellular customers and an improvement in bad debt
levels. The Company expects that other operations expense as a percentage of
cellular service revenues will decrease as future economies of scale are
realized.
<PAGE>
Sales, Marketing and Advertising Expenses
Sales, marketing and advertising expenses as a percentage of cellular
service revenues were 19.6% in 1996, 17.9% in 1995 and 24.0% in 1994. In 1996,
additional advertising, promotional and other marketing expenses associated with
the introduction and promotion of the Company's new brand name, and with the
initiation of residential long distance service, increased expenses by $26.2
million and $3.3 million, respectively. These factors caused sales, marketing
and advertising expenses as a percent of cellular service revenues to increase
in 1996. During 1995, sales distribution channel efficiencies were realized
causing a decrease in costs as a percent of cellular service revenues when
compared with 1994.
To improve sales and reduce costs associated with acquiring new customers,
the Company has begun to depend more upon its own sales force working out of
Company retail outlets and kiosks located in shopping malls and other
non-company owned retail locations. Incremental sales costs at a Company retail
store or kiosk are significantly lower than commissions paid to national
dealers. Although the Company intends to continue to support its large dealer
network, continued increases in its own retail distribution channels are
planned. The Company has experienced little change in churn levels, a factor
further contributing to the Company's ability to manage the costs of maintaining
and growing its customer base.
General, Administrative and Other Expenses
General, administrative and other expenses as a percentage of cellular
service revenues were 25.0% in 1996, 27.2% in 1995 and 26.5% in 1994. The
decrease in 1996 was due to economies of scale realized as a result of customer
growth. In connection with the spinoff, the Company began to perform certain
functions previously provided by Sprint. The undertaking of such functions did
not have a significant impact on the Company's 1996 operating expenses. The
increase in expenses as a percentage of cellular service revenues in 1995
compared with 1994 was due primarily to increases in costs allocated to the
Company by Sprint for administrative support functions and an increase in phone
upgrade expenses, a cost required to retain customers and effectively manage
customer churn. The Company anticipates an ongoing trend of decreased general,
administrative and other expenses as a percentage of cellular service revenues.
Depreciation and Amortization
Acquisitions of existing cellular communications systems generated
intangible assets such as FCC license costs and goodwill which are amortized
over 40 years. Amortization expense totaled $22.8 million, $19.2 million and
$19.4 million in 1996, 1995 and 1994, respectively. The Company periodically
assesses the ongoing value of these intangible assets and expects the carrying
amounts to be fully recoverable.
Depreciation expense totaled $124 million, $95.5 million and $73.1 million
in 1996, 1995 and 1994, respectively. Depreciation as a percentage of cellular
service revenues was 11.8%, 12.1% and 12.8% in 1996, 1995 and 1994,
respectively. The increases in depreciation expense primarily are the result of
increased capital investment in the Company's cellular network. As a percent of
cellular service revenues, depreciation continues to decline, primarily as a
result of economies of scale as more customers are added to the existing
network.
The Company continues to invest in analog and enhanced analog network
infrastructure to support customer growth and maintain the quality of its
service. The Company believes that its networks have sufficient capacity to
handle the Company's expected customer growth rate in the near term. In the
future, the Company intends to relieve any capacity constraints through
frequency planning, the deployment of enhanced analog technology in additional
markets, and the selective installation of additional cell sites in densely
populated areas. The Company plans to implement a gradual transition to digital
technology on a market-by-market basis as additional calling capacity is
required to accommodate growth in call volume. This approach should provide time
for anticipated improvements in digital technology to be realized, while also
avoiding premature capital expenditures. In August 1996, the Company began
offering Code Division Multiple Access ("CDMA") digital technology in Las Vegas,
Nevada. The introduction of CDMA in Las Vegas followed a six-month trial that
began in early 1996. The Company's investment in digital technology will
increase in 1997. The Company believes the service lives on its existing analog
technology are appropriate.
Interest Expense
Interest expense decreased in 1996 compared with 1995 because of decreases
in interest rates and reduced borrowing levels as a result of the
recapitalization at the time of the spinoff. See "Liquidity and Capital
Resources" for additional information regarding the Company's recapitalization.
Interest expense increased in 1995 when compared with 1994 primarily as a result
of interest rate increases and increased borrowings from Sprint. Prior to the
spinoff, the Company borrowed from Sprint, primarily to fund construction costs
and start-up losses, at interest rates based on prime plus 2% and a 30-day
commercial paper rate. The average interest rate was 7.1% in 1996, 8.9% in 1995
and 7.6% in 1994. Current borrowings consist of $450 million of 7 1/8% Senior
Notes due 2003, $450 million of 7 1/2% Senior Notes due 2006, $122 million of
subordinated promissory notes, borrowings under a revolving credit facility
("Credit Facility") with a number of banks and institutional lenders and
market-based short-term borrowings.
Minority Interests in Net Income of Consolidated Entities
Minority Interests in Net Income of Consolidated Entities represents other
investors' interests in the operating results of cellular systems in which the
Company has a controlling interest. The increases in 1996, 1995 and 1994 are due
to improved operating results.
Equity in Net Income of Unconsolidated Entities
Equity in Net Income of Unconsolidated Entities represents the Company's
share of operating results of cellular systems in which the Company does not
have a controlling interest. Equity earnings increased in 1996, 1995 and 1994
primarily as a result of increased income generated by minority cellular
investments in markets that continue to mature.
As described in Note 10 of Notes to Consolidated Financial Statements,
various suits arising in the normal course of business are pending against the
cellular system entities in which the Company does not have a controlling
interest. Because the outcome of such legal proceedings has not been determined,
no provision for any liability that may result upon adjudication of such
litigation has been made in the consolidated financial statements of the
cellular system entity or the Company. In view of the uncertainty regarding each
litigation, there can be no assurance that the outcome of such litigation will
not have a material adverse effect on the Company's investment in these entities
or in its equity in the net income of each entity.
Income Taxes
The Company's income tax expense for 1996, 1995 and 1994 was $57.8 million,
$25.4 million and $5.7 million, respectively. The reduction in the Company's
effective tax rate in 1996 compared with 1995, primarily was attributable to
increased levels of pre-tax income which lessened the impact of items not
deductible for income tax purposes. In the 1996 fourth quarter, the Company
recorded a $2.2 million nonrecurring adjustment to its income tax provision. See
Note 9 of Notes to Consolidated Financial Statements for additional information
regarding differences that caused the effective income tax rates to vary from
the statutory federal income tax rates.
As of December 31, 1996, the Company had recorded deferred income tax
assets of $54.9 million, net of a $10.1 million valuation allowance. See Note 9
of Notes to Consolidated Financial Statements for information regarding the
sources that gave rise to these assets. The Company has determined that it is
more likely than not that these deferred tax assets, net of the valuation
allowance, will be realized based on current income tax laws and expectations of
future taxable income stemming from the reversal of deferred tax liabilities or
ordinary operations. Uncertainties surrounding income tax law changes, shifts in
operations between state taxing jurisdictions and future operating income levels
may, however, affect the ultimate realization of all or some portion of these
deferred income tax assets.
Net Losses
The Company sustained net losses in each fiscal year from its formation in
1982 through 1995. These losses primarily related to the start-up nature of the
Company's business which required significant expenditures associated with the
acquisition of new customers and substantial investment in infrastructure to
support growth. Total operating expenses as a percentage of cellular service
revenues have declined and it is anticipated that this trend will continue as
the Company realizes economies of scale associated with growth in its customer
base. Accordingly, the Company produced net income in 1996. Moreover, the
Company's business strategy is intended to produce ongoing long-term
profitability.
Competition
Cellular carriers compete primarily against the other facilities-based
cellular carrier in each market. However, companies with PCS licenses have begun
to offer their products and services in several of the Company's service areas.
The Company has prepared for this new competitive environment by enhancing its
networks, expanding its service territory, offering new features, products and
services to its customers and simplifying its pricing of services. The Company
believes it will benefit from its position as an incumbent in the cellular field
with a high quality network, extensive geographic footprint that is not capacity
constrained, strong distribution channels, superior customer service
capabilities and an experienced management team. However, there can be no
assurance that these measures will completely mitigate the pressures associated
with the expected increase in the level of PCS competition.
Liquidity and Capital Resources
In conjunction with the spinoff from Sprint, the Company repaid $1.4
billion of intercompany debt to Sprint. The remaining intercompany debt, net of
receivables from affiliates, was contributed to the Company by Sprint as
Additional Paid-In Capital. Funding for the repayment was derived from the
proceeds of $900 million of Senior Notes issued under an indenture ("Indenture")
and approximately $500 million of initial borrowings under the Credit Facility.
In addition, a recapitalization of the Company's common stock was effected
pursuant to which the Company split the 10 shares of issued and outstanding
common stock into 116,733,983 new shares of common stock to allow for the pro
rata distribution of such stock to the common shareholders of Sprint. This
distribution was effected as a tax-free dividend.
The Credit Facility has general and financial covenants that place certain
restrictions on the Company. The Company is limited with respect to: the making
of payments (dividends and distributions); the incurrence of certain liens; the
sale of assets under certain circumstances; entering into or otherwise
permitting any subsidiary distribution restrictions; certain transactions with
affiliates; certain consolidations, mergers and transfers; and the use of loan
proceeds. In addition, the Credit Facility limits the aggregate amount of
additional borrowings that can be incurred by the Company.
The Indenture has general and financial covenants similar to the Credit
Facility. However, these covenants, except for the limitation on liens, are
suspended while the Company's public debt is rated investment grade by two or
more credit rating agencies. The Company attained the second such rating on
February 10, 1997.
Holding Company Structure
The Company's operations are conducted largely through subsidiary
corporations and partnerships. In the case of subsidiary corporations, those
entities are wholly owned, directly or indirectly, by the Company and are not
restricted in any way from paying dividends or other payments to the Company. In
addition, the Company's subsidiaries are not permitted under the Credit
Facility, subject to certain exceptions, to restrict distributions to the
Company. In the case of partnerships, to the extent funds are available for
distribution, distributions are generally required under the partnership
agreements, except to the extent such funds are required for additional capital
investments in the partnership. However, because the Company does not control
the capital structure of certain partnerships in which it holds minority
interests, it is possible that such partnerships may have entered into loan
agreements or other contractual arrangements that restrict or limit
distributions to the partners of such partnerships.
Cash Flows - Operating Activities
Operating cash flow increases reflect improved operating results. During
1996, operating cash flows were impacted by additional advertising, promotional
and other marketing expenses associated with the introduction and promotion of
the Company's new brand name. Although future cash flows will continue to be
impacted by costs associated with the promotion of the Company's new brand name,
the Company expects cash flows generated by operating activities to continue to
increase.
Cash Flows - Investing Activities
Capital expenditures were $300.1 million, $323.7 million and $264.3 million
in 1996, 1995 and 1994, respectively. The decrease in capital expenditures in
1996, compared with 1995, was the result of the maturing of the Company's
cellular network. In previous years, the Company concentrated on satisfying the
FCC's requirements for the build out of cellular systems relating to the
expansion of the geographic footprint or coverage area of Company-held licenses,
in addition to capital investment to support customer growth. With the
geographic areas of its licensed markets essentially covered, the Company
currently focuses on capital investment to support customer growth and on
improving customer call quality. The Company plans to install CDMA technology in
the greater Raleigh, North Carolina, service area during 1997.
On November 1, 1996, the Company completed its acquisition of Independent
Cellular Network, Inc. and affiliated companies (the "ICN Acquisition") which
own and operate cellular licenses and related systems in Kentucky, Ohio,
Pennsylvania and West Virginia, providing cellular service to approximately
140,000 customers in 20 markets, representing an estimated 3.3 million potential
customers. The purchase price was approximately $519 million, comprising
6,500,000 shares of the Company's Common Stock, $122 million in aggregate
principal amount of the Company's subordinated promissory notes and the
Company's assumption of $240 million in senior debt, which was immediately
refinanced with borrowings under the Credit Facility. The remaining portion of
the purchase price was paid in cash. The ICN Acquisition was accounted for as a
purchase and its results of operations are included in the consolidated
financial statements from the date of acquisition. Assets and liabilities have
been recorded at estimated fair value based on a preliminary allocation of the
purchase price. Additional adjustments to these estimates are expected to be
made. To achieve cellular system compatibility and standard customer
functionality, it will be necessary for the Company to replace the acquired cell
site equipment and switches.
Such replacements commenced in 1996 and will be completed in 1997.
In the first quarter of 1996, the Company acquired cellular properties in
South Carolina, North Carolina and Ohio and additional partnership interests in
Florida. The aggregate purchase price of these acquisitions was $110 million.
On a limited basis, the Company has increased its ownership interests in
certain of its controlled markets. To the extent feasible, the Company intends
to reduce its minority investments in cellular communications systems and
increase its ownership interests in controlled markets. The Company also intends
to pursue the acquisition of additional markets with similar characteristics
that provide opportunities to enhance the clustering of contiguous service
areas. See Note 3 of Notes to Consolidated Financial Statements for a discussion
of completed and proposed acquisitions and divestitures.
<PAGE>
Cash Flows - Financing Activities
In 1995 and 1994, cash provided by financing activities principally
reflected borrowings from Sprint. Following the spinoff, capital to meet funding
requirements was no longer available from Sprint. In conjunction with the
spinoff, the Company repaid $1.4 billion of intercompany debt to Sprint. The
remaining intercompany debt was contributed to the Company by Sprint as
Additional Paid-In Capital. Funding for the repayment was derived from proceeds
of the Company's Senior Notes issued under the Indenture and initial borrowings
under the Credit Facility. In conjunction with the ICN Acquisition, the Company
issued $122 million in aggregate principal amount of the Company's subordinated
promissory notes and assumed $240 million of senior debt which was immediately
refinanced under the Credit Facility. The subordinated promissory notes have
general and financial covenants which are currently suspended while the
Company's public debt is rated investment grade by two or more credit rating
agencies. The Company attained the second such rating on February 10, 1997.
As part of its cash management program, the Company also incurs short-term
borrowings based on market interest rates to support its daily cash
requirements. The aggregate amount of these borrowings is limited to $50 million
under certain debt covenants.
In 1996, the Company repurchased shares of Common Stock on the open market
for purposes of distributing shares under the Employee Stock Purchase Plan which
terminated on June 30, 1996 and issuing Common Stock in conjunction with stock
option exercises. These purchases reduced shareowners' equity by $3.4 million.
Liquidity
Prior to the ICN Acquisition, the Credit Facility was amended and restated
to permit, among other things, the ICN Acquisition and the increase in the
Company's borrowing capacity from $800 million to $1 billion. The aggregate
amount of additional borrowings which can be incurred under the Credit Facility
is ultimately limited by certain covenants included therein. At December 31,
1996, the Company had $680 million of borrowings outstanding under the Credit
Facility and was not limited in its borrowing capacity under the Credit
Facility.
On February 13, 1997, a shelf registration filed with the Securities and
Exchange Commission became effective, providing for the issuance, from time to
time, of up to $500 million in aggregate initial offering price of the Company's
unsecured debt securities and/or warrants to purchase debt securities ("Debt
Securities"). The net proceeds to be received by the Company from the sales of
Debt Securities will be available for general corporate purposes and may be used
for the repayment of short-term debt and borrowings under the Credit Facility
and for the funding of future acquisitions, capital expenditures and working
capital requirements.
Capital Requirements
Substantial capital is required to expand and operate the Company's
existing cellular systems and to acquire interests in additional cellular
systems. The Company has increased borrowings to the extent its existing cash
needs have not been met through existing cash resources and cash flows from
operations. Prior to the spinoff, the Company met its funding requirements
through borrowings from Sprint. Subsequent to the spinoff, existing cash
resources, internally generated funds and borrowings under the Credit Facility
have been used to meet the Company's capital requirements.
The Company expects to make capital expenditures, excluding acquisitions,
of approximately $315 million in 1997. Funding for these expenditures is
expected to be derived from existing cash resources, cash flows from operations,
borrowings under the Credit Facility and the issuance of Debt Securities. These
expenditures will be made to expand and enhance existing cellular systems,
install digital technology in the Company's greater Raleigh, North Carolina,
service area and replace equipment in markets acquired in the ICN Acquisition.
<PAGE>
For the next several years, the Company does not expect its operations to
generate sufficient cash flow to meet both future capital requirements needed to
fund operating activities and cash requirements for acquisitions of ownership
interests in cellular communications systems. Acquisition activities may include
acquisitions of new cellular communications systems or additional investments in
cellular communications systems in which the Company already holds an ownership
interest. The Company expects that it will need to raise additional funds to
make such investments. An agreement, which was designed to preserve the tax-free
status of the Company's spinoff from Sprint, imposes certain limitations
associated with equity transactions. Accordingly, the Company is prohibited from
issuing preferred stock and is limited as to the aggregate amount of additional
common stock that it can issue, unless an unqualified opinion of counsel or
ruling from the Internal Revenue Service states that such action would not cause
the spinoff to be taxable. At December 31, 1996, the Company was limited to
issuing up to an additional 19 million common shares. This limitation expires on
March 7, 1998.
The Company believes that it will have the needed access to the capital
markets on suitable terms and that, together with borrowings under the Credit
Facility, the issuance of Debt Securities and net cash provided by operations,
it will have adequate capital to satisfy its projected funding requirements for
operations in 1997 and thereafter. The Company currently does not intend to seek
funding from other sources during 1997. See Note 3 of Notes to Consolidated
Financial Statements for a discussion of completed and proposed acquisitions and
divestitures. There can be no assurance that access to the capital markets can
be obtained in amounts and on terms adequate to meet its objectives or that the
borrowings or net cash provided by operations will be adequate to meet the
Company's projected funding requirements.
General Hedging Policies
The Company utilizes certain derivative financial instruments in an effort
to manage exposure to interest rate risk, but not for trading purposes. During
1996, the utilization of such instruments was limited to interest rate swap
agreements. The Company does not take speculative positions or create an
exposure in an effort to benefit from market fluctuations. As of December 31,
1996, any potential loss or exposure related to interest rate swap agreements
was immaterial to overall operations, financial condition and liquidity. See
Note 6 of Notes to Consolidated Financial Statements for more information
related to interest rate swap agreements.
Dividend Policy
The Company currently does not anticipate paying cash dividends on its
Common Stock in the foreseeable future.
Recent Developments
On March 17, 1997, the Company issued $200,000,000 in aggregate principal
amount of its 7.60% Senior Notes Due 2009. The net proceeds received by the
Company from the sale of these Debt Securities was used to repay a portion of
the Company's long-term indebtedness outstanding under the Credit Facility.
On March 11, 1997, the Company announced that its customer growth in the
first quarter of 1997 is expected to substantially exceed its customer gain of
94,605 during the first quarter of 1996. The Company expects results for the
first quarter of 1997 to be adversely affected by higher customer acquisition
costs resulting from such customer growth. The first quarter customer growth is
attributed to the Company's new brand positioning which was launched in March
1996; continued promotional activity; and the introduction of simplified pricing
plans. The Company's new roaming rate plans, which were implemented earlier this
year as part of the pricing simplification effort, are expected to reduce
operating revenues by approximately $4 million to $5 million in the first
quarter of 1997.
In January 1997, the Company reported that it incurred cellular fraud
losses, primarily in December 1996, that were $6 million higher than its
historical cellular fraud level of 1% of service revenues. Although the losses
attributable to cellular fraud have declined in 1997, such losses are expected
to average approximately $3 million per month, above historical rates, in the
first quarter of 1997.
Forward-Looking Statements
When used in this Report, the words "intends," "expects," "plans,"
"estimates," "projects," "believes," "anticipates," and similar expressions are
intended to identify forward-looking statements. Specifically, statements
included in this Report that are not historical facts, including statements
about the Company's beliefs and expectations about continued market and industry
growth, and ability to maintain existing churn, customer growth and increased
penetration rates, are forward-looking statements. Such statements are subject
to risks and uncertainties that could cause actual results or outcomes to differ
materially. Such risks and uncertainties include, but are not limited to, the
degree to which the Company is leveraged and the restrictions imposed on the
Company under its existing debt instruments that may adversely affect the
Company's ability to finance its future operations, to compete effectively
against better capitalized competitors and to withstand downturns in its
business or the economy generally; the continued downward pressure on the prices
charged for cellular equipment and services resulting from increased competition
in the Company's markets; the lack of assurance that the Company's ongoing
network improvements and scheduled implementation of digital technology in its
markets will be sufficient to meet or exceed the capabilities and quality of
competing networks; the effect on the Company's operations and financial
performance of changes in the regulation of cellular activities; the degree to
which the Company incurs significant costs as a result of cellular fraud; the
impact on the Company's operations that may arise from concerns suggesting
cellular telephones may be linked to cancer; and the other factors discussed in
the Company's filings with the Securities and Exchange Commission, including the
factors discussed under the heading "Certain Risk Factors" in the Information
Statement set forth as Exhibit 99 to the Company's Form 10 (File No.1-14108),
which section is hereby incorporated by reference herein. Forward-looking
statements included in this Report speak only as of the date hereof and the
Company undertakes no obligation to revise or update such statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareowners
360 Communications Company
We have audited the accompanying consolidated balance sheets of 360
Communications Company and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, shareowners' equity, and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedule listed in the index at
Item 14 (a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We did not audit the
financial statements of GTE Mobilnet of South Texas Limited Partnership, New
York SMSA Limited Partnership, Orlando SMSA Limited Partnership and Chicago MSA
Limited Partnership, equity investees of the Company, for which the Company's
investment in these partnerships is $121,654,000 and $93,210,000 at December 31,
1996 and 1995, respectively, and the Company's equity in the net income of these
partnerships is $39,644,000, $32,753,000 and $24,289,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. Those financial statements were
audited by other auditors whose reports have been furnished to us and our
opinion, insofar as it relates to data included for such partnerships, is based
solely on the reports of the other auditors.
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 our audits and the reports of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of 360
Communications Company and Subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth herein.
Ernst & Young LLP
Chicago, Illinois
February 26, 1997
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Kansas City SMSA Limited Partnership
We have audited the accompanying balance sheets of Kansas City SMSA Limited
Partnership as of December 31, 1996 and 1995, and the related statements of
income, changes in partners' capital, and cash flows for the years then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure 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 Kansas City SMSA Limited
Partnership at December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Ernst & Young LLP
San Antonio, Texas
February 14, 1997
<PAGE>
REPORT OF OTHER INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of the
GTE Mobilnet of South Texas Limited Partnership:
We have audited the balance sheets of the GTE Mobilnet of South Texas Limited
Partnership (a Delaware limited partnership) as of December 31, 1996 and 1995,
and the related statements of operations, changes in partners' capital and cash
flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the GTE Mobilnet of South Texas
Limited Partnership as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 24, 1997
<PAGE>
REPORT OF OTHER INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of the
Chicago SMSA Limited Partnership:
We have audited the balance sheets of the Chicago SMSA Limited Partnership (an
Illinois partnership) as of December 31, 1996 and 1995, and the related
statements of income, partners' capital and cash flows for the years then ended;
such financial statements are not included separately herein. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Chicago SMSA Limited
Partnership as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 17, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of the New York SMSA Limited Partnership
We have audited the accompanying balance sheets of the New York SMSA Limited
Partnership (the Partnership) as of December 31, 1996 and 1995, and the related
statements of income, changes in partners' capital and cash flows for the years
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the New York SMSA Limited
Partnership as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
February 13, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of the Orlando SMSA Limited Partnership
We have audited the accompanying balance sheets of the Orlando SMSA Limited
Partnership as of December 31, 1996, and the related statements of income,
changes in partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Orlando SMSA Limited
Partnership as of December 31, 1996, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Atlanta, Georgia
February 7, 1997
<PAGE>
360 COMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
December 31,
--------------------------
ASSETS 1996 1995
------ ----------- -----------
Current Assets
Cash and Cash Equivalents $ 2,554 $ 19,023
Accounts Receivable, less allowances
of $5,730 and $2,370, respectively 102,483 68,087
Other Receivables 27,090 29,799
Unbilled Revenue 35,712 23,481
Inventory 35,908 19,576
Deferred Income Taxes 8,462
Prepaid Expenses and Other 16,634 6,604
----------- -----------
Total Current Assets 228,843 166,570
----------- -----------
Property, Plant and Equipment 1,499,407 1,151,157
Less: Accumulated Depreciation 415,981 300,703
----------- -----------
Property, Plant and Equipment, net 1,083,426 850,454
----------- -----------
Investments in Unconsolidated Entities 349,231 318,287
Intangibles, net 1,136,587 632,756
Other Assets 13,982 5,179
----------- -----------
Total Assets $ 2,812,069 $ 1,973,246
=========== ===========
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
Current Liabilities
Trade Accounts and Other Payables $ 227,654 $ 111,770
Short-Term Borrowings 43,750
Advance Billings 28,314 20,559
Accrued Taxes 17,951 19,690
Accrued Agent Commissions 12,089 15,417
Other 21,090 27,092
----------- -----------
Total Current Liabilities 350,848 194,528
----------- -----------
Long-Term Debt 1,699,778 --
Advances From and Notes to Affiliates -- 1,517,729
----------- -----------
Deferred Credits and Other Liabilities
Deferred Income Taxes 113,005 99,168
Postretirement and Other Benefit Obligations 5,855 12,859
----------- -----------
Total Deferred Credits and Other Liabilities 118,860 112,027
----------- -----------
Minority Interests in Consolidated Entities 180,083 146,894
----------- -----------
Shareowners' Equity
Common Stock ($.01 par value; 1,000,000,000
shares authorized; 123,308,921 shares issued
and outstanding in 1996 and no par value;
10 shares authorized; 10 shares issued;
10 shares outstanding in 1995) 1,233 11,541
Additional Paid-In Capital 772,199 360,978
Accumulated Deficit (310,932) (370,451)
----------- -----------
Total Shareowners' Equity 462,500 2,068
----------- -----------
Total Liabilities and Shareowners' Equity $ 2,812,069 $ 1,973,246
=========== ===========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
1
<PAGE>
360 COMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of Dollars)
For the Year Ended December 31,
------------------------------------
1996 1995 1994
----------- ---------- ----------
OPERATING REVENUES
Cellular Service Revenues $1,052,726 $ 789,459 $ 569,793
Equipment Sales 43,146 44,956 56,682
----------- ---------- ----------
Total Operating Revenues 1,095,872 834,415 626,475
----------- ---------- ----------
OPERATING EXPENSES
Cost of Service 99,745 68,223 51,071
Cost of Equipment Sales 104,327 109,441 79,000
Other Operations Expense 55,776 40,591 30,905
Sales, Marketing and Advertising Expenses 206,147 141,505 136,501
General, Administrative and Other Expenses 263,191 214,536 150,985
Depreciation and Amortization 146,841 114,731 92,435
----------- ---------- ----------
Total Operating Expenses 876,027 689,027 540,897
----------- ---------- ----------
OPERATING INCOME 219,845 145,388 85,578
Interest Expense (106,364) (127,240) (98,437)
Minority Interests in Net Income
of Consolidated Entities (46,622) (34,269) (22,110)
Equity in Net Income of
Unconsolidated Entities 50,234 40,016 26,390
Other Income (Expense), net 255 (185) (5,481)
----------- ---------- ----------
Income (Loss) Before Income Taxes 117,348 23,710 (14,060)
Income Tax Expense 57,829 25,405 5,697
----------- ---------- ----------
Net Income (Loss) $ 59,519 $ (1,695) $ (19,757)
=========== ========== ==========
Net Income (Loss) per Share (in Dollars) $ 0.50 $ (0.01) $ (0.17)
=========== ========== ==========
Weighted Average Shares
Outstanding, in thousands 118,136 116,706 116,247
=========== ========== ==========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
2
<PAGE>
<TABLE>
360 COMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
<CAPTION>
For the Year Ended December 31,
---------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Operating Activities
Net Income (Loss) $ 59,519 $ (1,695) $ (19,757)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 146,841 114,731 92,435
Deferred Income Taxes 36,197 36,267 20,646
Loss on the Sale of Cellular Property 4,352
Equity in Net Income of Unconsolidated
Entities, net of distributions (27,838) (7,206) (10,899)
Minority Interests in Net Income of
Consolidated Entities 46,622 34,269 22,110
Changes in Operating Assets and Liabilities,
excluding acquisitions
Receivables, net (28,748) (20,610) (23,111)
Other Current Assets (23,222) 7,592 (18,225)
Trade Accounts and Other Payables 110,146 3,420 38,293
Accrued Expenses and Other
Current Liabilities (3,984) 6,365 36,590
Noncurrent Assets and Liabilities, net (685) 12,007 (1,455)
Other, net 4,425 (1,847) 834
--------- ---------- ---------
Net Cash Provided by Operating Activities 319,273 183,293 141,813
--------- ---------- ---------
Investing Activities
Capital Expenditures (300,123) (323,651) (264,333)
Acquisitions (352,533) (1,142) --
Investments in Unconsolidated Entities and Other (14,890) (3,743) (8,009)
Proceeds from Sale of Cellular Property -- -- 9,920
--------- ---------- ---------
Net Cash Used by Investing Activities (667,546) (328,536) (262,422)
--------- ---------- ---------
Financing Activities
Net Borrowings under Bank Revolving Credit Facility 680,000 -- --
Proceeds from Long-Term Debt 900,000 -- --
Debt Issuance Costs (15,229) -- --
Net Short-Term Borrowings 43,750
Increase in Advances from Affiliates 135,892 158,482 107,294
Contributions from Minority Investors 5,636 7,228 17,742
Distributions to Minority Investors (14,849) (6,971) (4,405)
Repayment of Advances from Affiliates (1,400,000) -- --
Other (3,396) -- --
--------- ---------- ---------
Net Cash Provided by Financing Activities 331,804 158,739 120,631
--------- ---------- ---------
Decrease in Cash and Cash Equivalents (16,469) 13,496 22
Cash and Cash Equivalents at Beginning of Year 19,023 5,527 5,505
--------- ---------- ---------
Cash and Cash Equivalents at End of Year $ 2,554 $ 19,023 $ 5,527
========= ========== =========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
3
</TABLE>
<PAGE>
<TABLE>
360 COMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
(Thousands of Dollars, except share amounts)
<CAPTION>
Common Stock Additional Total
--------------------- Paid-In Accumulated Shareowners'
Shares Amount Capital Deficit Equity
------------ -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 10 $ 11,541 $ 360,978 $ (348,999) $ 23,520
Net Loss - - - (19,757) (19,757)
----------- -------- --------- ---------- -----------
Balance at December 31, 1994 10 11,541 360,978 (368,756) 3,763
Net Loss - - - (1,695) (1,695)
----------- -------- --------- ---------- -----------
Balance at December 31, 1995 10 11,541 360,978 (370,451) 2,068
Net Income - - - 59,519 59,519
Capital Contributions by Sprint
Corporation in Conjunction
with Spinoff - - 253,160 - 253,160
Recapitalization of Stock
Pursuant to Spinoff from
Sprint Corporation 116,733,973 (10,374) 10,374 - 0
Shares Issued for Acquisition 6,500,000 65 150,248 - 150,313
Other, net 74,938 1 (2,561) - (2,560)
----------- -------- --------- ---------- -----------
Balance at December 31, 1996 123,308,921 $ 1,233 $ 772,199 $ (310,932) $ 462,500
=========== ======== ========= ========== ===========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
4
</TABLE>
<PAGE>
360 COMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Consolidation and Presentation
360 Communications Company and its subsidiaries (the "Company") provide
wireless voice and data telecommunications services. In 1996, the Company began
marketing residential long distance service and reselling paging service in 13
of the 16 states in which the Company provides wireless service. The Company
operates as a general and limited partner and majority owner of cellular systems
in various metropolitan and rural service areas and as a limited minority
partner or manager in other cellular systems. In the fourth quarter of 1996, the
Company consolidated its North Carolina region with its Southeast region. The
Company operates in three additional regions in the United States: Mid-Atlantic,
Midwest and West.
The Company was a wholly owned subsidiary of Centel Corporation, a wholly
owned subsidiary of Sprint Corporation ("Sprint"). On March 7, 1996, Sprint
completed the spinoff of the Company to Sprint shareholders through a pro rata
distribution of all of the Common Stock of the Company ("spinoff"). For further
discussion of the spinoff, see Note 2.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned and majority-owned subsidiaries. The assets,
liabilities and results of operations of entities (both corporations and
partnerships) in which the Company has a controlling interest have been
consolidated. The ownership interests of noncontrolling owners in such entities
are reflected as minority interests. The Company accounts for all other
investees using the equity method of accounting. All significant intercompany
accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management 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.
Earnings Per Share
In 1996, earnings per share amounts were based on the weighted average
number of shares outstanding, including common stock equivalents. In 1995 and
1994, loss per share amounts were based on the weighted average number of Sprint
shares outstanding, including common stock equivalents, for each respective
period, adjusted for a conversion ratio of one share of the Company's Common
Stock to three shares of Sprint common stock.
Revenue Recognition
The Company earns revenues by providing access to its cellular system
("access revenue"), for usage of its cellular system ("airtime revenue"), for
long distance calls placed by the Company's customers and those of other
carriers within the Company's service area ("long distance"), and for providing
service to customers from other cellular systems who are traveling through the
service area ("roaming revenue"). Access revenue is billed one month in advance
and is recognized when earned. Airtime revenue, roaming revenue and long
distance revenue are recognized when the service is rendered. Other service
revenues are recognized after services are performed and include connection and
installation revenues. Equipment sales are recognized on delivery of the
equipment to the customer.
<PAGE>
Advertising Costs
The Company expenses the costs of advertising as incurred. Advertising
expense for the years ended December 31, 1996 and 1995 was $55,491,000 and
$27,337,000, respectively.
Cash
As part of its cash management program, the Company utilizes controlled
disbursement banking arrangements. Outstanding checks in excess of cash balances
totaled $34,924,000 and $34,013,000 at December 31, 1996 and 1995, respectively,
and are classified as Trade Accounts and Other Payables in the accompanying
Consolidated Balance Sheets. Sufficient funds were available to fund these
outstanding checks when they were presented for payment.
Inventory
Inventory consists of cellular telephone and certain accessory equipment
held for resale and is stated at the lower of cost (principally first in, first
out method) or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, including labor and
overhead expenses associated with construction. Cost includes capitalized
interest on funds borrowed to finance construction and is amortized over the
lives of the related assets. Capitalized interest for the years ended December
31, 1996, 1995 and 1994 was $2,234,000, $1,553,000 and $1,097,000, respectively.
Depreciation is computed by applying the straight-line method over the estimated
service lives for depreciable plant and equipment.
Investments in Unconsolidated Entities
Minority partnership investments include the excess of the purchase price
over the underlying net book value of cellular partnerships of $232,014,000 and
$229,812,000 as of December 31, 1996 and 1995, respectively. Such excess, which
relates to Federal Communications Commission ("FCC") licenses or goodwill, is
generally being amortized on a straight-line basis over 40 years. Accumulated
amortization aggregated $46,295,000 and $40,498,000 as of December 31, 1996 and
1995, respectively.
Amortization expense for the years ended December 31, 1996, 1995 and 1994
was $5,798,000, $5,770,000 and $5,769,000, respectively, and is included in
Equity in Net Income of Unconsolidated Entities in the accompanying Consolidated
Statements of Operations.
Intangibles
The Company has acquired identifiable intangible assets, as well as
goodwill, through its acquisitions of interests in various cellular systems. The
cost of acquired entities is allocated to identifiable assets at the date of the
acquisition and the excess of the total purchase price over the amounts assigned
to identifiable assets is recorded as goodwill. Intangible assets related to the
acquisition of entities in which the Company does not have a controlling
interest are included in Investments in Unconsolidated Entities.
The FCC issues licenses that enable cellular carriers to provide service in
specific cellular geographic service areas. The FCC grants licenses for terms of
up to 10 years and generally grants renewals if the licensee has complied with
its obligations under the Communications Act of 1934. In 1993, the FCC adopted
specific standards to apply to cellular renewals, concluding it will award a
renewal expectancy to a cellular licensee that meets certain standards of past
performance. Historically, the FCC has granted license renewals routinely. The
Company believes that it has met and will continue to meet all requirements
necessary to secure renewal of its cellular licenses.
Intangible assets are being amortized over 40 years. Accumulated
amortization related to acquisitions of controlling interests in cellular
systems aggregated $153,908,000 and $131,091,000 as of December 31, 1996 and
1995, respectively. Amortization expense for the years ended December 31, 1996,
1995 and 1994 was $22,817,000, $19,191,000 and $19,381,000, respectively.
The ongoing value and remaining useful life of intangible assets are
subject to periodic evaluation and the Company currently expects the carrying
amounts to be fully recoverable. Should events and circumstances indicate that
intangible assets might be impaired, an undiscounted cash flow methodology would
be used to determine whether an impairment loss would be recognized.
Supplemental Cash Flow Information
The Company paid interest of $78,124,000, $127,240,000 and $98,437,000 for
the years ended December 31, 1996, 1995 and 1994, respectively. Income taxes of
$25,707,000, $(5,500,000) and $(13,915,000) were paid (received) by the Company
in 1996, 1995 and 1994, respectively.
Income Taxes and Tax Sharing Arrangement
Deferred income taxes are provided for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for tax purposes. The Company was included in the consolidated
federal income tax return of Sprint through March 7, 1996 (see Note 11). Under a
tax sharing arrangement in effect prior to the spinoff, the Company was paid for
the utilization of net operating losses included in the consolidated tax return,
even if such losses and credits could not have been used if the Company had
filed on a separate return basis.
Stock Option Plans
The Company has adopted Statement of Financial Accounting Standards No. 123
("SFAS 123") "Accounting for Stock-Based Compensation." However, in accordance
with the provisions of SFAS 123, the Company continues to apply Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in
accounting for its stock option plans and accordingly, does not recognize
compensation cost. See Note 8 for a summary of the pro forma effects to reported
net income and earnings per share if the Company had elected to recognize
compensation cost based on the fair value of the options granted at grant date,
as prescribed by SFAS 123.
Concentrations of Credit Risk
To the extent that the Company's customers become delinquent, collection
activities commence. No single customer is large enough to pose a significant
financial risk to the Company. The Company maintains an allowance for losses
based on the expected collectibility of accounts receivable. Credit losses have
been within management's expectations.
Reclassifications
Certain 1995 and 1994 amounts have been reclassified to conform to the
presentation used in 1996.
<PAGE>
2. Spinoff
On July 26, 1995, Sprint announced that its Board of Directors decided to
pursue a tax-free spinoff of the Company to Sprint shareholders. In the FCC
auction of wireless Personal Communications Services ("PCS") licenses, Sprint
Spectrum LP won the rights to several markets that overlap service territories
operated by the Company. Under FCC rules, Sprint was required to divest or
reduce its cellular holdings in certain markets to clear conflicts with the PCS
licenses awarded to Sprint Spectrum LP. For these reasons, Sprint and its Board
of Directors decided to pursue a spinoff of the cellular operations of Sprint.
On March 7, 1996, the spinoff was consummated. In conjunction with the
spinoff, the Company repaid $1.4 billion of intercompany debt to Sprint. The
remaining intercompany debt, net of receivables from affiliates, was contributed
to the Company by Sprint as Additional Paid-In Capital. Funding for the
repayment was derived from the proceeds of $900 million of Senior Notes issued
under an indenture and approximately $500 million of initial borrowings under a
revolving credit facility ("Credit Facility") with a number of banks and
institutional lenders. In addition, a recapitalization of the Company's common
stock was effected pursuant to which the Company split the 10 shares of issued
and outstanding common stock into 116,733,983 new shares of common stock to
allow for the pro rata distribution of such stock to the common shareholders of
Sprint. This distribution was effected as a tax-free dividend.
3. Acquisitions and Divestitures
On January 31, 1996, the Company purchased additional partnership interests
in 360 Communications Company of Ft. Walton Beach Limited Partnership and 360
Communications Company of Tallahassee Limited Partnership. Also on January 31,
1996, the Company purchased an operating license and related cellular assets in
the North Carolina RSA No. 14 market. On February 23, 1996, the Company acquired
an operating license and related assets in the Ohio RSA No. 1 market. In
addition, on February 29, 1996, the Company purchased a 50% interest in South
Carolina RSA No. 4 Cellular General Partnership, a 50% interest in South
Carolina RSA No. 5 Cellular General Partnership and a 50% interest in South
Carolina RSA No. 6 Cellular General Partnership. These acquisitions were
accounted for as purchases and the aggregate purchase price was approximately
$110,000,000. The effects of these acquisitions on the operating results of the
Company were not significant.
On November 1, 1996, the Company completed its acquisition of Independent
Cellular Network, Inc. and affiliated companies (the "ICN Acquisition") which
own and operate cellular licenses and related systems and assets in Kentucky,
Ohio, Pennsylvania and West Virginia. The Company acquired the licenses from
Independent Cellular Network Partners and certain of its affiliates
(collectively, "ICNP") for approximately $519 million, comprising 6,500,000
shares of the Company's common stock, $122 million in aggregate principal amount
of the Company's subordinated promissory notes and the Company's assumption of
$240 million of Independent Cellular Network Partners' senior debt, which was
immediately refinanced with borrowings under the Credit Facility. The remaining
portion of the purchase price was paid in cash. The ICN Acquisition was
accounted for as a purchase and its results of operations are included in the
consolidated financial statements from the date of acquisition. Assets and
liabilities have been recorded at estimated fair value based on a preliminary
allocation of the purchase price. Additional adjustments to these estimates are
expected to be made.
<PAGE>
The following unaudited consolidated pro forma information shows the 1996
and 1995 results of the Company's operations as though the ICN Acquisition had
occurred at January 1, 1995. The pro forma results are not necessarily
indicative of the future results or actual results that would have occurred had
the purchase been made at the beginning of the period presented (in thousands).
For the Year Ended
December 31,
------------------------------
1996 1995
------------ ------------
Operating Revenues $ 1,153,441 $ 895,262
Net Income (Loss) $ 48,813 $ (25,323)
Earnings (Loss) Per Share (in dollars) $ .40 $ (.21)
In August 1994, the Company sold all of the assets associated with the
cellular communications system in Sioux City, Iowa, to a wholly owned subsidiary
of McCaw Cellular Communications, Inc. The purchase price received was
approximately $9,920,000, and a loss of $4,352,000 was realized on this
divestiture. The effect of this divestiture on the operating results of the
Company was not significant.
In January 1997, the Company acquired additional ownership interests in
certain majority-owned partnerships and divested ownership interests in certain
unconsolidated entities. In February 1997, the Company signed definitive
agreements with BellSouth Corporation ("BellSouth") to combine ownership
interests in two cellular partnerships in which the Company currently has a
noncontrolling interest and BellSouth has a controlling interest. The resulting
partnership will be owned approximately 75% by BellSouth and 25% by the Company.
In addition, the Company will contribute its ownership interest in another
unconsolidated entity and cash. In a separate transaction, the Company agreed to
sell to BellSouth its interest in a 100% owned entity and acquire from BellSouth
an additional interest in a majority-owned partnership. The combined effect of
these transactions is expected to result in a net cash payment by the Company of
approximately $100 million.
4. Property, Plant and Equipment
Property, plant and equipment consisted of the following (in thousands):
Depreciable
Lives December 31,
---------------------------------
1996 1995
----------- ----------
Switching, Base Site Controller and
Radio Frequency Equipment 9-10 years $ 847,214 $ 639,170
Cell Site Towers and Shelters 5-20 years 404,094 319,673
Office Furniture and Other Equipment 2-5 years 162,255 121,577
----------- ----------
Plant in Service 1,413,563 1,080,420
Construction Work in Progress 85,844 70,737
----------- ----------
1,499,407 1,151,157
Less: Accumulated Depreciation 415,981 300,703
----------- ----------
$ 1,083,426 $ 850,454
=========== ==========
Depreciation expense charged to operations for the years ended December 31,
1996, 1995 and 1994 was $124,024,000, $95,540,000 and $73,054,000, respectively.
<PAGE>
5. Investments in Unconsolidated Entities
Interests Owned
Interests owned in cellular systems of unconsolidated entities were as
follows:
December 31,
------------------
1996 1995
------- -------
Florida 9 RSA Limited Partnership 49.00% 49.00%
Pennsylvania 3 Wireline Settlement Limited Partnership 44.44% 27.78%
Illinois Valley Cellular RSA 2-II Partnership 40.00% 40.00%
Pennsylvania RSA No. 5 General Partnership 40.00% -
Pennsylvania 4 Wireline Settlement Partnership 33.33% 33.33%
Virginia 10 RSA Limited Partnership 33.00% 33.00%
Iowa RSA No. 13 Limited Partnership 30.00% 30.00%
Texas RSA No. 11B Limited Partnership 28.00% 28.00%
Omaha MSA Limited Partnership 27.59% 27.59%
RCTC Wholesale Company (Richmond) 27.27% 27.27%
GTE Mobilnet of Fort Wayne Limited Partnership 25.00% 25.00%
Texas RSA 7B1 Limited Partnership 25.00% 25.00%
Allentown SMSA Limited Partnership 20.77% 16.77%
Georgia RSA No. 1 Limited Partnership 20.00% 20.00%
GTE Mobilnet of Indiana RSA #3 Limited Partnership 20.00% 20.00%
St. Joseph SMSA Limited Partnership 20.00% 20.00%
Missouri RSA 9B1 Limited Partnership 19.60% 19.60%
Kansas City SMSA Limited Partnership 19.00% 19.00%
Illinois Independent RSA No. 3 General Partnership 18.13% 18.13%
Reading SMSA Limited Partnership 15.85% 5.85%
Orlando SMSA Limited Partnership 15.00% 15.00%
Missouri 1--Atchison RSA Limited Partnership 14.28% 14.28%
RSA 11 Limited Partnership (IA) 14.14% 14.14%
Missouri RSA 4 Partnership 12.50% 12.50%
New York SMSA Limited Partnership 10.00% 10.00%
GTE Mobilnet of South Texas Limited Partnership 8.77% 8.77%
Iowa 16--Lyon Limited Partnership 8.33% 8.33%
Iowa RSA 5 Limited Partnership 7.14% 7.14%
Iowa 15--Dickinson Limited Partnership 6.67% 6.67%
Iowa RSA No. 14 Limited Partnership 5.56% 5.56%
Chicago SMSA Limited Partnership 5.00% 5.00%
RSA 1 Limited Partnership (IA) 3.90% 3.90%
GTE Mobilnet of Ohio Limited Partnership 3.50% 3.50%
Iowa 8--Monona Limited Partnership 2.30% 2.30%
Cincinnati SMSA Limited Partnership 1.20% 1.20%
GTE Mobilnet of Austin Limited Partnership .82% .82%
<PAGE>
Financial Information
Condensed combined financial information, a portion of which is unaudited,
for investments in entities accounted for under the equity method follows (in
thousands):
For the Year Ended December 31,
--------------------------------------
1996 1995 1994
--------------------------------------
Results of Operations
Cellular Service Revenues $ 2,187,202 $ 1,796,895 $1,357,945
Equipment Sales 109,314 97,727 67,945
----------- ----------- ----------
Total Operating Revenues 2,296,516 1,894,622 1,425,890
----------- ----------- ---------
Cost of Equipment Sales 209,895 151,334 101,691
Operating, Selling, General,
Administrative and Other Expenses 1,266,353 1,049,117 824,049
Depreciation and Amortization 227,480 201,459 165,010
----------- ----------- ----------
Total Operating Expenses 1,703,728 1,401,910 1,090,750
----------- ----------- ----------
Operating Income 592,788 492,712 335,140
Non-operating Expenses (642) (12,903) (725)
Minority Interests in Net (Income)
Loss of Consolidated Entities -- (1,513) 1,958
----------- ----------- ----------
Net Income $ 592,146 $ 478,296 $ 336,373
=========== =========== ==========
December 31,
------------------------------
1996 1995
---------------- -------------
Assets
Current Assets $ 514,788 $ 371,827
Noncurrent Assets 1,702,668 1,487,159
------------- -------------
$ 2,217,456 $ 1,858,986
============= =============
Liabilities and Equity
Current Liabilities $ 337,465 $ 309,873
Long-term Liabilities 8,911 71,818
Minority Interests 3,384 6,086
Equity 1,867,696 1,471,209
------------- -------------
$ 2,217,456 $ 1,858,986
============= =============
Additional Disclosures
Accumulated deficit at December 31, 1996, included $118,236,000 related to
undistributed earnings of unconsolidated entities.
The Company has guaranteed 50% of a discounted note held by an
unconsolidated entity with a carrying value of $42,502,000 and $37,848,000 at
December 31, 1996 and 1995, respectively.
<PAGE>
6. Borrowings
Long-Term Debt and Advances From and Notes to Affiliates
Long-Term Debt and Advances From and Notes to Affiliates, which
approximates fair value based on market prices, consisted of the following (in
thousands):
December 31,
---------------------------
1996 1995
---------------------------
Credit Facility Borrowings, due 2001 $ 680,000 $ --
Senior Notes
due 2003, 7.125%, net of unamortized
discount of $1,242 (7.18%)1 448,758 --
due 2006, 7.5%, net of unamortized
discount of $980 (7.53%)1 449,020 --
Subordinated Promissory Notes, due 2006, 9.5% 122,000 --
----------- -------------
Total Long-Term Debt $ 1,699,778 $ --
=========== =============
Advances from Affiliates $ -- $ 413,529
Subordinated Note to Centel Capital Corporation,
due 1996 -- 950,000
Subordinated Note to Centel Corporation,
due 1998 -- 154,200
----------- -------------
Total Advances From and Notes to Affiliates $ -- $ 1,517,729
=========== =============
- ----------
1. Weighted average annual effective interest rate at December 31, 1996.
The Company has a revolving credit facility with a number of banks and
institutional lenders, with interest rates currently based on the London
Interbank Offered Rate plus 50 basis points. On October 31, 1996, the Credit
Facility was amended and restated to permit, among other things, the ICN
Acquisition and to increase the Company's borrowing capacity thereunder from
$800 million to $1 billion. A commitment fee of .15% per annum is charged on the
unused portion of the Credit Facility. Commitment fees totaled $390,000 in 1996.
Such fees may range from .15% to .5% depending on the Company's public debt
rating. At December 31, 1996, the Company was not restricted or limited in its
borrowing capacity under the Credit Facility.
As part of its interest rate risk management program, in August 1996, the
Company entered into two interest rate swap agreements maturing in 1999 to hedge
variable interest rate risk under the Credit Facility to a fixed rate. Net
interest paid or received related to such agreements is recorded using the
accrual method and as an adjustment to interest expense. At December 31, 1996,
the Company had interest rate swap agreements with an aggregate notional amount
of $100 million outstanding.
The Credit Facility has general and financial covenants that place certain
restrictions on the Company. The Company is limited with respect to: the making
of payments (dividends and distributions); the incurrence of certain liens; the
sale of assets under certain circumstances; entering into or otherwise
permitting any subsidiary distribution restrictions; certain transactions with
affiliates; certain consolidations, mergers and transfers; and the use of loan
proceeds. In addition, the aggregate amount of additional borrowings which can
be incurred by the Company may be limited.
The Senior Notes have general and financial covenants similar to the Credit
Facility. However, these covenants, except for limitation on liens, are
suspended while the Company's public debt is rated investment grade by two or
more credit rating agencies. The Company attained the second such rating on
February 10, 1997.
In conjunction with the ICN Acquisition, the Company issued subordinated
promissory notes with an annual interest rate of 9.5%, which was reduced to 9.0%
on February 10, 1997. Fifty percent of the interest due and owing will be paid
on each interest payment date and the remaining 50% will be capitalized and
become part of the principal amount owed thereunder. The subordinated promissory
notes have general and financial covenants that are suspended while the
Company's public debt is rated investment grade by two or more credit rating
agencies.
The Company attained the second such rating on February 10, 1997.
Interest rates on Advances From Affiliates and the Subordinated Note, due
1998, were based on a 30-day commercial paper rate. The interest rate on the
Subordinated Note, due 1996, was based on the prime rate plus 2 basis points. As
discussed in Note 2, in conjunction with the spinoff, the Company repaid $1.4
billion of Advances From and Notes to Affiliates with proceeds from the issuance
of the Senior Notes and borrowings under the Credit Facility, with the remaining
intercompany debt contributed to the Company by Sprint as Additional Paid-In
Capital.
On February 13, 1997, a shelf registration filed with the Securities and
Exchange Commission became effective, providing for the issuance, from time to
time, of up to $500 million in aggregate initial offering price of unsecured
debt securities and/or warrants to purchase debt securities. The net proceeds to
be received by the Company will be available for general corporate purposes and
may be used for the repayment of short-term debt and borrowings under the Credit
Facility and for the funding of future acquisitions, capital expenditures and
working capital requirements.
Short-Term Debt
As part of its cash management program, the Company incurs short-term
borrowings based on market interest rates to support its daily cash
requirements. At December 31, 1996, the Company had short-term borrowings of
$43,750,000 with an interest rate of 7.4%. The weighted average interest rate on
these borrowings was 5.6% for the year ended December 31, 1996.
7. Employee Benefit Plans
Defined Benefit Pension Plan
Prior to the spinoff, substantially all of the Company's employees were
covered by a noncontributory defined benefit pension plan sponsored by Sprint
which provided benefits based upon years of service and participants'
compensation. The cost to the Company of its employees' participation in this
plan was actuarially determined by Sprint, and totaled $1,917,000 and $1,656,000
in 1995 and 1994, respectively. The Company's accrued pension cost was
$7,361,000 as of December 31, 1995.
Effective with the spinoff, the Company's employees no longer participate
in Sprint's defined benefit pension plan and Sprint assumed the liability for
benefits of the Company's employees under Sprint's plan. The Company did not
recognize any curtailment gain or loss upon discontinuance of its employees'
participation in Sprint's plan and has not established its own defined benefit
pension plan.
Defined Contribution Plans
Substantially all employees of the Company are covered by defined
contribution employee savings plans. Participants may contribute portions of
their compensation to the plans and the Company makes matching contributions up
to specified levels. The Company's matching contributions aggregated $5,283,000,
$2,030,000 and $1,736,000 in 1996, 1995 and 1994, respectively.
Effective with the spinoff, the Company discontinued its participation in
Sprint's defined contribution employee savings plans. The Company established
its own defined contribution plan, the terms and conditions of which have been
revised to reflect increased matching contribution levels. Balances held by
Sprint's defined contribution 401(k) plan on the behalf of the Company's
employees has been transferred to the Company's new defined contribution 401(k)
plan.
Postretirement Benefits
Effective with the spinoff, the Company discontinued its participation in
Sprint's postretirement benefits arrangements, and established its own
arrangements. Terms and conditions of the Company's arrangements and related
cost levels do not differ significantly from those under Sprint's arrangements.
The Company sponsors postretirement benefits (principally health care
benefits) arrangements covering substantially all employees of the Company.
Employees who retired before specified dates are eligible for these benefits at
no cost to the retirees. Employees retiring after specified dates are eligible
for these benefits on a shared cost basis. The Company funds the accrued costs
as benefits are paid. The net postretirement benefits costs for 1996, 1995 and
1994 were $474,000, $176,000 and $512,000, respectively.
The Company's accrued postretirement benefits costs were $4,049,000 and
$3,575,000 as of December 31, 1996 and 1995, respectively.
Postemployment Benefits
Postemployment benefits offered by the Company include severance,
disability and workers compensation, including the continuation of other
benefits such as health care and life insurance coverage. Effective with the
spinoff, the Company discontinued its participation in Sprint's postemployment
benefits arrangements. Terms and conditions of the Company's arrangements and
related cost levels do not differ significantly from those under Sprint's
arrangements.
8. Stock-Based Compensation
Under various stock option plans, shares of Common Stock are reserved for
issuance to officers, outside directors and certain employees. Generally,
options are granted at 100% of the market price at date of grant. Options under
these plans vest over one, three or four years. All options expire 10 years from
date of grant. Approximately 1.4% of these options outstanding provide for the
granting of stock appreciation rights as an alternative method of settlement
upon exercise. Shares authorized for grants of stock options totaled 3,567,000.
Under the Company's various stock option plans, 2,068,000 shares were available
for the granting of options at December 31, 1996. In addition, non-vested stock
is issued to certain officers and outside directors and vests from one to five
years after grant. Such shares of non-vested stock are amortized over their
vesting period.
Stock option activity for the years 1996, 1995 and 1994 follows:
1996 1995 1994
----------------------- --------- ----------
Weighted
Average
Exercise
Shares Price Shares Shares
---------- ---------- --------- ----------
Options outstanding,
beginning of year 611,680 $ 15.07 454,976 343,810
Options granted 816,505 $ 23.89 162,659 192,353
Options exercised 22,783 $ 15.00 5,955 70,437
Options canceled 40,005 $ 21.46 -- 10,750
---------- --------- ----------
Options outstanding,
end of year 1,365,397 $ 20.16 611,680 454,976
========== ========= ==========
Exercisable, end of year 329,142 $ 13.18
Weighted Average Fair Value
of options, granted
during 1996 $ 9.74
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- -------------------------------
Weighted Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
----------------- ------------ ------------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 7 - $14 167,859 4.26 10.00 167,859 10.00
$14.5 - $20 409,620 7.13 17.10 160,901 16.46
$ 21 - $35 787,918 9.00 23.90 382 25.63
--------- -------
$ 7 - $35 1,365,397 7.86 20.16 329,142 13.18
========= =======
</TABLE>
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date for awards in 1995 and 1996,
consistent with the provisions of SFAS 123, the Company's net loss and per share
amount would have been increased by approximately $576,000, or $.01 per share in
1995 and net income would have been reduced by $3,546,000 or $.03 per share in
1996. The fair value of options at date of grant was estimated using the
Black-Scholes valuation model with the following weighted average assumptions:
1996 1995
----------- ------------
Expected life (years) 6.0 5.9
Expected volatility 29.8% 29.8%
Dividend yield -- --
Interest rate 7.15% 7.08%
The pro forma effect on net income for 1996 and 1995 is not representative
of the pro forma effect on net income for future years because it does not take
into account pro forma compensation expense related to grants made prior to 1995
or the potential for issuance of additional stock options in future years.
Employees Stock Purchase Plan
Under the 1994 offering of the Sprint Employees Stock Purchase Plan,
Company employees held elections to purchase shares of Sprint's common stock as
of December 31, 1995. In connection with the spinoff, elections made by
employees of the Company to purchase shares of Sprint common stock were replaced
by elections to purchase 99,000 shares of the Company's Common Stock. The
purchase price under the offering could not exceed $16.90 per share or fall
below $6.27 per share. Aggregate fair market value of stock underlying the
elections was maintained by adjusting the per share purchase price of elections
as well as the number of shares under election.
The 1994 offering terminated on June 30, 1996.
<PAGE>
9. Income Taxes
The components of the income tax expense were as follows (in thousands):
For the Year Ended December 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
Current income tax expense (benefit)
Federal $ 17,054 $ (14,485) $ (17,755)
State 4,545 3,623 2,806
Deferred income tax expense
Federal 22,872 27,158 20,331
State 13,358 9,109 315
--------- ---------- ----------
Total income tax expense $ 57,829 $ 25,405 $ 5,697
========== ========== ==========
A reconciliation from the statutory income tax rate (35%) to the effective
income tax rate (income tax expense divided by income (loss) before income
taxes) follows (in thousands):
For The Year Ended December 31,
------------------------------------
1996 1995 1994
--------- --------- -----------
Income tax expense (benefit)
at the statutory rate $ 41,072 $ 8,299 $ (4,921)
Effect of
State income tax expense,
net of federal income tax effect 11,637 8,276 2,029
Amortization of intangibles 7,556 8,736 8,796
Other, net (2,436) 94 (207)
--------- --------- -----------
Income tax expense $ 57,829 $ 25,405 $ 5,697
========= ========= ===========
Effective income tax rate 49.3% 107.1% (40.5)%
========= ========= ===========
The sources of the differences that gave rise to the deferred income tax
assets and liabilities as of December 31, 1996 and 1995, along with the income
tax effect of each, were as follows (in thousands):
1996 Deferred 1995 Deferred
Income Taxes Income Taxes
-------------------------- --------------
Noncurrent Noncurrent
Current Assets Assets
Assets (Liabilities) (Liabilities)
-------- --------------- --------------
Property, plant and equipment $ -- $ (108,832) $ (60,061)
Postretirement and other benefits -- 1,341 2,986
Accrued liabilities 9,384 -- 7,972
Intangibles -- (40,467) (43,625)
Operating loss carryforwards 2,951 40,758 9,405
Other, net -- 471 (10,540)
Less: Valuation allowance (5,305)
(3,873) (6,276)
========= ============= ==========
Total $ 8,462 $ (113,005) $ (99,168)
========= ============= ==========
<PAGE>
During 1996, the valuation allowance related to deferred income tax assets
increased $4,844,000. The increase was primarily attributable to the ICN
Acquisition. Federal operating loss carryforwards generated prior to the
acquisition date by markets acquired in the ICN Acquisition totaled $31,754,000
with expiration dates from 2004 through 2011.
As of December 31, 1996, the Company had available tax benefits associated
with federal and state operating loss carryforwards of $31,261,000 and
$12,448,000 respectively, which expire in varying amounts annually from 1997
through 2011.
10. Commitments and Contingencies
Litigation, Claims and Assessments
On or about March 29, 1996, a lawsuit was brought in the Chancery Court of
Washington County, Jonesborough, Tennessee (the "Tennessee Action"), on behalf
of all customers in the Company's Tennessee markets regarding customer
notification of the Company's practice with respect to billing for fractional
minutes of service. In April 1996, the original complaint was amended to enlarge
the class of plaintiffs to include all customers in all of the Company's service
areas. In late April 1996, the Tennessee Action was removed to the United States
District Court for the Eastern District of Tennessee, Northern Division. The
Company moved to dismiss the action and the plaintiff filed a motion to remand.
On July 16, 1996, the Tennessee District Court granted the plaintiff's motion to
remand and returned the case to the Chancery Court of Washington County. The
Company's Motion to Dismiss is currently pending before the Chancery Court.
On or about May 28, 1996, a lawsuit was brought in the Common Pleas Court
of Erie County, Ohio (the "Ohio Action"), on behalf of all customers in all of
the Company's service areas regarding notification of the Company's practice
with respect to billing for fractional minutes of service. On June 25, 1996, the
Ohio Action was removed to the United States District Court for the Northern
District of Ohio, Western Division. Thereafter, the Company filed a Motion to
Dismiss Or In The Alternative, Stay pending resolution of the Tennessee Action
and the plaintiff filed a Motion to Remand. By Order dated December 17, 1996,
the Ohio District Court granted plaintiff's motion to remand and the Ohio Action
was returned to the Common Pleas Court. Plaintiff has recently commenced
discovery by serving a document request and interrogatories. On January 17,
1997, the Company filed a Motion to Stay This Action And For A Protective Order
seeking to stay the Ohio Action, including all discovery, pending resolution of
the Tennessee Action. The basis for the Motion to Stay, which is currently
pending before the Common Pleas Court, is the duplicity of the Ohio Action and
the Tennessee Action.
The Company believes that both lawsuits are without merit; however, the
ultimate outcome of these matters and the potential effect on the financial
condition and results of operations of the Company cannot be determined at this
time.
The Company is party to various other legal proceedings in the ordinary
course of business. Although the ultimate resolution of these various
proceedings cannot be ascertained, management of the Company does not believe
that such proceedings, individually or in the aggregate, will have a material
adverse effect on the results of operations or financial position of the
Company.
In addition, various suits arising in the normal course of business are
pending against the cellular system entities in which the Company does not have
a controlling interest. Because the outcome of such legal proceedings has not
been determined, no provision for any liability that may result upon
adjudication of such litigation has been made in the consolidated financial
statements of the cellular system entity or the Company. In view of the
uncertainty regarding each litigation, there can be no assurance that the
outcome of such litigation will not have a material adverse effect on the
Company's investment in these entities or in its equity in the net income of
each entity.
<PAGE>
Operating Leases
Minimum rental commitments as of December 31, 1996, for all non-cancelable
operating leases, consisting principally of leases for office space, real estate
and tower space, were as follows (in thousands):
1997 $ 18,275
1998 17,291
1999 15,885
2000 14,912
2001 13,755
Thereafter 79,201
----------
Total $ 159,319
==========
Rental expense aggregated $20,259,000, $17,605,000 and $12,344,000 in 1996,
1995 and 1994, respectively. The amount of rental commitments applicable to
subleases, contingent rentals and executory costs is not significant.
11. Related Party Transactions
Management believes that the pre-spinoff consolidated financial statements
of the Company, presented herein, reasonably reflect the historical
relationships with Sprint and its affiliates and reflect all of the Company's
costs of doing business. Management believes that there would not have been any
material difference from the amounts presented in the historical financial
statements had the Company operated on a stand-alone basis.
Prior to the spinoff, the Company reimbursed Sprint for certain data
processing services, other data-related costs and certain management and
administrative support services that were incurred for the Company's benefit.
Total charges for such services aggregated $22,754,000 and $16,287,000 in 1995
and 1994, respectively. The terms of the arrangements determining such charges
by Sprint were reasonable, although there was no assurance that these terms were
comparable to those that would have been obtained from unaffiliated third
parties or on a stand-alone basis. Subsequent to the spinoff, Sprint continued
to provide certain administrative support services to assure an orderly
transition. Total charges reimbursed to Sprint aggregated $15,820,000 in 1996.
Charges for long distance telecommunications and operator services provided
by interexchange carriers to cellular customers are based on terms and
conditions negotiated with Sprint. In early 1996, a new agreement with a
three-year term was entered into between the Company and Sprint for long
distance service on an exclusive basis (provided that Sprint is able to provide
such services at competitive terms and conditions) which replaced the existing
long distance service agreement on terms that are believed to be comparable to
those that could be obtained from unaffiliated third parties.
The Company received local telephone, interconnection and toll services
from subsidiaries of Sprint pursuant to agreements between the subsidiaries and
the Company. Prior to the spinoff, related payments amounted to $43,601,000 and
$27,766,000 in 1995 and 1994, respectively. Payables to affiliates totaled
$2,705,000 at December 31, 1995.
Prior to the spinoff, the Company borrowed from Sprint to the extent cash
requirements were not met through cash flows from operations and capital
contributions from minority partners. The Company entered into cash advance and
borrowing transactions with Sprint and certain affiliates as described in Note
6. Interest expense on advances from and notes to affiliates was $23,463,000,
$127,240,000 and $98,437,000 in 1996, 1995 and 1994, respectively.
<PAGE>
Tax Sharing Agreement
In connection with the spinoff, Sprint and the Company entered into a Tax
Sharing and Indemnification Agreement (the "Tax Sharing Agreement") that
allocated the responsibility for taxes between Sprint and the Company. The Tax
Sharing Agreement provides that the Company will indemnify Sprint for any tax
liability relating to the Company for all periods. The Company was included in
the consolidated federal income tax returns of Sprint up to the time of the
spinoff. The Tax Sharing Agreement generally provides that the Company's share
of the tax liability reflected on such consolidated federal income tax returns,
as originally filed and amended, is equal to the amount of tax which the Company
would have incurred on its separate taxable income computed as if it filed a
separate tax return. It also provides that if the Company incurred a net
operating loss in any year in which it joined with Sprint in filing a
consolidated federal income tax return, as originally filed and amended, Sprint
would pay an amount equal to the reduction in its tax liability attributable to
such loss. Similar provisions apply in the case of state tax returns filed on a
consolidated basis.
In addition, the Tax Sharing Agreement generally provides that Sprint
agrees to indemnify the Company against liability for any taxes relating to
Sprint or its affiliates, other than the Company, for periods up to and
including the spinoff date or for periods after that date if imposed on the
Company by any taxing authority.
Tax Assurance Agreement
In connection with the spinoff, Sprint and the Company entered into an
agreement (the "Tax Assurance Agreement") pursuant to which certain limitations
designed to preserve the tax-free status of the spinoff are imposed on the
Company for a period of two years after the completion of the spinoff. Such
limitations may prohibit the Company from exchanging, contributing or otherwise
transferring or disposing of cellular properties. In addition, such limitations
may limit the aggregate amount of equity securities the Company could issue or
buy back following the spinoff, including the issuance of common stock, in
certain circumstances, by the Company. If the Company were to breach its
obligations under the Tax Assurance Agreement, and as a direct result the
spinoff is not treated as a tax-free distribution under Section 355 of the
Internal Revenue Code of 1986, the Company would be required to indemnify Sprint
pursuant to the Tax Sharing Agreement for any taxes assessed with respect to the
spinoff.
<PAGE>
<TABLE>
QUARTERLY FINANCIAL DATA (1)
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
1996 1995 1996 1995 1996 1995 1996 1995
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues
Cellular Service
Revenues $230,754 $168,078 $263,560 $196,478 $271,819 $207,472 $286,593 $217,431
Equipment Sales 8,941 11,397 10,613 12,417 9,857 10,311 13,735 10,831
-------- -------- -------- -------- --------- -------- -------- --------
Total Operating
Revenues $239,695 $179,475 $274,173 $208,895 $281,676 $217,783 $300,328 $228,262
======== ======== ======== ======== ========= ======== ======== ========
Operating Expenses
Cost of Service $ 22,139 $ 14,820 $ 22,205 $ 18,181 $ 24,148 $ 17,488 $ 31,253 $ 17,734
Cost of Equipment Sales 20,609 22,311 25,355 28,298 25,046 27,324 33,317 31,508
Selling, General,
Administrative and
Other Expenses 117,527 85,274 123,675 94,707 132,055 100,165 151,857 116,486
Depreciation and
Amortization 32,997 26,784 35,157 27,502 36,833 29,380 41,854 31,065
-------- -------- -------- -------- --------- -------- -------- --------
Total Operating
Expenses $193,272 $149,189 $206,392 $168,688 $218,082 $174,357 $258,281 $196,793
======== ======== ======== ======== ========= ======== ======== ========
Net Income (Loss) $ 6,980 $ (5,919)$ 24,284 $ (758)$ 22,887 $ 4,547 $ 5,369 $ 435
======== ======== ======== ======== ========= ======== ======== ========
Net Income (Loss)
Per Share
(in Dollars) (2) $ 0.06 $ (0.05)$ 0.21 $ (0.01)$ 0.20 $ 0.04 $ 0.04 $ 0.00
======== ======== ======== ======== ========= ======== ======== ========
- ----------
<FN>
(1) Certain amounts have been reclassified to conform to the presentation used
in 1996.
(2) In 1995 and prior years, Net Income (Loss) per Share has been calculated
based upon the number of Sprint Corporation weighted average shares outstanding
for each respective period, adjusted for a conversion ratio of one share of the
Company's Common Stock to three shares of Sprint common stock.
</FN>
</TABLE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information regarding directors of the Company is set forth under the
heading "Election of Directors" in the Company's definitive proxy statement for
the annual meeting of shareowners to be held on May 6, 1997 (the "Proxy
Statement"), which was filed with the Securities and Exchange Commission on
March 28, 1997, and is incorporated herein by reference. Information regarding
executive officers of the Company is included under Item 4a. of Part I hereof.
Item 11. Executive Compensation.
Information required by this Item is set forth under the heading "Executive
Compensation" in the Proxy Statement and, except for information under the
headings "Executive Compensation-Organization, Compensation and Nominating
Committee Report on Executive Compensation" and "Executive
Compensation-Performance Graph" contained therein, is incorporated by reference
herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information required by this Item is set forth under the heading "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement
and is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions.
Background of Spinoff and Relationship With Sprint
On June 23, 1995, Sprint Spectrum LP was awarded PCS licenses in 29 out of
51 MTAs auctioned by the FCC. Four additional MTAs are held by entities
affiliated with Sprint Spectrum LP or owned by affiliates of Sprint Spectrum LP.
FCC regulations prohibit a PCS licensee from also owning cellular licenses in
overlapping markets, effectively requiring Sprint to divest itself of the
cellular licenses in an MTA covering 10% or more of the population of such MTA.
As a result, the Sprint Board of Directors reviewed several alternatives to
eliminate conflicted cellular markets, including the sale of conflicting
holdings or the sale of more extensive holdings and a tax-free spinoff of the
Company to the holders of Sprint common stock. Because of concerns regarding tax
consequences of a sale of interests in individual markets and the effect that
such sales might have on the ability of the Company to market its services and
products, the Sprint Board of Directors approved the spinoff of the Company.
On March 7, 1996, the date of the spinoff, the Company paid $1.4 billion of
intercompany debt owed by the Company to Sprint and its subsidiaries and Sprint
and its subsidiaries contributed to the equity capital of the Company any debt
then owed to them by the Company in excess of the $1.4 billion of intercompany
debt that was repaid. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources." After the
spinoff, the Company began operating as an independent company. There is no
agreement restricting competition between the Company and Sprint and Sprint
Spectrum LP and it is expected that the Company and Sprint will become
competitors in wireless communications in several markets, including those in
which Sprint's PCS licenses overlap with the cellular licenses of the Company.
<PAGE>
Distribution Agreement
In connection with the spinoff, Sprint and the Company entered into an
agreement (the "Distribution Agreement") governing the terms and conditions of
the spinoff and certain aspects of the relationship between Sprint and the
Company after the spinoff. The following paragraphs describe the major
provisions of the Distribution Agreement and related agreements as well as
relationships between the two companies after the spinoff.
Allocation of Pre-Spinoff Contingent Liabilities
The Company and Sprint agreed to mutual indemnification against liabilities
arising out of business activities of the other party prior to the spinoff. In
general, the Company will indemnify Sprint for any liabilities arising out of
cellular operations prior to the spinoff, and Sprint will indemnify the Company
for any liabilities arising from non-cellular operations prior to the spinoff.
Sprint and the Company agreed in the Distribution Agreement to equitably
allocate liabilities either jointly attributable to the business activities of
Sprint and the Company or not clearly attributable to either. The Distribution
Agreement provides more specific rules for allocating certain classes of
liabilities between Sprint and the Company. For instance, the Distribution
Agreement allocates employment-related claims to the Company or Sprint, based on
which party employed the claimant on the date the occurrence giving rise to the
claim arose. Also, the Distribution Agreement provides that (i) any claims based
on health effects of electro-magnetic radiation from the use of cellular
telephone service will be allocated entirely to the Company, and (ii) any claims
based on alleged misstatements or omissions in the disclosure documents relating
to the spinoff related public offering of the Company's senior notes will be
allocated to the Company, except with respect to those portions of the
disclosure documents for which Sprint provided information.
Release of Spinoff Related Liabilities
Both the Distribution Agreement and the Company's Amended and Restated
Certificate of Incorporation, as amended, provide that the Company may not bring
any claim against Sprint, its affiliates, or any officer, director, or other
affiliate of Sprint (including those who are officers or directors of the
Company), for breach of any duty that occurred prior to or in connection with
the spinoff, including but not limited to, the duty of loyalty or fair dealing,
on account of a diversion of a corporate business opportunity to Sprint or its
affiliates, including Sprint Spectrum LP.
Employee Benefits
The Distribution Agreement provided for the treatment of Sprint employee
benefits subsequent to the spinoff, as they related to employees who remained
employed by Sprint or its subsidiaries after the spinoff and employees who
remained employed by the Company after the spinoff. The Distribution Agreement
also provided for the adjustment of outstanding stock options. In the case of
grants made under Sprint's stock option plans and employee stock purchase plans
held by individuals who remained employed by Sprint, the number of shares
covered by a grant under such plans was increased, and the exercise or purchase
price per share was decreased, pursuant to a formula designed to cause the
economic value of the grants to remain the same after the spinoff, giving effect
to the diminution in value of Sprint common stock. Employees who remained
employed by the Company after the spinoff and who had grants under a Sprint
stock option plan or who elected to do so under Sprint's employee stock purchase
plan received replacement grants to purchase the Company's Common Stock and
their Sprint grants were canceled. In addition, the Distribution Agreement
provides that with respect to Sprint's retirement pension plan, all employees
who remained employed by the Company after the spinoff will continue to earn
service credit under such plan, but only for purposes of vesting.
<PAGE>
Intellectual Property
The Distribution Agreement provided for Sprint to license certain
intellectual property rights to the Company prior to the spinoff including
proprietary information and trademarks and trade names, as well as the use of
proprietary information by employees transferred to the Company in connection
with the spinoff. Under the Distribution Agreement, the Company was permitted to
use the Sprint brand name for a limited period, after which the Company was
prohibited from using the Sprint brand, including logos, marks, or other
insignia or words suggestive of affiliation with Sprint.
Transitional Administrative Services
The Distribution Agreement provides that Sprint will provide certain
administrative services to the Company for a period of up to two years after the
spinoff date. The Company has agreed to the manner of compensating Sprint for
these services on a service-by-service basis, but in general the parties have
attempted to make the amount of compensation approximate Sprint's variable cost.
Tax Sharing Agreement
In connection with the spinoff, Sprint and the Company entered into a Tax
Sharing Agreement (the "Tax Sharing Agreement") that allocated the
responsibility for taxes between Sprint and the Company. The Tax Sharing
Agreement provides that the Company will indemnify Sprint for any tax liability
relating to the Company for all periods. The Company was included in the
consolidated federal income tax returns of Sprint up to the time of the spinoff.
The Tax Sharing Agreement generally provides that the Company's share of the tax
liability reflected on such consolidated federal income tax returns, as
originally filed and amended, is equal to the amount of tax which the Company
would have incurred on its separate taxable income computed as if it filed a
separate tax return. It also provides that if the Company incurred a net
operating loss in any year in which it joined with Sprint in filing a
consolidated federal income tax return, as originally filed and amended, Sprint
would pay an amount equal to the reduction in its tax liability attributable to
such loss. Similar provisions apply in the case of state tax returns filed on a
consolidated basis.
In addition, the Tax Sharing Agreement generally provides that Sprint
agrees to indemnify the Company against liability for any taxes relating to
Sprint or its affiliates, other than the Company, for periods up to and
including the spinoff date or for periods after that date if imposed on the
Company by any taxing authority.
Tax Assurance Agreement
In connection with the spinoff, Sprint and the Company entered into an
agreement (the "Tax Assurance Agreement") pursuant to which certain limitations
designed to preserve the tax-free status of the spinoff are imposed on the
Company for a period of two years after the completion of the spinoff. Such
limitations may prohibit the Company from exchanging, contributing or otherwise
transferring or disposing of cellular properties. In addition, such limitations
may limit the aggregate amount of equity securities the Company could issue or
buy back following the spinoff, including the issuance of Common Stock, in
certain circumstances, by the Company. If the Company were to breach its
obligations under the Tax Assurance Agreement, and as a direct result the
spinoff is not treated as a tax-free distribution under Section 355 of the
Internal Revenue Code of 1986, the Company would be required to indemnify Sprint
pursuant to the Tax Sharing Agreement for any taxes assessed with respect to the
spinoff.
<PAGE>
Operational Relationship
Immediately prior to the spinoff, the Company and Sprint entered into a new
agreement with a three-year term for long distance services on an exclusive
basis (except where Sprint is unable to provide such services) which contains a
provision that terms and conditions of the agreement will be reviewed and
changed as necessary every six months to ensure that they are competitive with
those generally available from third parties. Sprint's Local Telecommunications
Division provides certain regulated long distance service to the Company in
areas served by Sprint's local telephone companies pursuant to an agreement
which was negotiated at arms-length prior to the acquisition of the Company by
Sprint. Sprint's Local Telecommunications Division provides these services at
rates tariffed for such services by state regulatory authorities.
Sprint also provides the Company with network monitoring and bill printing
and mailing services under existing agreements. These administrative services
are in addition to the administrative services described above (see
"Transitional Administrative Services"), and the Company expects to continue to
obtain these services from Sprint for the indefinite future. In addition, the
Company leases from Sprint various equipment location sites that the Company
expects to keep in place.
The amounts paid pursuant to these and other operational agreements and
funding arrangements during each of the last three fiscal years are set forth in
Note 11 of Notes to Consolidated Financial Statements.
Certain Other Related Transactions
Information required by this Item relating to directors and executive
officers of the Company is set forth under the heading "Related Transactions" in
the Proxy Statement and is incorporated by reference herein.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) Financial Exhibits, Financial Statement Schedule and Exhibits:
1. Financial Statements:
360 Communications Company and Subsidiaries
- Report of Independent Auditors
- Reports of Other Independent Accountants
- Consolidated Balance Sheets as of December 31, 1996 and
1995
- Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
- Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
- Consolidated Statements of Shareowners' Equity for the
years ended December 31, 1996, 1995 and 1994
- Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
The following schedule, for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission and
is thereby required, is filed herewith:
Schedule II 360 Communications Company and Subsidiaries
- Consolidated Valuation and Qualifying Accounts for the
years ended December 31, 1996, 1995 and 1994
All other schedules are omitted because they are not
applicable, immaterial or the required information is included in the
consolidated financial statements or notes thereto.
(b) Reports on Form 8-K:
On Current Report on Form 8-K, dated October 15, 1996, under "Item 5.
Other Events," the Company filed a press release announcing its consolidated
operating results for the third quarter of 1996.
On Current Report on Form 8-K, dated November 1, 1996, under "Item 2.
Acquisition or Disposition of Assets" and "Item 7. Financial Statements, Pro
Forma Financial Information and Exhibits," the Company reported on the
completion of the ICN Acquisition and filed financial statements, pro forma
information and exhibits relating thereto.
<PAGE>
<TABLE>
360 COMMUNICATIONS COMPANY AND SUBSIDIARIES
SCHEDULE II-CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
(Thousands of Dollars)
<CAPTION>
Additions
-----------------------
Balance Charged to Balance
Beginning Charged to Other Other End of
of Year Income Accounts Deductions Year
--------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
1996
Allowance for uncollectibles $ 2,370 $ 23,952 $ 845 $(21,437)(1) $ 5,730
Valuation allowance-
deferred income tax assets $ 5,305 $ (276) $ 5,120 $ - $ 10,149
1995
Allowance for uncollectibles $ 2,043 $ 16,475 $ 10 $(16,158)(1) $ 2,370
Valuation allowance-
deferred income tax assets $ 2,850 $ 2,455 $ - $ - $ 5,305
1994
Allowance for uncollectibles $ 1,637 $ 12,460 $ 323 $(12,377)(1) $ 2,043
Valuation allowance-
deferred income tax assets $ 1,853 $ 997 $ - $ - $ 2,850
- ----------
<FN>
(1) Accounts written off, net of recoveries.
</FN>
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
360 COMMUNICATIONS COMPANY
By: /s/ Dennis E. Foster
Dennis E. Foster
President and Chief Executive Officer
Date: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Dennis E. Foster President and Chief Executive March 31, 1997
- ------------------------------ Officer and Director
Dennis E. Foster (Principal Executive Officer)
/s/ Michael J. Small Executive Vice President and March 31, 1997
- ------------------------------ Chief Financial Officer
Michael J. Small (Principal Financial Officer)
/s/ Gary L. Burge Senior Vice President - Finance March 31, 1997
- ------------------------------ (Principal Accounting Officer)
Gary L. Burge
/s/ Frank E. Reed Chairman of the Board of March 31, 1997
- ------------------------------ Directors
Frank E. Reed
/s/ Lester Crown Director March 31, 1997
- ------------------------------
Lester Crown
/s/ Michael Hooker Director March 31, 1997
- ------------------------------
Michael Hooker
/s/ Robert E. R. Huntley Director March 31, 1997
- ------------------------------
Robert E. R. Huntley
/s/ Valerie B. Jarrett Director March 31, 1997
- ------------------------------
Valerie B. Jarrett
/s/ Alice M. Peterson Director March 31, 1997
- ------------------------------
Alice M. Peterson
/s/ Charles H. Price, II Director March 31, 1997
- ------------------------------
Charles H. Price, II
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- ------ -----------------------
2.1 Distribution Agreement dated as of March 7, 1996, by and among Sprint
Corporation, 360 Communications Company (formerly Sprint Cellular
Company) and Centel Corporation. (Filed as Exhibit 2 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995; File No. 1-14108, and incorporated herein by reference.)
2.2 Exchange and Merger Agreement, dated as of May 31, 1996, by and among
Independent Cellular Network Partners, James A. Dwyer, Jr., David
Winstel, CC Industries, Inc., Ohio Cellular RSA, L.P., Ohio RSA
Corporation, Quality Cellular Communications of Ohio, Inc., Cellular
Plus, L.P., C-Plus, Inc., Quality Cellular Plus Communications, Inc.,
Henry Crown and Company (Not Incorporated) and 360 Communications
Company. (Filed as Exhibit 2.2 to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996, File No.
1-14108, and incorporated herein by reference.)
2.3 First Amendment to Exchange and Merger Agreement, dated as of
November 1, 1996, by and among Independent Cellular Network Partners,
James A. Dwyer, Jr., David Winstel, CC Industries, Inc., Ohio
Cellular RSA, L.P., Ohio RSA Corporation, Quality Cellular
Communications of Ohio, Inc., Cellular Plus, L.P., C-Plus, Inc.,
Quality Cellular Plus Communications, Inc., Henry Crown and Company
(Not Incorporated) and 360 Communications Company. (Filed as Exhibit
2.3 to the Company's Current Report on Form 8-K dated November 1,
1996, File No. 1-14108, and incorporated herein by reference.)
3.1 Amended and Restated Certificate of Incorporation of 360
Communications Company, as amended as of March 4, 1996. (Filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995; File No. 1-14108, and
incorporated herein by reference.)
3.2 Amended and Restated Bylaws of 360 Communications Company. (Filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, File No. 1-14108, and
incorporated herein by reference.)
3.3 Certificate of Designation of First Series Junior Participating
Preferred Stock of 360 Communications Company. (Filed as Exhibit 3.3
to Amendment No. 4 to Registration Statement on Form S-1 (No.
33-99756), and incorporated herein by reference.)
4.1 360 Communications Company's 7 1/8% Senior Note Due 2003 and 7 1/2%
Senior Note Due 2006. (Filed as Exhibit 4.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, File
No. 1-14108, and incorporated herein by reference.)
4.2 Indenture dated as of March 7, 1996 between 360 Communications
Company and Citibank, N.A., as Trustee. (Filed as Exhibit 4.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-14108, and incorporated herein by
reference.)
4.3 Form of 360 Communications Company Common Stock, $0.01 par value,
certificate. (Filed as Exhibit 4.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, File No.
1-14108, and incorporated herein by reference.)
4.4 Rights Agreement dated as of March 5, 1996 between 360 Communications
Company and Chemical Bank. (Filed as Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995, File No. 1-14108, and incorporated herein by reference.)
4.5 Form of 360 Communications Company's Subordinated Non-Negotiable
Promissory Note (included in Exhibit 2.2 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1996,
File No. 1-14108, and incorporated herein by reference).
4.6 Indenture dated as of March 1, 1997 from 360 Communications Company
to Citibank, N.A., as Trustee. (Filed as Exhibit 4.6 to the Company's
Current Report on Form 8-K dated March 17, 1997, File No. 1-14108,
and incorporated herein by reference.)
4.7 360 Communications Company's 7.60% Senior Note Due 2009. (Filed as
Exhibit 4.7 to the Company's Current Report on Form 8-K dated March
17, 1997, File No. 1-14108, and incorporated herein by reference.)
10.1 Tax Sharing Agreement dated as of March 7, 1996 among Sprint
Corporation and 360 Communications Company. (Filed as Exhibit 10.1 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-14108, and incorporated herein by
reference.)
10.2 Tax Assurance Agreement dated as of March 7, 1996, by and between
Sprint Corporation and 360 Communications Company. (Filed as Exhibit
10.2 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, File No. 1-14108, and incorporated herein by
reference.)
10.3 Employment Agreement between 360 Communications Company and Dennis E.
Foster.*
10.4 360 Communications Company Replacement Stock Option Plan. (Filed as
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, File No. 1-14108, and
incorporated herein by reference.)*
10.5 360 Communications Company 1996 Equity Incentive Plan. (Filed as
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, File No. 1-14108, and
incorporated herein by reference.)*
10.6 360 Communications Company Director Equity and Deferred Compensation
Plan. (Filed as Exhibit 10.6 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, File No. 1-14108,
and incorporated herein by reference.)*
10.7 Form of Indemnification Agreement between 360 Communications Company
and its directors and officers. (Filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-14108, and incorporated herein by
reference.)*
10.9 Credit Agreement dated as of March 6, 1996 among 360 Communications
Company, the initial lenders named therein, Citibank, N.A., as
Administrative Agent, Chemical Bank, as Syndication Agent, Toronto
Dominion (Texas), Inc., as Documentation Agent, and Bank of America
Illinois, as Co-Syndication Agent. (Filed as Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-14108, and incorporated herein by
reference.)
10.10 Amended and Restated Credit Agreement dated as of October 31, 1996
among 360 Communications Company, the initial lenders named therein,
Citibank, N.A., as Administrative Agent, The Chase Manhattan Bank, as
Syndication Agent, Toronto Dominion (Texas), Inc., as Documentation
Agent, and Bank of America Illinois, as Syndication Agent.
12 Statement regarding computation of Ratio of Earnings to Fixed
Charges.
21 Subsidiaries of 360 Communications Company.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Ernst & Young LLP, regarding the Kansas City SMSA Limited
Partnership.
23.3 Consent of Arthur Andersen LLP, regarding GTE Mobilnet of South Texas
Limited Partnership.
23.4 Consent of Arthur Andersen LLP, regarding Chicago SMSA Limited
Partnership.
23.5 Consent of Coopers & Lybrand L.L.P., regarding New York SMSA Limited
Partnership.
23.6 Consent of Coopers & Lybrand L.L.P., regarding Orlando SMSA Limited
Partnership.
27 Financial Data Schedule.
- ----------
* Indicates management contract or compensatory plan or arrangement.
Employment Agreement for Dennis E. Foster
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as of
this ninth day of March 1996 (hereinafter referred to as the "Effective Date"),
by and between 360 Communications Company (hereinafter referred to as the
"Company"), a Delaware corporation having its principal offices at 8725 Higgins
Road, Chicago, Illinois, and Dennis E. Foster (hereinafter referred to as the
"Executive").
WHEREAS, the Executive is presently employed by the Company in the
capacity of President and Chief Executive Officer; and
WHEREAS, the Executive possesses considerable experience and an
intimate knowledge of the business and affairs of the Company and its industry,
its policies, methods, personnel, and operations; and
WHEREAS, the Company recognizes that the Executive has demonstrated
unique qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment
of the Executive in the above stated capacity, and the Executive is desirous of
having such assurance;
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements of the parties set forth in this Agreement, and of
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
Section 1. Term of Employment
The Company hereby agrees to employ the Executive and the Executive
hereby agrees to continue to serve the Company in accordance with the terms and
conditions set forth herein, for an initial term of five (5) years, commencing
as of the Effective Date; subject, however, to earlier termination as expressly
provided in Sections 6 and 7.
The initial five (5) year term of employment automatically shall be
extended for an additional one (1) year term at the end of the initial five (5)
year term, and then again for an additional one (1) year term after each
successive year thereafter. However, either party may terminate this Agreement
at the end of the initial five (5) year term, or at the end of any successive
one-year term thereafter, by giving the other party written notice of intent not
to renew, delivered at least ninety (90) calendar days prior to the end of such
initial or successive term.
In the event such notice of intent not to renew is properly delivered
by either party, this Agreement, along with all corresponding rights, duties,
and covenants, shall automatically expire at the end of the initial or
successive term then in progress, which will be deemed a termination
-1-
<PAGE>
of employment effective as of the last day of such initial or successive term.
Upon the effective date of such termination, the Company shall pay to the
Executive, in full satisfaction of the amounts due hereunder, (i) his full Base
Salary, at the rate then in effect as provided in Paragraph 4.1, through the
effective date of termination, (ii) a prorated incentive payment for the year in
which termination occurs in an amount equal to the full annual incentive payment
that would be made for such year pursuant to Section 4.2 assuming the
achievement of preestablished performance goals at the target level, multiplied
by a fraction, the numerator of which is the number of calendar months (counting
a partial calendar month as a full month) that have elapsed (in the calendar
year in which termination occurs) prior to the Executive's termination of
employment, and the denominator of which is twelve, and (iii) all other
compensation and benefits to which the Executive has a vested right at that
time.
Notwithstanding the foregoing, if at any time during the term of this
Agreement a "Change in Control" of the Company occurs (as defined in Paragraph
7.4), then this Agreement shall become immediately irrevocable for the greater
of (i) a period of two (2) years from the date of the Change in Control, or (ii)
the otherwise remaining term of this Agreement.
Section 2. Position and Responsibilities
During the term of this Agreement the Executive shall initially serve
as President and Chief Executive Officer of the Company and, if so elected, as a
member of the Company's Board of Directors (the "Board" or "Board of
Directors"). During the term of this Agreement, the Executive shall be, and hold
such offices and titles as are appropriate to, the highest ranking officer of
the Company who is also an employee of the Company, and shall have full
authority and responsibility, subject to the control and direction of the Board
of Directors, for the overall strategic policies, management, and leadership of
the Company.
Section 3. Standard of Care
During the term of this Agreement, the Executive agrees to devote
substantially his full business time, attention, and energies to the Company's
business and shall not be engaged in any other business activity, if such
business activity is pursued for gain, profit, or other pecuniary advantage.
(Notwithstanding the preceding sentence, it is understood that the Executive has
interests in race horses, and the maintenance of such interests and the pursuit
of business activities related thereto shall not be deemed a violation of the
preceding sentence, provided it does not interfere with the performance of his
duties hereunder.) The Executive may serve as a director of such civic,
charitable and educational boards as do not interfere with the performance of
his duties hereunder. The Executive may serve as a director of other businesses
so long as such service is not injurious to the Company and is preapproved by
the Board of Directors. The Executive covenants, warrants, and represents that
he shall
(i) Devote his full and best efforts to the fulfillment of his
employment obligations hereunder;
-2-
<PAGE>
(ii) Exercise the highest degree of loyalty to the Company and the
highest standards of conduct in the performance of his duties;
and
(iii) Do nothing which intentionally harms, in any way, the business
or reputation of the Company.
This Section 3 shall not be construed as preventing the Executive from
investing assets in such form or manner as will not require his services on the
board of directors or in the daily operations of the affairs of the entities in
which such investments are made.
Section 4. Compensation
As remuneration for all services to be rendered by the Executive during
the term of this Agreement, and as consideration for complying with the
covenants herein, the Company shall pay and provide to the Executive the
following:
4.1. Base Salary. The Company shall pay the Executive a Base Salary in
an amount which shall be established from time to time by the Board of Directors
of the Company or the Compensation Committee of the Board ("Compensation
Committee") provided, however, that such Base Salary shall not be at a rate of
less than four hundred thousand dollars ($400,000) per year. This Base Salary
shall be paid to the Executive in installments throughout the year, consistent
with the normal payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually during the
term of this Agreement to ascertain whether, in the judgment of the Board or the
Compensation Committee of the Board or their respective designees, such Base
Salary should be increased. If so increased, the Base Salary as stated above
shall, likewise, be increased for all purposes of this Agreement. Once so
increased, the Executive's rate of Base Salary shall not be decreased.
4.2. Annual Incentive. The Company shall provide the Executive the
opportunity to earn an annual incentive, payable in cash or such other form as
may be available to senior executives of the Company generally, at a level which
is commensurate with the then-current compensation philosophies of the Board or
the Compensation Committee. However, in no event shall the Executive's annual
target incentive opportunity be less than fifty percent (50%) of the Executive's
then-current annual rate of Base Salary. The performance goals on which the
annual incentive is based will be established and communicated at or prior to
the beginning of the corresponding incentive plan year. The goals shall be
established at levels that are thought to be reasonably ascertainable, though
not certain of attainment.
Nothing in this paragraph shall be construed as obligating the Company
to refrain from changing and/or amending the underlying annual incentive plan
prior to a Change in Control, so long as such changes are similarly applicable
to senior executives generally.
-3-
<PAGE>
4.3. Long-Term Incentives. The Company shall provide the Executive an
annual opportunity to earn a long-term incentive award at a level which is
commensurate with the then-current compensation philosophies of the Board or the
Compensation Committee, and commensurate with the opportunity appropriate for
his level of responsibility with the Company.
Nothing in this paragraph shall be construed as obligating the Company
to refrain from changing and/or amending the underlying long-term incentive plan
prior to a Change in Control, so long as such changes are similarly applicable
to senior executives generally.
The Executive's grant, as of the Effective Date, of twenty-five
thousand (25,000) shares of restricted common stock of the Company, and an
option to purchase twenty-one thousand (21,000) shares of the Company's common
stock constitutes the Executive's long-term incentive award for the first year
of this Agreement.
In addition, the Executive acknowledges the grant of 31,600 shares of
restricted common stock of the Company to replace the long term compensation
opportunities under Sprint Corporation programs, which were lost in connection
with the spinoff of the Company from Sprint Corporation.
4.4. Supplemental Retirement Benefit. The Company shall provide to the
Executive a supplemental retirement benefit, as described in this Paragraph 4.4.
On no less than an annual basis, and in any event by March 31 following each
calendar year end on which the Executive remains employed with the Company, the
Company shall credit the Executive with a "Supplemental Retirement Credit." The
amount of the Supplemental Retirement Credit shall be determined in accordance
with the provisions of Exhibit A and shall be credited to an account
("Supplemental Retirement Account") on the records of the Company. At the same
time, the Company shall deposit in a so-called "rabbi trust" (as described
below) an amount equal to the amount credited to the Supplemental Retirement
Account. The Supplemental Retirement Account shall be credited with earnings
through the date of payment or forfeiture at a rate designated in advance by the
Executive, from among at least four alternative rates designated by the Company.
The Executive shall be permitted to change his designation of earnings rates,
subject to such terms and conditions as the Company may impose; provided that
the Executive shall be permitted to change such designation at least once per
calendar quarter.
Unless sooner vested pursuant to Paragraph 6.4, the Executive's
Supplemental Retirement Account shall vest in the Executive one hundred percent
(100%) upon the Executive's reaching age sixty (60); prior to reaching age sixty
(60) the Executive shall be zero percent (0%) vested in such Retirement Account.
Any tax obligations (FICA or otherwise) arising from the crediting,
vesting, or payment of the Supplemental Retirement Account shall be the
responsibility of the Executive, except as may otherwise be provided in Section
7 (Change in Control).
-4-
<PAGE>
If the Executive's Supplemental Retirement Account does not vest, it
shall be forfeited upon the Executive's employment termination.
The Company's obligation to pay the Executive the amount in his
Supplemental Retirement Account shall be an unfunded, unsecured obligation of
the Company. However, the Company will establish a so-called "rabbi trust" as
described in Revenue Procedure 92-64 to which it will contribute amounts when
and as such amounts are credited to the Executive's Supplemental Retirement
Account as Supplemental Retirement Contributions.
In the event of a Change in Control or termination of the Executive's
employment for Good Reason or by the Company other than for Cause, the Company
shall, within 60 days thereafter, deposit in the "rabbi trust" any amount
required to make the value of the assets held in the "rabbi trust" equal the
value of the Executive's Supplemental Retirement Account, based on actual
compensation through the date of the Change in Control or termination of the
Executive's employment for Good Reason or by the Company other than for Cause,
as applicable.
Except as provided below, the payment of the vested balance in the
Supplemental Retirement Account will be made in five (5) substantially equal
annual installments, calculated as set forth in the following paragraph, with
the first payment being made within ninety (90) calendar days of the Executive's
termination of employment with the Company. Subsequent annual installments shall
be made on successive anniversary dates of the first payment.
The first payment will be in the amount of the entire vested balance in
the Supplemental Retirement Account, determined as of immediately prior to such
payment, multiplied by one-fifth. The second annual payment will be in the
amount of the balance in the Supplemental Retirement Account, determined as of
immediately prior to such payment, multiplied by one-fourth, with the third,
fourth, and fifth payments computed similarly using the respective ratios of
one-third, one-half, and one.
A written election may be made by the Executive any time (but more than
one (1) year prior to commencement of the payment) to elect to receive benefits
in any other form of cash payment including, but not limited to, a lump sum.
Notwithstanding the foregoing, the Company reserves the right to make payment of
all or any portion of the Executive's vested Supplemental Retirement Account
balance in a lump sum in the event of the Executive's death or Disability.
This Supplemental Retirement Benefit is in full replacement and
cancellation of the Executive's benefits under the Sprint Key Management Benefit
Plan.
4.5. Employee Benefits. During the term of this Agreement, and subject
to the terms of each of the respective plans, the Executive shall be eligible
for all benefits for which other senior executives of the Company are eligible.
Benefits for which Executive shall be eligible include, but are not limited to,
the Company's Retirement Savings Plan, group term life coverage,
-5-
<PAGE>
comprehensive health and major medical coverage, and short-term and long-term
disability coverage.
The Executive shall be entitled to paid vacation in accordance with the
policy of the Company with regard to vacations of senior executive employees. In
applying this policy, the Executive shall be given credit for prior service with
Sprint Corporation.
The Executive shall likewise be eligible to participate in any
additional benefits available to senior executives of the Company as may be
established by the Company during the term of this Agreement.
4.6. Retiree Medical Benefits.
(i) In the event the Executive remains employed with the Company for
the full length of the initial five (5) year term of this Agreement or the
Executive has a termination of employment during such initial five (5) year term
due to the Executive's death, Disability, termination by the Executive for Good
Reason, or termination by the Company other than for Cause, then the Company
shall upon the Executive's termination of employment provide retiree medical
benefits described below.
(ii) Notwithstanding the foregoing, retiree medical benefits will not
be provided in the event the Executive's employment hereunder is terminated by
the Executive other than for Good Reason prior to the end of the initial five
(5) year term of this Agreement.
(iii) The retiree medical benefits will be provided by the Company to
the Executive and the spouse to whom he is married on the Effective Date, for
his life and the life of his spouse; provided that such benefits will not be
provided to such spouse (other than as may be required under Sections 601
through 607 of the Employee Retirement Income Security Act of 1974, as amended,
("ERISA")) following a divorce or legal separation.
(iv) Subject to the provisions of Paragraph 4.8 regarding reduction or
discontinuance of benefits during the 24-month period following a Change in
Control, such retiree medical benefits will be provided at the same coverage
levels and cost to the Executive and his spouse for the employee-paid portion of
the premium and co-payments as may from time to time made available to senior
executive employees who are actively employed (with a reduction in such amount
equal to the amount paid, or expected to be paid, by Medicare). Thus, other than
within the 24-month period following a Change in Control, the Executive's
benefits and those of his spouse may be changed (or even terminated) to the
extent that the active employees' plan is modified (or terminated).
(v) The Company reserves the right to provide the Executive a cash
equivalent benefit for the Executive to obtain independently the retiree medical
benefits to which he would otherwise be entitled pursuant to this Paragraph 4.6.
In such case, the Company in good faith shall make
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the determination of the amount of this cash equivalent on a basis consistent
with Financial Accounting Standards Board Statement No. 106. The Company's
determination shall be conclusive. Any tax consequences of providing the retiree
medical benefits described in this Paragraph 4.6 shall be the responsibility of
the Executive, except as may otherwise be provided in Section 7 (Change in
Control).
4.7. Perquisites. The Company shall provide to the Executive, at the
Company's cost, all perquisites which other senior executives of the Company are
entitled to receive.
4.8. Right to Change Plans. Nothing herein shall require the Company to
institute, maintain, or refrain from changing, amending, reducing, or
discontinuing any benefit plan, program, or perquisite available to senior
executives, so long as such changes are similarly applicable to senior executive
employees generally. Notwithstanding the foregoing, no such reduction or
discontinuance adopted after a Change in Control shall be made effective with
respect to the Executive within the 24-month period following a Change in
Control.
Section 5. Expenses
The Company shall pay, or reimburse the Executive, in accordance with
the Company's policies and procedures applicable to senior executives, for all
ordinary and necessary business expenses which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in appropriate professional, business,
and civic associations and societies where the Executive's participation is in
the best interests of the Company. Membership in professional, business, and
civic associations and societies selected by the Executive shall be deemed
appropriate unless disapproved by the Board or the Compensation Committee.
Section 6. Employment Terminations
6.1. Termination Due to Death. In the event of the death of the
Executive during the term of this Agreement, the Company shall pay to the
Executive's Beneficiary (i) the Executive's full Base Salary, at the rate then
in effect as provided in Paragraph 4.1, earned through the date of death, (ii) a
prorated incentive equal to the full annual incentive payment that would have
been made for the year in which death occurred, assuming the achievement of
preestablished performance goals at the target level, multiplied by a fraction,
the numerator of which is the number of calendar months (counting a partial
calendar month as a full month) that have elapsed (in the calendar year in which
the Executive's death occurs) prior to the Executive's death, and the
denominator of which is twelve, and (iii) all other compensation and benefits to
which the Executive had a vested right at his death. Such Base Salary, prorated
incentive salary and any other amounts to be paid as a single cash sum shall be
paid in a single lump sum within 30 days of the Executive's death (except as
otherwise required by ERISA or the terms of any applicable employee benefit
plan).
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Except where otherwise required by ERISA or the terms of an applicable
employee benefit plan, the Executive's Beneficiary with respect to each payment
shall be the person so designated by the Executive in writing provided to the
Company prior to his death. Subject to such exception, in the absence of such
written beneficiary designation, the Executive's Beneficiary shall be his
surviving spouse, or if he has no surviving spouse, his estate.
Such Base Salary, prorated incentive, and any other amounts to be paid
as a single cash sum shall be paid in a single lump sum within 30 days of the
Executive's death.
6.2. Termination Due to Disability. In the event the Executive becomes
Disabled during the term of this Agreement, the Company shall have the right to
terminate the Executive's employment and this Agreement. However, the Board or
Compensation Committee shall deliver written notice to the Executive of the
Company's intent to terminate for Disability at least thirty (30) calendar days
prior to the effective date of such termination.
A termination for Disability shall become effective upon the end of the
thirty (30) day notice period. Upon the effective date of the Executive's
termination of employment on account of Disability, the Company shall pay to the
Executive (i) his full Base Salary, at the rate then in effect as provided in
Paragraph 4.1, earned through the date of termination, (ii) a prorated incentive
equal to the full annual incentive payment that would have been made for the
year in which termination on account of Disability occurred, assuming
achievement of preestablished performance goals at the target level, multiplied
by a fraction, the numerator of which is the number of calendar months (counting
a partial calendar month as a full month) that have elapsed (in the calendar
year in which the Executive's termination of employment for Disability occurs)
prior to the Executive's termination of employment for Disability, and the
denominator of which is twelve, and (iii) all other compensation and benefits to
which the Executive has a vested right at his termination of employment due to
Disability. Such Base Salary, prorated incentive salary and any other amounts to
be paid as a single cash sum shall be paid in a single lump sum within 30 days
of the Executive's termination of employment for Disability (except as otherwise
required by ERISA or the terms of any applicable employee benefit plan).
The term "Disability" shall mean, for all purposes of this Agreement,
the incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of his usual
duties as contemplated by Section 2, such Disability to be determined by the
Board of Directors or the Compensation Committee upon receipt of and in reliance
on competent medical advice from one or more individuals, selected by the Board
or Compensation Committee, who are qualified to give such professional medical
advice. However, in all cases for the Board or Compensation Committee to make a
termination for Disability hereunder, such "Disability" must be of the type that
would, with the lapse of time, qualify for benefits under the Company's
long-term disability program.
It is expressly understood that the Disability of the Executive for a
period of ninety (90) calendar days or less in the aggregate during any period
of twelve (12) consecutive months, in the
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absence of any reasonable expectation that the Executive's Disability will exist
for more than such a period of time, shall not constitute a failure by the
Executive to perform his duties hereunder and shall not be deemed a breach or
default and the Executive shall receive full compensation for any such period of
Disability or for any other temporary illness or incapacity during the term of
this Agreement.
6.3. Voluntary Termination by the Executive Other than for Good Reason.
The Executive may terminate this Agreement at any time other than for Good
Reason by giving the Board of Directors of the Company written notice of intent
to terminate, delivered at least ninety (90) calendar days prior to the
effective date of such termination (such period not to include vacation). The
termination automatically shall become effective upon the expiration of the
ninety (90) calendar day notice period.
Upon the effective date of such termination by the Executive other than
for Good Reason, the Company shall pay to the Executive his full Base Salary, at
the rate then in effect as provided in Paragraph 4.1, earned through the
effective date of termination (but no incentive for that plan year), plus all
other compensation and benefits to which the Executive has a vested right at the
effective date of such termination.
6.4. Termination by the Company Other than for Cause. The Company may
terminate the Executive's employment other than for Cause, at any time, for any
reason other than death or Disability, by written notice to the Executive
specifying the effective date of termination. Subject to the payment of the
amounts described below in this Paragraph 6.4 and to the Change-in-Control
Severance Benefits provided in Section 7, this Agreement, along with all
corresponding rights, duties, and covenants, shall automatically expire upon
such termination of employment. A nonrenewal of this Agreement after the initial
five (5) year period or after any successive one (1) year term, as described in
Section 1, with proper notice shall not be deemed a termination under this
Paragraph 6.4 and shall not trigger the payment of amounts pursuant to this
Paragraph 6.4.
Upon the effective date of an involuntary termination other than for
Cause, death, or Disability, under this Paragraph 6.4, or upon the effective
date of a "Good Reason" termination (as provided in Paragraph 6.6), the Company
shall pay to the Executive and provide the Executive with the following,
provided such termination is not a "Qualifying Termination" as described in
Paragraph 7.2:
(a) A lump-sum cash amount equal to the Executive's
unpaid Base Salary, annual incentive for the year
prior to the year in which termination occurred (to
the extent not yet paid at the time of such
termination), accrued vacation pay, unreimbursed
business expenses, and all other items earned by the
Executive through and including the effective date of
termination, (to the extent not yet paid at the time
of such termination), in full satisfaction for these
amounts owed to the Executive;
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(b) A prorated incentive equal to the Executive's full
annual incentive payment that would have been made
for the year in which termination occurred assuming
the achievement of preestablished performance goals
at the target level, multiplied by a fraction, the
numerator of which is the number of calendar months
(counting a partial calendar month as a full month)
that have elapsed (in the calendar year in which the
Executive's effective date of termination occurs)
prior to the Executive's effective date of
termination, and the denominator of which is twelve
(12);
(c) A lump-sum cash amount equal to two (2) multiplied by
the Executive's annual rate of Base Salary in effect
upon the effective date of termination;
(d) A lump-sum cash amount equal to two (2) multiplied by
the Executive's full annual incentive payment that
would have been made for the year in which
termination occurred assuming the achievement of
preestablished performance goals at the target level;
(e) An immediate full vesting of the Executive's
Supplemental Retirement Account;
(f) Reimbursement for standard outplacement services
provided by a nationally recognized outplacement firm
of the Executive's selection, for a period of up to
two (2) years from the Executive's effective date of
termination. Notwithstanding the foregoing, the
aggregate amount of such reimbursement shall not
exceed twenty-five percent (25%) of the Executive's
annual rate of Base Salary as of the date of
termination; and
(g) All other compensation and benefits to which the
Executive has a vested right at that time, except to
the extent the Executive elects to receive payment of
such compensation or benefits at a later date.
Any amounts or benefits provided under this Paragraph 6.4 shall be in
lieu of all other benefits provided to the Executive under the provisions of
this Agreement including, but not limited to, those benefits provided under
Section 7. Change-in-Control benefits, as provided in Section 7 (and not amounts
or benefits under this Paragraph 6.4), shall be paid in the event of a
Qualifying Termination.
6.5. Termination For Cause. Nothing in this Agreement shall be
construed to prevent the Board from terminating the Executive's employment under
this Agreement for "Cause." In the event the Board determines that Cause exists,
the Board shall deliver written notice to the Executive of the facts and
circumstances leading to the Board's determination, and including the effective
date of the termination for Cause. Upon the effective date of a termination for
Cause, the Company shall pay the Executive his full Base Salary, at the rate
then in effect as provided
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in Paragraph 4.1, earned through the effective date of such termination for
Cause. The Executive shall not be paid any annual incentive for the year in
which such termination for Cause occurs. However, the Executive shall be
entitled to all other accrued compensation and accrued benefits to which the
Executive has a vested right at that time. Thereafter, this Agreement, along
with all corresponding rights, duties, and covenants, shall automatically
expire.
"Cause" shall be determined by the Board in the exercise of good faith
and reasonable judgment, and shall be defined as: (i) the Executive's conviction
for committing an act of fraud, embezzlement, theft, or any other act
constituting a felony involving moral turpitude or causing material harm,
financial or otherwise, to the Company; or (ii) a demonstrably willful and
deliberate act or failure to act which is committed in bad faith, without
reasonable belief that such action or inaction is in the best interests of the
Company, which causes material harm, financial or otherwise, to the Company and
which act or inaction is not remedied within fifteen (15) business days of the
Executive's receipt of written notice from the Company which describes the act
or inaction; (iii) the consistent gross neglect of duties, or wanton negligence
by the Executive in the performance of his duties hereunder, (iv) the material
breach by the Executive of the terms of this Agreement, or (v) the Executive's
refusal to stand for election or reelection to the Board without the consent of
the Company.
6.6. Termination for Good Reason. The Executive may terminate this
Agreement for Good Reason by giving the Board thirty (30) calendar days' written
notice of such intent to terminate for Good Reason, which sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
such termination. Good Reason shall mean, without the Executive's prior written
consent, the occurrence of any one or more of the following:
(i) The assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status,
offices, titles, and reporting requirements), authorities,
duties, or other responsibilities as contemplated by Section 2
of this Agreement, or any other action of the Company which
results in a material adverse change in such position,
authority, duties, or responsibilities, other than an
insubstantial and inadvertent action which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
(ii) The Company's requiring the Executive to be based more than
thirty-five (35) miles from the location of his principal
office at that time;
(iii) A material reduction or elimination of any component of the
Executive's compensation as provided for in Section 4, other
than as permitted under Paragraph 4.8;
(iv) Failure of the Executive to be elected or reelected to the
Board without his prior written consent; or
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(v) A material breach by the Company of any provision of this
Agreement which is not remedied by the Company promptly after
receipt of notice thereof is given by the Executive.
Upon the lapse of the thirty (30) calendar day notice period, the Good
Reason termination shall take effect and the Executive's obligation to serve the
Company, and the Company's obligation to employ the Executive, under the terms
of this Agreement shall terminate simultaneously. If the Good Reason termination
is not a Qualifying Termination, the Executive shall receive from the Company
the same benefits provided in Paragraph 6.4 as if the termination were a
termination by the Company other than for Cause. If the Good Reason termination
is a Qualifying Termination, the Executive shall be entitled to
Change-in-Control Severance Benefits under Section 7.
Section 7. Change in Control
7.1. Right to Change-in-Control Severance Benefits. If there has been a
Change in Control of the Company (as defined in Paragraph 7.4) and the Executive
has a Qualifying Termination (as defined in Paragraph 7.2), the Executive shall
be entitled to receive from the Company Change-in-Control Severance Benefits (as
described in Paragraph 7.3). The Change-in-Control Severance Benefits described
in Paragraphs 7.3(a), 7.3(b), 7.3(c), 7.3(d) and, to the extent payable in cash,
7.3(g), shall be paid in cash to the Executive in a single lump sum as soon as
practicable following the date of the Qualifying Termination, but in no event
later than thirty (30) calendar days after such date.
7.2. Qualifying Termination. Each of the following events constitutes a
Qualifying Termination:
(a) The Company's termination of the Executive's
employment other than for Cause within thirty (30)
days prior to a Change in Control or within
twenty-four (24) months following a Change in
Control;
(b) The Executive's voluntary termination of employment
for Good Reason within thirty (30) days prior to a
Change in Control or within twenty-four (24) months
following a Change in Control;
(c) A successor company fails or refuses to assume the
Company's entire obligations under this Agreement, as
required by Section 8;
(d) The Company, or any successor company, commits a
material breach of any of the provisions of this
Agreement within twenty-four (24) months following a
Change in Control; and
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(e) The Executive's voluntary termination of employment
at any time during the consecutive thirty (30) day
period which begins on the first day of the
thirteenth (13th) full month immediately following a
Change in Control.
A Qualifying Termination shall not include a termination of the
Executive's employment by reason of death, Disability, the Executive's voluntary
termination other than for Good Reason except as provided in Paragraph 7.2(e),
or the Company's termination of the Executive's employment for Cause.
7.3. Change-in-Control Severance Benefits. In the event the Executive
has a Qualifying Termination, the Company shall pay to the Executive and provide
the Executive with the following:
(a) A lump-sum cash amount equal to the sum of
Executive's unpaid Base Salary through the date of
termination, annual incentive for the year prior to
the year in which his Qualifying Termination occurred
(to the extent not yet paid at the time of such
Qualifying Termination), accrued vacation pay,
unreimbursed business expenses, and all other items
earned by the Executive through and including the
date of the Qualifying Termination (in full
satisfaction for these amounts owed to the
Executive);
(b) A prorated incentive equal to the Executive's full
annual incentive payment that would have been made
for the year in which the Executive's Qualifying
Termination occurred assuming the achievement of
preestablished performance goals at the target level,
multiplied by a fraction, the numerator of which is
the number of calendar months (counting a partial
calendar month as a full month) that have elapsed (in
the calendar year in which the Executive's effective
date of termination occurs) prior to the Executive's
effective date of termination, and the denominator of
which is twelve (12);
(c) A lump-sum cash amount equal to three (3) multiplied
by the Executive's annual rate of Base Salary in
effect upon the date of the Qualifying Termination;
(d) A lump-sum cash amount equal to three (3) multiplied
by the Executive's then-current target incentive
opportunity established under the Company's annual
incentive plan for the year in which the Qualifying
Termination occurs;
(e) If Executive is not entitled to retiree medical
benefits pursuant to Paragraph 4.6, then a
continuation of the Executive's health benefit
coverage at the same cost to the Executive, and at
the same coverage level as in effect as
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of the date of the Qualifying Termination, for
thirty-six (36) months from the date of the
Qualifying Termination; the required health benefit
continuation period under Section 601 et seq. of
ERISA ("COBRA") shall begin concurrent with the start
of this benefit continuation period; subject to the
following:
Except as otherwise required by
COBRA, the providing of this post-employment
health benefit coverage by the Company shall
be discontinued prior to the end of the
continuation period to the extent that
similar benefits are available to the
Executive from a subsequent employer, as
determined by the Board or the Compensation
Committee in the exercise of good faith and
reasonable judgment, except that, to the
extent such subsequent coverage excludes (or
would exclude) preexisting conditions, such
post-employment coverage shall be continued.
The Executive shall have a duty to inform
the Board as to the availability of coverage
from a subsequent employer. The Executive
shall provide, or cause to be provided to
the Board in writing, correct, complete, and
timely information concerning the same;
(f) Reimbursement for standard outplacement services from
a nationally recognized outplacement firm of the
Executive's selection, for a period of up to two (2)
years from the date of the Executive's Qualifying
Termination. Notwithstanding the foregoing, the
aggregate amount of such reimbursement shall not
exceed thirty-five percent (35%) of the Executive's
annual rate of Base Salary as of the date of the
Qualifying Termination; and
(g) All other compensation and benefits to which the
Executive has a vested right at that time, except to
the extent the Executive elects to receive payment of
such compensation or benefits at a later date.
The Change-in-Control Severance Benefits provided under this Paragraph
7.3 shall be in lieu of all other benefits provided to the Executive under the
provisions of this Agreement including, but not limited to, those benefits
provided under Paragraph 6.4. Any amounts payable under this Paragraph 7.3 that
are to be paid in a lump sum shall be paid in a single lump sum upon the
effective date of the Qualifying Termination. The Executive shall not be
obligated to seek other employment or take any other action by way of mitigation
of amounts payable to Executive under any of the provisions of this Agreement.
7.4. Definition of "Change in Control." "Change in Control" of the
Company means the first to occur of any one or more of the following:
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(a) the acquisition or holding by any person, entity or
"group" (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934
("1934 Act")), other than by the Company or any
Subsidiary or any employee benefit plan of the
Company or a Subsidiary, of beneficial ownership
(within the meaning of Rule 13d-3 under the 1934 Act)
of 30% or more of the then-outstanding common stock
of the Company ("Common Stock") or the
then-outstanding Voting Power of the Company;
provided, however, that no Change in Control shall
occur solely by reason of any such acquisition by a
corporation with respect to which, after such
acquisition, more than 60% of both the
then-outstanding common shares and the
then-outstanding Voting Power of such corporation are
then- beneficially owned, directly or indirectly, by
the persons who were the beneficial owners of the
Common Stock immediately before such acquisition, in
substantially the same proportions as their
respective ownership, immediately before such
acquisition, of the then-outstanding Common Stock and
Voting Power of the Company; or
(b) individuals who, as of the Effective Date, constitute
the Board (the "Incum bent Board") cease for any
reason to constitute at least a majority of the
Board; provided that any individual who becomes a
director after the Effective Date whose election or
nomination for election by the Company's stockholders
was approved by at least a majority of the Incumbent
Board (other than an election or nomination of an
individual whose initial assumption of office is in
connection with an actual or threatened election
contest relating to the election of the directors of
the Company (as such terms are used in Rule 14a-11
under the 1934 Act)) shall be deemed to be members of
the Incumbent Board; or
(c) approval by the stockholders of the Company of (1) a
merger, reorganiza tion or consolidation (an
"Extraordinary Transaction") with respect to which
persons who were the respective beneficial owners of
the Common Stock immediately before such
Extraordinary Transaction would not, if such
Extraordinary Transaction were to be consummated
immediately after such stockholder approval (but
otherwise in accordance with the terms presented in
writing to the stockholders of the Company for their
approval), beneficially own, directly or indirectly,
more than 60% of both the then- outstanding common
shares and the then-outstanding Voting Power of the
corporation resulting from such Extraordinary
Transaction, in substantially the same proportions as
their respective ownership, immediately before such
Extraordinary Transaction, of the then-outstanding
Common Stock and Voting Power of the Company, (2) a
liquidation or dissolution of the Company or (3) the
sale or other disposition of all or substantially all
of the assets of the Company in one transaction or a
series of related transactions;
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provided, however, that for the purposes of this
Paragraph the votes of all Section 16 Persons shall
be disregarded in determining whether stockholder
approval has been obtained.
Notwithstanding the foregoing, a Change in Control will not occur with
respect to any Section 16 Person who is, by agreement or understanding (written
or otherwise), a participant on such Section 16 Person's own behalf in a
transaction which causes the Change in Control to occur.
For purposes of this definition, "Section 16 Person" means a person who
is subject to potential liability under Section 16(b) of the 1934 Act with
respect to transactions involving equity securities of the Company; "Subsidiary"
means a United States or foreign corporation with respect to which the Company
owns, directly or indirectly, 50% or more of the then-outstanding common stock;
and "Voting Power" means the combined voting power of the then-outstanding
securities of a corporation entitled to vote generally in the election of
directors.
7.5. Excise Tax Payment. If any portion of the amounts payable under
Paragraphs 7.3 or any other payment or benefit provided under this Agreement, or
under any other agreement with, or plan of the Company, including but not
limited to stock options, restricted stock, and other long-term incentives (in
the aggregate "Total Payments") would constitute an "Excess Parachute Payment,"
such that an excise tax is triggered under Section 4999 of the Internal Revenue
Code of 1986, as amended ("Code"), then the Company shall provide to the
Executive, in cash, an additional payment in an amount to cover the full cost of
this excise tax and the Executive's state and federal income, employment, and
excise taxes on this additional payment (and to cover the resulting income,
employment, and excise taxes resulting from each successive payment, and so on
as necessary to completely neutralize the excise tax impact). For this purpose,
the Executive shall be deemed to be in the highest marginal rate of federal and
state taxes. This payment shall be made as soon as possible following the date
of the Executive's Qualifying Termination, but in no event later than thirty
(30) calendar days from such date.
For purposes of this Agreement, the term "Excess Parachute Payment"
shall have the meaning assigned to such term in Section 280G of the Code.
7.6. Subsequent Recalculation. In the event it is finally determined by
the Internal Revenue Service ("IRS") that the excise tax payable by Executive
under Section 4999 of the Code is greater than the amount computed pursuant to
Paragraph 7.5, the Company shall reimburse the Executive for any additional
amount necessary to make the Executive whole (less any amounts received by the
Executive that the Executive would not have received had the computations
initially been computed as subsequently adjusted), including the value of any
underpaid excise tax, and any related interest and/or penalties due to the IRS.
Each party shall promptly give the other notice of any IRS inquiry,
examination, claim or refund with respect to the applicability or amount of
excise taxes payable by Executive under Section 4999 of the Code, and the
parties shall cooperate with each other in resolving any issues
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thereon raised by the IRS. In the event Executive fails promptly to reimburse
the Company as provided in the preceding paragraph, the Company, in addition to
any other remedies available to it, shall be entitled to reduce the amount of
any payments due the Executive by the amount required to be so reimbursed.
Section 8. Assignment
8.1. Assignment by Company. This Agreement shall be binding upon and
shall inure to the benefit of, the Company and its successors. Any such
successor shall be deemed to be the Company for all purposes of this Agreement.
As used in this Agreement, the term "successor" shall mean any surviving
corporation in a merger or consolidation, or any person, corporation,
partnership, or other business entity which, whether by purchase or otherwise,
acquires all or substantially all of the assets of the Company. Notwithstanding
such assignment, the Company shall remain, with such successor, jointly and
severally liable for all its obligations hereunder. Without limiting the
generality of the foregoing, it is specifically agreed that an assignment of
this Agreement by the Company will not diminish Executive's rights under Section
7 hereof.
The Company shall require any successor to assume expressly and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession were to take place.
Except as provided in this Section 8.1, this Agreement may not be
assigned by the Company.
8.2. Assignment by Executive. This Agreement shall inure to the benefit
of and be enforceable by the Executive's personal or legal representatives,
executors, and administrators, successors, heirs, distributees, devisees, and
legatees. If the Executive should die while any amounts payable to the Executive
hereunder remain outstanding, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's Beneficiary, determined in accordance with Paragraph 6.1.
Section 9. Dispute Resolution and Notice
9.1. Dispute Resolution. The Executive shall have the right and option
to elect to have any good faith dispute or controversy arising under or in
connection with this Agreement settled by litigation or by arbitration.
If arbitration is selected, such proceeding shall be conducted before a
panel of three (3) arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of his principal place of employment,
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the award of the arbitrator in any court
having jurisdiction.
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All expenses of such litigation or arbitration, including but not
limited to the reasonable fees and expenses of the legal representative for the
Executive, and necessary costs and disbursements incurred as a result of such
dispute or legal proceeding, and any prejudgment interest, shall be borne by the
Company.
9.2. Notice. Any notices, requests, demands, or other communications
provided for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, the Board, or the
Compensation Committee of the Board, at the Company's principal offices.
Section 10. Miscellaneous
10.1. Entire Agreement. This Agreement supersedes any prior agreements
or understandings, oral or written, between the parties hereto or between the
Executive and the Company, with respect to the subject matter hereof and
constitutes the entire agreement of the parties with respect thereto.
10.2. Modification. This Agreement shall not be varied, altered,
modified, canceled, changed, or in any way amended except by mutual agreement of
the parties in a written instrument executed by the parties hereto or their
legal representatives.
10.3. Severability. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
10.4. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
10.5. Tax Withholding. The Company may withhold from any amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
Section 11. Governing Law
To the extent not preempted by federal law, the provisions of this
Agreement shall be construed and enforced in accordance with the laws of the
State of Illinois.
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<PAGE>
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement as of ___________________, 1996.
ATTEST 360 Communications Company
By: By:
Corporate Secretary Chairman, Compensation
Committee of the Board of
Directors
By:
Executive, Dennis E. Foster
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<PAGE>
EXHIBIT A
The amount of the annual Supplemental Retirement Credit to the
Executive's Supplemental Retirement Account shall be equal to the actuarially
computed value necessary to provide an annual replacement beginning at age
sixty-five (65) of forty percent (40%) of the Executive's final annual Base
Salary and target bonus opportunity at age sixty-five (65), for the Executive's
expected life (using the 83 GATT mortality table), offset by the age sixty-five
(65) pension benefit provided by the Executive's former employers (i.e., Sprint
Corporation, AT&T, and GTE). For purposes of this calculation, it will be
assumed that the Executive will retire at age sixty-five (65), that pay will
increase by six percent (6%) each year, and that all past and future
Supplemental Retirement Credits will be credited with a level eight percent (8%)
rate of return, regardless of the actual return credited to the Executive's
Supplemental Retirement Account (i.e., the Executive will obtain a greater
benefit if the amount credited to his Supplemental Retirement Account pursuant
to Paragraph 4.4 exceeds an annualized eight percent (8%) rate of return, and a
lower benefit if the amount so credited fails to achieve an annualized eight
percent (8%) rate of return). This actuarial calculation shall be performed
annually, substituting actual Base Salary and target bonus amounts for estimated
projections as such actual amounts become known, and adjusting the percentage of
pay required as an annual funding contribution, such that the percentage of Base
Salary required as an annual funding contribution shall be projected to be the
same for all future years (based on the then-available actual historical
compensation history and assumed projected increases as set forth above), in the
percentage required to produce the forty percent (40%) replacement ratio. The
Schedule attached to this Agreement provides the calculation for the initial
year of operation.
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COPY AS EXECUTED
U.S. $1,000,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of October 31, 1996
Among
360 COMMUNICATIONS COMPANY
as Borrower,
THE INITIAL LENDERS NAMED HEREIN
as Lenders,
and
CITIBANK, N.A.
as Administrative Agent
THE CHASE MANHATTAN BANK
as Syndication Agent
TORONTO DOMINION (TEXAS), INC.
as Documentation Agent
and
BANK OF AMERICA ILLINOIS
as Syndication Agent
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms.........................................1
SECTION 1.02. Computation of Time Periods...................................19
SECTION 1.03. Accounting Terms..............................................19
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances..................................................19
SECTION 2.02. Making the Advances...........................................19
SECTION 2.03. Fees..........................................................21
SECTION 2.04. Termination or Reduction of the Commitments...................21
SECTION 2.05. Repayment.....................................................21
SECTION 2.06. Interest......................................................22
SECTION 2.07. Interest Rate Determination...................................22
SECTION 2.08. Optional Conversion of Advances...............................23
SECTION 2.09. Prepayments...................................................24
SECTION 2.10. Increased Costs...............................................24
SECTION 2.11. Illegality....................................................25
SECTION 2.12. Payments and Computations.....................................26
SECTION 2.13. Taxes.........................................................27
SECTION 2.14. Sharing of Payments, Etc......................................29
SECTION 2.15. Use of Proceeds...............................................29
SECTION 2.16. Substitution of Lenders.......................................29
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Section 2.01.........30
SECTION 3.02. Conditions Precedent to Each Borrowing........................32
SECTION 3.03. Determinations Under Section 3.01.............................33
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower................33
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants.........................................39
SECTION 5.02. Negative Covenants............................................44
SECTION 5.03. Financial Covenants...........................................54
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default.............................................56
ARTICLE VII
THE AGENTS
SECTION 7.01. Authorization and Action......................................60
SECTION 7.02. Administrative Agent's Reliance, Etc..........................60
SECTION 7.03. Citibank, BankAmerica, TD Bank and Chase and Affiliates.......61
SECTION 7.04. Lender Credit Decision........................................61
SECTION 7.05. Indemnification...............................................61
SECTION 7.06. Successor Agents..............................................62
SECTION 7.07. Agents........................................................62
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc...............................................63
SECTION 8.02. Notices, Etc..................................................63
<PAGE>
SECTION 8.03. No Waiver; Remedies...........................................64
SECTION 8.04. Costs and Expenses............................................64
SECTION 8.05. Right of Set-off..............................................65
SECTION 8.06. Binding Effect................................................66
SECTION 8.07. Assignments and Participations................................66
SECTION 8.08. Confidentiality...............................................69
SECTION 8.09. Governing Law.................................................69
SECTION 8.10. Execution in Counterparts.....................................69
SECTION 8.11. Jurisdiction, Etc.............................................69
SECTION 8.12. Effective Date Assignments; Etc...............................70
SECTION 8.13. Waiver of Jury Trial..........................................72
<PAGE>
Schedules
Schedule I - List of Applicable Lending Offices
Schedule 3.01(f) - Agreements and Instruments Relating to Structure and
Capitalization
Schedule 4.01(b) - Restricted Subsidiaries
Schedule 4.01(d) - Required Authorizations, Approvals, Actions, Notices and
Filings
Schedule 5.01(h) - Transactions with Affiliates
Schedule 5.02(a) - Existing Liens
Schedule 5.02(d) - Surviving Debt
Schedule 5.02(h) - Existing Investments
Schedule 5.02(p) - Pro Forma Structure and Capitalization
Schedule 8.12 - Existing Commitments and Existing Advances
Exhibits
Exhibit A - Form of Promissory Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Opinion of General Counsel of the Borrower
AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 31,
1996 among 360 COMMUNICATIONS COMPANY, a Delaware corporation (the "Borrower"),
the banks, financial institutions and other institutional lenders (the "Initial
Lenders") listed on the signature pages hereof as having a Commitment (as
defined below) greater than zero, CITIBANK, N.A. ("Citibank"), as administrative
agent (the "Administrative Agent"), THE CHASE MANHATTAN BANK, as successor to
Chemical Bank ("Chase"), as syndication agent, TORONTO DOMINION (TEXAS), INC.
("TD Bank"), as documentation agent (the "Documentation Agent"), and BANK OF
AMERICA ILLINOIS ("BankAmerica"), as syndication agent (together with Chase, the
"Syndication Agents", and the Syndication Agents together with the
Administrative Agent and the Documentation Agent, being the "Agents") for the
Lenders (as hereinafter defined).
PRELIMINARY STATEMENTS.
(1) The Borrower has entered into a Credit Agreement dated as
of March 6, 1996 (the "Original Credit Agreement") with the Agents and certain
lenders, financial institutions and other institutional lenders named therein or
made a party thereto (collectively, the "Existing Lenders").
(2) The Borrower has requested that the Existing Lenders and
others enter into this Agreement to amend and restate the Original Credit
Agreement in order to increase the Commitments (as defined below) from an
aggregate amount of $800,000,000 to an aggregate amount of $1,000,000,000 and to
permit the ICN Acquisition (as hereinafter defined). The Existing Lenders have
indicated their willingness to amend and restate the Original Credit Agreement
upon the terms and conditions stated herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, the parties hereto hereby
agree that, subject to the satisfaction of the conditions set forth in Article
III, the Original Credit Agreement is amended and restated in its entirety to
read as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Administrative Agent's Account" means the account of the
Administrative Agent maintained by the Administrative Agent at Citibank
with its office at 399 Park Avenue, New York, New York 10043, Account
No. 36852248, Attention: Matthew Carter.
"Advance" means an advance by a Lender to the Borrower
pursuant to Article II, and refers to a Base Rate Advance or a
Eurodollar Rate Advance (each of which shall be a "Type" of Advance).
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For purposes of this definition, the term "control" (including the
terms "controlling", "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to
vote 10% or more of the Voting Stock of such Person or to direct or
cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or
otherwise.
"Applicable Lending Office" means, with respect to each
Lender, such Lender's Domestic Lending Office in the case of a Base
Rate Advance and such Lender's Eurodollar Lending Office in the case of
a Eurodollar Rate Advance.
"Applicable Margin" means, as of any date, a percentage per
annum determined by reference to the Public Debt Rating in effect on
such date as set forth below:
Applicable Margin for
Public Debt Rating Applicable Margin for Eurodollar Rate
S&P/Moody's Base Rate Advances Advances
Level 1
BBB-- or above or Baa3 or
above 0.00% 0.500%
Level 2
Less than Level 1 but at
least BB+ and at least Ba1 0.00% 0.625%
Level 3
Less than Level 2 but at
least BB and at least Ba2 0.00% 0.700%
<PAGE>
Applicable Margin for
Public Debt Rating Applicable Margin for Eurodollar Rate
S&P/Moody's Base Rate Advances Advances
Level 4
Less than Level 3 but at
least (i) BB and Ba3 or (ii)
BB--and Ba2 0.00% 0.800%
Level 5
Less than Level 4 but at
least BB--and at least Ba3 0.25% 1.250%
Level 6
Less than Level 5 0.90% 1.900%
"Applicable Percentage" means, as of any date, a percentage
per annum determined by reference to the Public Debt Rating in effect
on such date as set forth below:
Public Debt Rating Applicable
S&P/Moody's Percentage
Level 1
BBB--or above or Baa3 or above 0.150%
Level 2
Less than Level 1 but at least BB+
and at least Ba1 0.225%
Level 3
Less than Level 2 but at least BB
and at least Ba2 0.250%
Level 4
Less than Level 3 but at least (i)
BB and Ba3 or (ii) BB--and Ba2 0.250%
Level 5
Less than Level 4 but at least BB--
and at least Ba3 0.300%
<PAGE>
Public Debt Rating Applicable
S&P/Moody's Percentage
Level 6 0.500%
Less than Level 5
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C hereto.
"Base Rate" means a fluctuating interest rate per annum in
effect from time to time, which rate per annum shall at all times be
equal to the highest of:
(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as
Citibank's base rate;
(b) the sum (adjusted to the nearest 1/16 of 1% or,
if there is no nearest 1/16 of 1%, to the next higher 1/16 of
1%) of (i) 1/2 of 1% per annum, plus (ii) the rate obtained by
dividing (A) the latest three-week moving average of secondary
market morning offering rates in the United States for
three-month certificates of deposit of major United States
money market banks, such three-week moving average (adjusted
to the basis of a year of 360 days) being determined weekly on
each Monday (or, if such day is not a Business Day, on the
next succeeding Business Day) for the three-week period ending
on the previous Friday by Citibank on the basis of such rates
reported by certificate of deposit dealers to and published by
the Federal Reserve Bank of New York or, if such publication
shall be suspended or terminated, on the basis of quotations
for such rates received by Citibank from three New York
certificate of deposit dealers of recognized standing selected
by Citibank, by (B) a percentage equal to 100% minus the
average of the daily percentages specified during such
three-week period by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum
reserve requirement (including, but not limited to, any
emergency, supplemental or other marginal reserve requirement)
for Citibank with respect to liabilities consisting of or
including (among other liabilities) three-month U.S. dollar
non-personal time deposits in the United States, plus (iii)
the average during such three-week period of the annual
assessment rates estimated by Citibank for determining the
then current annual assessment payable by Citibank to the
Federal Deposit Insurance Corporation (or any successor) for
insuring U.S. dollar deposits of Citibank in the United
States; and
(c) 1/2 of one percent per annum above the Federal
Funds Rate.
<PAGE>
"Base Rate Advance" means an Advance that bears interest as
provided in Section 2.06(a)(i).
"Borrowing" means a borrowing consisting of Advances of the
same Type and the same Interest Period made on the same day by the
Lenders.
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in New York, New York or
Chicago, Illinois and, if the applicable Business Day relates to any
Eurodollar Rate Advances, on which dealings are carried on in the
London interbank market.
"Commitment" has the meaning specified in Section 2.01.
"Confidential Information" means information that the Borrower
or any of its Subsidiaries furnishes to any Agent or any Lender, but
does not include any such information that is or becomes generally
available to the public other than as a result of a breach by any Agent
or any Lender of its obligations hereunder or that is or becomes
available to such Agent or such Lender from a source other than the
Borrower or any of its Subsidiaries.
"Consolidated" refers to the consolidation of accounts in
accordance with GAAP.
"Convert", "Conversion" and "Converted" each refers to a
conversion of Advances of one Type into Advances of the other Type
pursuant to Section 2.07 or 2.08.
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money (including, without
limitation, indebtedness incurred in connection with securitizations,
whether or not any such securitization is reflected on the balance
sheet of such Person), (b) all payment Obligations of such Person for
the deferred purchase price of property or services (other than trade
payables and other accounts payable not overdue by more than 60 days
incurred in the ordinary course of such Person's business), (c) all
payment Obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all payment Obligations of
such Person created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender
under such agreement in the event of default are limited to
repossession or sale of such property), (e) all payment Obligations of
such Person as lessee under leases that have been or should be, in
accordance with GAAP, recorded as capital leases ("Capitalized
Leases"), (f) all payment Obligations, contingent or otherwise, of such
Person in respect of acceptances, letters of credit or similar
extensions of credit which are or should be, in accordance with GAAP,
set forth in the consolidated financial statements of such Person,
<PAGE>
(g) all payment Obligations, contingent or otherwise, of such Person to
purchase, redeem, retire, defease or otherwise make any payment in
respect of any capital stock of or other ownership or profit interest
in such Person or any other Person or any warrants, rights or options
to acquire such capital stock, valued, in the case of redeemable
preferred stock, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends, (h) all
payment Obligations, contingent or otherwise, of such Person in respect
of Hedge Agreements, (i) all Debt of others referred to in clauses (a)
through (h) above or clause (j) below guaranteed directly or indirectly
in any manner by such Person, or in effect guaranteed directly or
indirectly by such Person through an agreement (1) to pay or purchase
such Debt or to advance or supply funds for the payment or purchase of
such Debt, (2) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Debt or to assure the
holder of such Debt against loss, (3) to supply funds to or in any
other manner invest in the debtor (including any agreement to pay for
property or services irrespective of whether such property is received
or such services are rendered) or (4) otherwise to assure a creditor
against loss, and (j) all Debt referred to in clauses (a) through (i)
above secured by (or for which the holder of such Debt has an existing
right, contingent or otherwise, to be secured by) any Lien on property
(including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable
for the payment of such Debt.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"Domestic Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Domestic Lending Office"
opposite its name on Schedule I hereto or in the Assignment and
Acceptance pursuant to which it became a Lender, or such other office
of such Lender as such Lender may from time to time specify to the
Borrower and the Administrative Agent.
"EBITDA" means, for any period, net income (or net loss) plus
the sum of (a) interest expense, (b) income tax expense, (c)
depreciation expense, (d) amortization expense and (e) non-cash losses
(to the extent deducted in the calculation of net income), minus (f)
non-cash gains (to the extent added in the calculation of net income),
in each case determined in accordance with GAAP for such period.
"Effective Date" has the meaning specified in Section 3.01.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender; (iii) a commercial bank organized under the laws of the United
States, or any State thereof, and having a combined capital and surplus
of at least $500,000,000; (iv) a savings and loan
<PAGE>
association or savings bank organized under the laws of the United
States, or any State thereof, and having a combined capital and surplus
of at least $500,000,000; (v) a commercial bank organized under the
laws of any other country that is a member of the Organization for
Economic Cooperation and Development or has concluded special lending
arrangements with the International Monetary Fund associated with its
General Arrangements to Borrow, or a political subdivision of any such
country, and having a combined capital and surplus of at least
$500,000,000, so long as such bank is acting through a branch or agency
located in the United States; (vi) the central bank of any country that
is a member of the Organization for Economic Cooperation and
Development; (vii) a finance company, insurance company or other
financial institution or fund (whether a corporation, partnership,
trust or other entity) that is engaged in making, purchasing or
otherwise investing in commercial loans in the ordinary course of its
business and having a combined capital and surplus of at least
$500,000,000; and (viii) any other Person approved by the
Administrative Agent and the Borrower, such approval not to be
unreasonably withheld or delayed; provided, however, that none of the
Borrower, Sprint or any Affiliate of the Borrower or Sprint shall
qualify as an Eligible Assignee.
"Environmental Action" means any action, suit, demand, demand
letter, claim, notice of non-compliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement relating in any way to any Environmental
Law, Environmental Permit or Hazardous Materials or arising from
alleged injury or threat of injury to health, safety or the
environment, including, without limitation, (a) by any governmental or
regulatory authority for enforcement, cleanup, removal, response,
remedial or other actions or damages relating to injuries or threats of
injuries to health, safety or the environment and (b) by any
governmental or regulatory authority or any third party for damages,
contribution, indemnification, cost recovery, compensation or
injunctive relief relating to injuries or threats of injuries to
health, safety or the environment.
"Environmental Law" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, judgment,
decree or judicial or agency interpretation relating to pollution or
protection of the environment, health, safety or natural resources,
including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials.
"Environmental Permit" means any permit, approval,
identification number, license or other authorization required under
any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
<PAGE>
"ERISA Affiliate" means any Person that for purposes of Title
IV of ERISA is a member of the Borrower's controlled group, or under
common control with the Borrower, within the meaning of Section 414 of
the Internal Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable
event, within the meaning of Section 4043 of ERISA, with respect to any
Plan unless the 30-day notice requirement with respect to such event
has been waived by the PBGC, or (ii) the requirements of subsection (1)
of Section 4043(b) of ERISA (without regard to subsection (2) of such
Section) are met with respect to a contributing sponsor, as defined in
Section 4001(a)(13) of ERISA, of a Plan, and an event described in
paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is
reasonably expected to occur with respect to such Plan within the
following 30 days; (b) the application for a minimum funding waiver
with respect to a Plan; (c) the provision by the administrator of any
Plan of a notice of intent to terminate such Plan pursuant to Section
4041(a)(2) of ERISA (including any such notice with respect to a plan
amendment referred to in Section 4041(e) of ERISA); (d) the cessation
of operations at a facility of the Borrower or any ERISA Affiliate in
the circumstances described in Section 4062(e) of ERISA; (e) the
withdrawal by the Borrower or any ERISA Affiliate from a Multiple
Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions
for the imposition of a lien under Section 302(f) of ERISA shall have
been met with respect to any Plan; (g) the adoption of an amendment to
a Plan requiring the provision of security to such Plan pursuant to
Section 307 of ERISA; or (h) the institution by the PBGC of proceedings
to terminate a Plan pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition described in Section 4042 of ERISA
that constitutes grounds for the termination of, or the appointment of
a trustee to administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Eurodollar Lending Office"
opposite its name on Schedule I hereto or in the Assignment and
Acceptance pursuant to which it became a Lender (or, if no such office
is specified, its Domestic Lending Office), or such other office of
such Lender as such Lender may from time to time specify to the
Borrower and the Administrative Agent.
"Eurodollar Rate" means, for any Interest Period for each
Eurodollar Rate Advance comprising part of the same Borrowing, an
interest rate per annum equal to the rate per annum obtained by
dividing (a) the average (rounded upward to the nearest whole multiple
of 1/16 of 1% per annum, if such average is not such a multiple) of the
rate per annum at which deposits in U.S. dollars are offered by the
principal office of each of the Reference Banks in London, England to
prime banks in the London interbank market at 11:00 A.M.
<PAGE>
(London time) two Business Days before the first day of such Interest
Period in an amount substantially equal to such Reference Bank's
Eurodollar Rate Advance comprising part of such Borrowing to be
outstanding during such Interest Period and for a period equal to such
Interest Period by (b) a percentage equal to 100% minus the Eurodollar
Rate Reserve Percentage for such Interest Period. The Eurodollar Rate
for any Interest Period for each Eurodollar Rate Advance comprising
part of the same Borrowing shall be determined by the Administrative
Agent on the basis of applicable rates furnished to and received by the
Administrative Agent from the Reference Banks two Business Days before
the first day of such Interest Period, subject, however, to the
provisions of Section 2.07.
"Eurodollar Rate Advance" means an Advance that bears interest
as provided in Section 2.06(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period
for all Eurodollar Rate Advances comprising part of the same Borrowing
means the reserve percentage applicable two Business Days before the
first day of such Interest Period under regulations issued from time to
time by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal
reserve requirement) for a member bank of the Federal Reserve System in
New York City with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities (or with respect to any other
category of liabilities that includes deposits by reference to which
the interest rate on Eurodollar Rate Advances is determined) having a
term equal to such Interest Period.
"Exchange and Merger Agreement" means the Exchange and Merger
Agreement dated as of May 31, 1996 among the Borrower, ICNP, James A.
Dwyer, Jr., David Winstel, CC Industries, Inc., Ohio Cellular RSA,
L.P., Ohio RSA Corporation, Quality Cellular Communications of Ohio,
Inc., Cellular Plus, L.P., C-Plus, Inc., Quality Cellular Plus
Communications, Inc., and Henry Crown and Company (not incorporated),
as amended, supplemented or otherwise modified from time to time in
accordance with its terms, to the extent permitted in accordance with
this Agreement, and unless the context requires otherwise, includes all
other documents and instruments related or delivered pursuant thereto
and all other agreements or arrangements between the Borrower or any of
its Subsidiaries and ICNP or any of its affiliates.
"Events of Default" has the meaning specified in Section 6.01.
"Existing Advance" means, for each Existing Lender, all of
such Existing Lender's rights in and to, and all of its obligations
under, the Original Advances evidenced by the Original Notes and owing
to it under the Original Credit Agreement as of the Effective
<PAGE>
Date, the aggregate amount of which is set forth opposite such Existing
Lender's name on Schedule 8.12 hereto.
"Existing Commitment" means, for each Existing Lender, all of
such Existing Lender's rights in and to, and all of its obligations
under, the Original Commitment held by it under the Original Credit
Agreement as of the Effective Date, the aggregate amount of which is
set forth opposite such Existing Lender's name on Schedule 8.12 hereto.
"Existing Lenders" has the meaning specified in the
Preliminary Statements hereto.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal
funds brokers of recognized standing selected by it.
"GAAP" has the meaning specified in Section 1.03.
"Hazardous Materials" means (a) petroleum and petroleum
products, byproducts or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas
and (b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts and other similar
agreements.
"ICN" means Independent Cellular Network, Inc., a Delaware
corporation, and certain of its affiliates that are parties to the ICN
Acquisition.
"ICN Acquisition" means the acquisition by the Borrower and
certain of its Subsidiaries of ICN pursuant to, and in accordance with
the terms of, the Exchange and Merger Agreement.
"ICN Acquisition Debt" means the Debt assumed by the Borrower
in connection with the ICN Acquisition in an amount not to exceed
$240,000,000 under and pursuant
<PAGE>
to that certain Loan Agreement dated as of September 9, 1994, as
amended as of May 30, 1995, by and among ICNP and the lenders named
therein.
"ICNP" means Independent Cellular Network Partners, an
Illinois limited partnership.
"Initial Lender" has the meaning specified in the recital of
parties hereto.
"Information Memorandum" means the information memorandum
dated December 1995 used by the Agents in connection with the
syndication of the Commitments.
"Information Package" means certain information distributed by
the Agents on or about August 19, 1996, to the Lenders in connection
with this Agreement.
"Insufficiency" means, with respect to any Plan, the amount,
if any, of its unfunded benefit liabilities, as defined in Section
4001(a)(18) of ERISA.
"Interest Period" means, for each Eurodollar Rate Advance
comprising part of the same Borrowing, the period commencing on the
date of such Eurodollar Rate Advance or the date of the Conversion of
any Base Rate Advance into such Eurodollar Rate Advance and ending on
the last day of the period selected by the Borrower pursuant to the
provisions below and, thereafter, each subsequent period commencing on
the last day of the immediately preceding Interest Period and ending on
the last day of the period selected by the Borrower pursuant to the
provisions below. The duration of each such Interest Period shall be
one, two, three or six months or any other period agreed to by all of
the Lenders, as the Borrower may, upon notice received by the
Administrative Agent not later than 12:00 Noon (New York City time) on
the third Business Day prior to the first day of such Interest Period,
select; provided, however, that:
(i) the Borrower may not select any Interest Period
that ends after the Termination Date;
(ii) Interest Periods commencing on the same date for
Eurodollar Rate Advances comprising part of the same Borrowing
shall be of the same duration (provided that multiple
Borrowings with different Interest Periods may be made on the
same Business Day);
(iii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided, however, that, if
such extension would cause the last day of such Interest
Period to occur in the
<PAGE>
next following calendar month, the last day of such Interest
Period shall occur on the next preceding Business Day; and
(iv) whenever the first day of any Interest Period
occurs on a day of an initial calendar month for which there
is no numerically corresponding day in the calendar month that
succeeds such initial calendar month by the number of months
equal to the number of months in such Interest Period, such
Interest Period shall end on the last Business Day of such
succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"Investment" in any Person means any loan or advance to such
Person, any purchase or other acquisition of any capital stock,
warrants, rights, options, obligations or other securities or all or
substantially all of the assets of such Person, any capital
contribution to such Person or any other investment in such Person,
including, without limitation, any arrangement pursuant to which the
investor incurs Debt of the types referred to in clauses (i) and (j) of
the definition of "Debt" in respect of such Person.
"Lenders" means the Initial Lenders and each Person that shall
become a party hereto pursuant to Section 8.07.
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance
on title to real property.
"Major Subsidiary" means a Restricted Subsidiary of which (or
in which) at least 70% of the Voting Stock, right or power to direct or
control or the beneficial interest of which (or in which) is at the
time directly or indirectly owned or controlled by the Borrower, the
Borrower and one or more of the Restricted Subsidiaries or one or more
of the Restricted Subsidiaries.
"Marketable Securities" means any of the following, to the
extent owned by the Borrower and having a maturity of not greater than
90 days from the date of acquisition thereof: (a) readily marketable
direct obligations of the Government of the United States or any agency
or instrumentality thereof or obligations unconditionally guaranteed by
the full faith and credit of the Government of the United States, (b)
insured certificates of deposit of or time or demand deposits with any
commercial bank that is a Lender or a member of the Federal Reserve
System, issues (or the parent of which issues) commercial paper rated
as described in clause (c), is organized under the laws of the United
States or
<PAGE>
any State thereof and has combined capital and surplus of at least
$500,000,000, (c) commercial paper in an aggregate amount of no more
than $10,000,000 per issuer outstanding at any time, issued by any
corporation organized under the laws of any State of the United States
and rated at least "Prime-1" (or the then equivalent grade) by Moody's
or "A-1" (or the then equivalent grade) by S&P or (d) Investments in
money market or mutual funds that invest primarily in Marketable
Securities of the types described in clauses (a), (b) and (c) above, in
an aggregate amount invested in any one such fund not to exceed
$10,000,000 outstanding at any time.
"Material Adverse Change" means any material adverse change in
the financial condition, results of operations or prospects of the
Borrower and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on
(a) the financial condition, results of operations or prospects of the
Borrower and its Subsidiaries taken as a whole, (b) the rights and
remedies of any Agent or any Lender under this Agreement or any Note or
(c) the ability of the Borrower to perform its payment Obligations in
any respect, or its other Obligations in any material respect, under
this Agreement or any Note.
"Material Contract" means each contract to which the Borrower
or any Restricted Subsidiary is a party involving aggregate
consideration payable to or by the Borrower or such Restricted
Subsidiary of $250,000 or more or otherwise material to the financial
condition, results of operations or prospects of the Borrower and the
Restricted Subsidiaries taken as a whole.
"Material Subsidiary" means, at any time, a Subsidiary of the
Borrower having at least 5% of the total Consolidated assets of the
Borrower and its Subsidiaries (determined as of the last day of the
most recent fiscal quarter of the Borrower) or at least 5% of the total
Consolidated revenues or net income of the Borrower and its
Subsidiaries for the 12-month period ending on the last day of the most
recent fiscal quarter of the Borrower.
"Minor Subsidiaries" means all Restricted Subsidiaries other
than the Major Subsidiaries.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA
Affiliate is making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or accrued an
obligation to make contributions.
<PAGE>
"Multiple Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of the Borrower or any ERISA Affiliate and at least one
Person other than the Borrower and the ERISA Affiliates or (b) was so
maintained and in respect of which the Borrower or any ERISA Affiliate
could have liability under Section 4064 or 4069 of ERISA in the event
such plan has been or were to be terminated.
"Net Cash Proceeds" means, with respect to any sale, lease,
transfer or other disposition of any asset by any Person, the aggregate
amount of cash received from time to time (whether as initial
consideration or through payment or disposition of deferred
consideration) by or on behalf of such Person in connection with such
transaction after deducting therefrom only (without duplication) (a)
reasonable and customary brokerage commissions, underwriting fees and
discounts, legal fees, finder's fees and other similar fees and
commissions, (b) the amount of taxes payable in connection with or as a
result of such transaction and (c) the amount of any Debt that, by the
terms of the agreement or instrument governing such Debt (other than,
in any case, the Senior Notes and the Senior Note Indenture), is
required to be repaid upon such disposition, in each case to the
extent, but only to the extent, that the amounts so deducted are, at
the time of receipt of such cash, actually paid to a Person that is not
an Affiliate of such Person or the Borrower or Sprint or any Affiliate
of the Borrower or Sprint and are properly attributable to such
transaction or to the asset that is the subject thereof.
"Non-hostile Acquisition" means any acquisition by the
Borrower or any of its Subsidiaries of a Person, so long as (x) the
board of directors (or other governing body) of such Person shall have
approved such acquisition at the time such acquisition is first
publicly announced, (y) if such Person shall have been soliciting bids
for its acquisition, the board of directors (or other governing body)
of such Person shall not have determined either to accept no offer or
to accept an offer other than an offer by the Borrower or any of its
Subsidiaries or (z) if such Person shall not have been soliciting bids
for its acquisition or if the board of directors (or other governing
body) of such Person shall have solicited bids for its acquisition but
shall have initially determined either to accept no offer or to accept
an offer other than an offer by the Borrower or any of its
Subsidiaries, in each case the existence, amount and availability for
the acquisition of such Person of the Commitments hereunder shall not
have been disclosed, orally or in writing, until after such time as the
board of directors (or other governing body) of such Person shall have
approved such acquisition by the Borrower or any of its Subsidiaries
and so long as, in any case, such acquisition is otherwise permitted
hereunder.
"Note" means a promissory note of the Borrower payable to the
order of any Lender, in substantially the form of Exhibit A hereto,
evidencing the aggregate
<PAGE>
indebtedness of the Borrower to such Lender resulting from the Advances
made by such Lender.
"Notice of Borrowing" has the meaning specified in Section
2.02.
"Obligation" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether
or not the right of any creditor to payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, disputed, undisputed, legal, equitable, secured or unsecured,
and whether or not such claim is discharged, stayed or otherwise
affected by any proceeding referred to in Section 6.01(e). Without
limiting the generality of the foregoing, the Obligations of the
Borrower under this Agreement and the Notes include (a) the obligation
to pay principal, interest, charges, expenses, fees, attorneys' fees
and disbursements, indemnities and other amounts payable by the
Borrower under this Agreement or any Note and (b) the obligation of the
Borrower to reimburse any amount in respect of any of the foregoing
that any Lender, in its sole discretion, may elect to pay or advance on
behalf of the Borrower.
"Original Advances" means the Advances as defined in the
Original Credit Agreement.
"Original Agents" means the Agents as defined in the Original
Credit Agreement.
"Original Commitments" means the Commitments as defined in the
Original Credit Agreement.
"Original Credit Agreement" has the meaning specified in the
Preliminary Statements hereto.
"Original Effective Date" means March 7, 1996.
"Original Notes" means the Notes as defined in the Original
Credit Agreement.
"Other Taxes" has the meaning specified in Section 2.13(b).
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor).
"Permitted Liens" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced: (a) Liens for taxes, assessments and
governmental charges or levies to the extent not required to be paid
under Section 5.01(b) hereof; (b) Liens imposed by law, such as
<PAGE>
materialmen's, mechanics', carriers', workmen's and repairmen's Liens
and other similar Liens arising in the ordinary course of business
securing obligations that are not overdue for a period of more than 60
days; (c) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure public or
statutory obligations; (d) pledges or deposits to secure the
performance of bids, government contracts, leases (other than
Capitalized Leases), surety and appeal bonds and other similar
obligations, in each case incurred in the ordinary course of business
(exclusive of obligations for payment of borrowed money) and (e)
easements, rights of way and other encumbrances on title to real
property that do not render title to the property encumbered thereby
unmarketable or materially adversely affect the use of such property
for its present purposes.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture, limited liability company or
other entity, or a government or any political subdivision or agency
thereof.
"Plan" means a Single Employer Plan or a Multiple Employer
Plan.
"Public Debt Rating" means, as of any date, the lowest rating
that has been most recently announced by S&P or by Moody's, as the case
may be, for any class of non-credit enhanced long-term senior unsecured
debt issued by the Borrower. For purposes of the foregoing, (a) if only
one of S&P and Moody's shall have in effect a Public Debt Rating as a
result of events beyond the Borrower's control, the Applicable Margin
and the Applicable Percentage shall be determined by reference to the
available rating, and if only one of S&P and Moody's shall have in
effect a Public Debt Rating for any other reason, the Applicable Margin
and Applicable Percentage will be set in accordance with Level 6 under
the definition of "Applicable Margin" or "Applicable Percentage", as
the case may be; (b) if neither S&P nor Moody's shall have in effect a
Public Debt Rating, the Applicable Margin and the Applicable Percentage
will be set in accordance with Level 6 under the definition of
"Applicable Margin" or "Applicable Percentage", as the case may be; (c)
if any rating established by S&P or Moody's shall be changed, such
change shall be effective as of the date on which such change is first
announced publicly by the rating agency making such change; and (d) if
S&P or Moody's shall change the basis on which ratings are established,
each reference to the Public Debt Rating announced by S&P or Moody's,
as the case may be, shall refer to the then equivalent rating by S&P or
Moody's, as the case may be.
"Reference Banks" means Citibank, BankAmerica, TD Bank and
Chase.
"Register" has the meaning specified in Section 8.07(c).
<PAGE>
"Required Lenders" means at any time Lenders owed at least a
majority in interest of the then aggregate unpaid principal amount of
the Advances owing to Lenders, or, if no such principal amount is then
outstanding, Lenders having at least a majority in interest of the
Commitments.
"Responsible Officer" means any officer of the Borrower (other
than regional vice presidents and any other regional officer).
"Restricted Subsidiaries" means, as of the Original Effective
Date, the Subsidiaries of the Borrower listed on Schedule 4.01(b) and
thereafter all other Subsidiaries of the Borrower other than the
Unrestricted Subsidiaries, provided, however, that no Restricted
Subsidiary shall be a Subsidiary of an Unrestricted Subsidiary.
"Rights Agreement" means the Rights Agreement dated as of
March 5, 1996, among the Borrower and Chemical Bank, as Rights Agent,
as in effect on the date hereof.
"Rolling Period" means, as at any date of determination, the
period of the four fiscal quarters of the Borrower then most recently
ended.
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies.
"Senior Notes" means the senior unsecured notes of the
Borrower due 2003 and 2006 issued pursuant to the Senior Note
Indenture.
"Senior Note Indenture" means the Indenture dated as of March
7, 1996, between the Borrower and Citibank, as trustee, as amended,
supplemented or otherwise modified from time to time in accordance with
its terms, to the extent permitted in accordance with this Agreement.
"Single Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of the Borrower or any ERISA Affiliate and no Person other
than the Borrower and the ERISA Affiliates or (b) was so maintained and
in respect of which the Borrower or any ERISA Affiliate could have
liability under Section 4069 of ERISA in the event such plan has been
or were to be terminated.
"Spin-Off" means the pro rata tax-free distribution of all of
the shares of Voting Stock of the Borrower by Sprint to the holders of
Sprint's common stock.
"Sprint" means Sprint Corporation, a Kansas corporation.
<PAGE>
"Subordinated Notes" means the subordinated non-negotiable
promissory notes due 2006 substantially in the form of Exhibit 1
attached to the Exchange and Merger Agreement, to be issued by the
Borrower in connection with the ICN Acquisition, together with any
agreement or instrument pursuant to which such subordinated notes are
issued.
"Subsidiary" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or
in which) more than 50% of (a) the issued and outstanding capital stock
having ordinary voting power to elect a majority of the Board of
Directors of such corporation (irrespective of whether at the time
capital stock of any other class or classes of such corporation shall
or might have voting power upon the occurrence of any contingency), (b)
the right or power to direct, in the case of any entity of which such
Person or any of its Subsidiaries is a general partner, or both the
beneficial ownership of and the right or power to direct, in any other
case, such limited liability company, partnership or joint venture or
(c) the beneficial interest in such trust or estate is at the time
directly or indirectly owned or controlled by such Person, by such
Person and one or more of its other Subsidiaries or by one or more of
such Person's other Subsidiaries.
"Surviving Debt" has the meaning specified in Section
5.02(d)(i)(C).
"Taxes" has the meaning specified in Section 2.13(a).
"Termination Date" means the earlier of the date that is the
five-year anniversary of the Original Effective Date and the date of
termination in whole of the Commitments pursuant to Section 2.04 or
6.01.
"Unrestricted Subsidiaries" means such Subsidiaries of the
Borrower as the Borrower shall designate as an Unrestricted Subsidiary
in writing to the Agents and the Lenders in accordance with the terms
of Section 5.02(l), and any Subsidiaries thereof; provided, however,
that no such Subsidiary shall own or hold any licenses, patents,
trademarks or intellectual property other than such as may be necessary
to the conduct of the business of such Subsidiary, and provided further
that any such items as may be shared with any Restricted Subsidiary
shall be owned and held by such Restricted Subsidiary.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the
happening of such a contingency.
<PAGE>
"Withdrawal Liability" has the meaning specified in Part I of
Subtitle E of Title IV of ERISA.
SECTION 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 4.01(f) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. (a) Effective as of the Effective
Date, each Existing Lender hereby sells and assigns all of its rights in and to,
and all of its obligations under, each Existing Advance owing to it and the
Existing Commitment held by it to the Initial Lenders and each Initial Lender
hereby purchases and assumes, pro rata based on such Initial Lender's
Commitment, all of the Existing Lenders' rights in and to, and all of their
obligations under, the Existing Advances and the Existing Commitments, the
aggregate amount of which is set forth opposite such Existing Lender's name on
Schedule 8.12 hereto.
(b) Each Lender severally agrees, on the terms and conditions
hereinafter set forth, to make Advances to the Borrower from time to time on any
Business Day during the period from the Effective Date until the Termination
Date in an aggregate amount not to exceed at any time outstanding the amount set
forth opposite such Lender's name on the signature pages hereof or, if such
Lender has entered into any Assignment and Acceptance, set forth for such Lender
in the Register maintained by the Administrative Agent pursuant to Section
8.07(c), as such amount may be reduced pursuant to Section 2.04 (such Lender's
"Commitment"). Each Borrowing shall be in an aggregate amount of $15,000,000 or
an integral multiple of $1,000,000 in excess thereof and shall consist of
Advances of the same Type made on the same day by the Lenders ratably according
to their respective Commitments. Within the limits of each Lender's Commitment,
the Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.09
and reborrow under this Section 2.01.
SECTION 2.02. Making the Advances. (a) Each Borrowing shall be
made on notice, given not later than 12:00 Noon (New York City time) on the
third Business Day prior to the date of the proposed Borrowing in the case of a
Borrowing consisting of Eurodollar Rate
<PAGE>
Advances, or not later than 11:00 A.M. (New York City time) on the same Business
Day as the date of the proposed Borrowing in the case of a Borrowing consisting
of Base Rate Advances, by the Borrower to the Administrative Agent, which shall
give to each Lender prompt notice thereof by telecopier or telex. Each such
notice of a Borrowing (a "Notice of Borrowing") shall be by telephone, confirmed
immediately in writing, or telecopier or telex, in substantially the form of
Exhibit B hereto, specifying therein the requested (i) date of such Borrowing,
(ii) Type of Advances comprising such Borrowing, (iii) aggregate amount of such
Borrowing, and (iv) in the case of a Borrowing consisting of Eurodollar Rate
Advances, initial Interest Period for each such Advance. Each Lender shall,
before 12:00 Noon (New York City time) on the date of such Borrowing, make
available for the account of its Applicable Lending Office to the Administrative
Agent at the Administrative Agent's Account, in same day funds, such Lender's
ratable portion of such Borrowing. After the Administrative Agent's receipt of
such funds and upon fulfillment of the applicable conditions set forth in
Article III, the Administrative Agent will promptly make such funds available to
the Borrower at an account maintained by the Borrower at a commercial bank
organized under the laws of the United States, or any State thereof, and
designated by the Borrower for such purpose.
(b) Anything in subsection (a) above to the contrary
notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for
any Borrowing if the obligation of the Lenders to make Eurodollar Rate Advances
shall then be suspended pursuant to Section 2.07 or 2.11 and (ii) Eurodollar
Rate Advances may not be outstanding as part of more than 12 separate
Borrowings.
(c) Each Notice of Borrowing shall be irrevocable and binding
on the Borrower. In the case of any Borrowing that the related Notice of
Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower
shall indemnify each Lender against any loss, cost or expense incurred by such
Lender as a result of any failure by the Borrower to fulfill on or before the
date specified in such Notice of Borrowing for such Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(including loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the Advance to be made by such Lender as part of such Borrowing
when such Advance, as a result of such failure, is not made on such date.
(d) Unless the Administrative Agent shall have received notice
from a Lender prior to the date of any Borrowing (or in the case of a Borrowing
consisting of Base Rate Advances, prior to 12:00 Noon (New York City time) on
the date of any Borrowing) that such Lender will not make available to the
Administrative Agent such Lender's ratable portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion available
to the Administrative Agent on the date of such Borrowing in accordance with
subsection (a) of this Section 2.02 and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the
<PAGE>
extent that such Lender shall not have so made such ratable portion available to
the Administrative Agent, such Lender and the Borrower severally agree to repay
to the Administrative Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the
Administrative Agent, at (i) in the case of the Borrower, the interest rate
applicable at the time to Advances comprising such Borrowing and (ii) in the
case of such Lender, the Federal Funds Rate. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Lender's Advance as part of such Borrowing for purposes of this
Agreement.
(e) The failure of any Lender to make the Advance to be made
by it as part of any Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Advance on the date of such Borrowing,
but no Lender shall be responsible for the failure of any other Lender to make
the Advance to be made by such other Lender on the date of any Borrowing.
SECTION 2.03. Fees. (a) Commitment Fee. The Borrower agrees to
pay to the Administrative Agent for the account of each Lender a commitment fee
on the average daily unused portion of such Lender's Commitment from the
Effective Date in the case of each Initial Lender and from the effective date
specified in the Assignment and Acceptance pursuant to which it became a Lender
in the case of each other Lender until the Termination Date at a rate per annum
equal to the Applicable Percentage in effect from time to time, payable in
arrears quarterly on the last day of each March, June, September and December,
commencing December 31, 1996, and on the Termination Date.
(b) Administrative Agent's Fees. The Borrower agrees to pay to
the Administrative Agent for its own account such fees as may from time to time
be agreed between the Borrower and the Administrative Agent.
SECTION 2.04. Termination or Reduction of the Commitments. (a)
Optional. The Borrower shall have the right, upon at least three Business Days'
notice to the Administrative Agent, permanently to terminate in whole or reduce
ratably in part the unused portions of the respective Commitments of the
Lenders, provided that each partial reduction shall be in the aggregate amount
of $15,000,000 or an integral multiple of $1,000,000 in excess thereof.
(b) Mandatory. The Commitments shall be automatically and
permanently reduced on a pro rata basis on each date on which any prepayment is
required to be made pursuant to Section 2.09(b) in an amount equal to the
applicable Reduction Amount (as defined in Section 2.09(b)).
<PAGE>
SECTION 2.05. Repayment. The Borrower shall repay to the
Administrative Agent for the ratable account of the Lenders on the Termination
Date the aggregate principal amount of the Advances made to the Borrower and
then outstanding.
SECTION 2.06. Interest. (a) Scheduled Interest. The Borrower
shall pay interest on the unpaid principal amount of each Advance owing to each
Lender from the date of such Advance until such principal amount shall be paid
in full, at the following rates per annum:
(i) Base Rate Advances. During such periods as such Advance is
a Base Rate Advance, a rate per annum equal at all times to the sum of
(x) the Base Rate in effect from time to time plus (y) the Applicable
Margin in effect from time to time, payable in arrears quarterly on the
last day of each March, June, September and December during such
periods and on the date such Base Rate Advance shall be Converted or
paid in full.
(ii) Eurodollar Rate Advances. During such periods as such
Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such Advance to the sum of (x)
the Eurodollar Rate for such Interest Period for such Advance plus (y)
the Applicable Margin in effect from time to time, payable in arrears
on the last day of such Interest Period and, if such Interest Period
has a duration of more than three months, on each day that occurs
during such Interest Period every three months from the first day of
such Interest Period and on the date such Eurodollar Rate Advance shall
be Converted or paid in full.
(b) Default Interest. Upon the occurrence and during the
continuance of an Event of Default, the Borrower shall pay interest on (i) the
unpaid principal amount of each Advance owing to each Lender, payable in arrears
on the dates referred to in clause (a)(i) or (a)(ii) above, at a rate per annum
equal at all times to 2% per annum above the rate per annum required to be paid
on such Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the
fullest extent permitted by law, the amount of any interest, fee or other amount
payable hereunder (without duplication as to clause (i) above) that is not paid
when due, from the date such amount shall be due until such amount shall be paid
in full, payable in arrears on the date such amount shall be paid in full and on
demand, at a rate per annum equal at all times to 2% per annum above the rate
per annum required to be paid on Base Rate Advances pursuant to clause (a)(i)
above.
SECTION 2.07. Interest Rate Determination. (a) Each Reference
Bank agrees to furnish to the Administrative Agent timely information for the
purpose of determining each Eurodollar Rate. If any one or more of the Reference
Banks shall not furnish such timely information to the Administrative Agent for
the purpose of determining any such interest rate, the Administrative Agent
shall determine such interest rate on the basis of timely information furnished
by the remaining Reference Banks. The Administrative Agent shall give prompt
notice to the Borrower and the Lenders of the applicable interest rate
determined by the Administrative
<PAGE>
Agent for purposes of Section 2.06(a)(i) or (ii), and the rate, if any,
furnished by each Reference Bank for the purpose of determining the interest
rate under Section 2.06(a)(ii).
(b) If, with respect to any Eurodollar Rate Advances, the
Required Lenders notify the Administrative Agent that the Eurodollar Rate for
any Interest Period for such Advances will not adequately reflect the cost to
such Required Lenders of making, funding or maintaining their respective
Eurodollar Rate Advances for such Interest Period, the Administrative Agent
shall forthwith so notify the Borrower and the Lenders, whereupon (i) each
Eurodollar Rate Advance will automatically, on the last day of the then existing
Interest Period therefor, Convert into a Base Rate Advance, and (ii) the
obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended until the Administrative Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist.
(c) If the Borrower shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify the Borrower and the Lenders and
such Advances will automatically, on the last day of the then existing Interest
Period therefor, Convert into Base Rate Advances.
(d) Upon the occurrence and during the continuance of any
Event of Default, (i) each Eurodollar Rate Advance will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Base Rate
Advance and (ii) the obligation of the Lenders to make, or to Convert Advances
into, Eurodollar Rate Advances shall be suspended.
(e) If fewer than two Reference Banks furnish timely
information to the Administrative Agent for determining the Eurodollar Rate for
any Eurodollar Rate Advances,
(i) the Administrative Agent shall forthwith notify the
Borrower and the Lenders that the interest rate cannot be determined
for such Eurodollar Rate Advances,
(ii) each such Advance will automatically, on the last day of
the then existing Interest Period therefor, Convert into a Base Rate
Advance (or if such Advance is then a Base Rate Advance, will continue
as a Base Rate Advance), and
(iii) the obligation of the Lenders to make, or to Convert
Advances into, Eurodollar Rate Advances shall be suspended until the
Administrative Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist.
SECTION 2.08. Optional Conversion of Advances. The Borrower
may on any Business Day, upon notice given to the Administrative Agent not later
than 12:00 Noon
<PAGE>
(New York City time) on the third Business Day prior to the date of the proposed
Conversion and subject to the provisions of Sections 2.07 and 2.11, Convert all
Advances of one Type comprising the same Borrowing into Advances of the other
Type; provided, however, that any Conversion of Eurodollar Rate Advances into
Base Rate Advances shall be made only on the last day of an Interest Period for
such Eurodollar Rate Advances, any Conversion of Base Rate Advances into
Eurodollar Rate Advances shall be in an amount not less than the minimum amount
specified in Section 2.01 and no Conversion of any Advances shall result in more
separate Borrowings than permitted under Section 2.02(b). Each such notice of a
Conversion shall, within the restrictions specified above, specify (i) the date
of such Conversion, (ii) the Advances to be Converted, and (iii) if such
Conversion is into Eurodollar Rate Advances, the duration of the initial
Interest Period for each such Advance. Each notice of Conversion shall be
irrevocable and binding on the Borrower.
SECTION 2.09. Prepayments. (a) The Borrower may, upon at least
three Business Days' notice, in the case of Eurodollar Rate Advances, and same
day notice given not later than 12:00 Noon (New York City time) on any Business
Day, in the case of Base Rate Advances, to the Administrative Agent stating the
proposed date and aggregate principal amount of the prepayment, and if such
notice is given the Borrower shall, prepay the outstanding principal amount of
the Advances comprising part of the same Borrowing in whole or ratably in part,
together with accrued interest to the date of such prepayment on the principal
amount prepaid; provided, however, that (x) each partial prepayment shall be in
an aggregate principal amount of $15,000,000 or an integral multiple of
$1,000,000 in excess thereof and (y) in the event of any such prepayment of a
Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the
Lenders in respect thereof pursuant to Section 8.04(c).
(b) The Borrower shall, on the date of receipt (or such later
date as may be specified in Section 5.02(f)) of the Net Cash Proceeds by the
Borrower or any of its Restricted Subsidiaries from the sale, lease, transfer or
other disposition of any assets of the Borrower or any of its Restricted
Subsidiaries (other than any sale, lease, transfer or other disposition of
assets pursuant to clause (i), (ii), (iii), (iv), (v) or (viii) of Section
5.02(f)), prepay an aggregate principal amount of the Advances comprising part
of the same Borrowings equal to the amount of such Net Cash Proceeds or such
lesser amount as may be required to be prepaid under Section 5.02(f)(vi), (vii)
or (ix) (the amount of such Net Cash Proceeds or such lesser amount being the
"Reduction Amount").
SECTION 2.10. Increased Costs. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law),
there shall be any increase in the cost to any Lender of agreeing to make or
making, funding or maintaining Eurodollar Rate Advances (excluding for purposes
of this Section 2.10 any such increased costs resulting from (i) Taxes or Other
Taxes (as to which Section 2.13
<PAGE>
shall govern) and (ii) changes in the basis of taxation of overall net income or
overall gross income by the United States or by the foreign jurisdiction or
state under the laws of which such Lender is organized or has its Applicable
Lending Office or any political subdivision thereof), then the Borrower shall
from time to time, upon demand by such Lender (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of such
Lender additional amounts sufficient to compensate such Lender for such
increased cost. A certificate as contemplated by Section 2.10(c) as to the
amount of such increased cost, setting forth a reasonable basis for the
calculation thereof, submitted to the Borrower and the Administrative Agent by
such Lender, shall be conclusive and binding for all purposes, absent manifest
error.
(b) If any Lender determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or would
affect the amount of capital required or expected to be maintained by such
Lender or any corporation controlling such Lender and that the amount of such
capital is increased by or based upon the existence of such Lender's commitment
to lend hereunder and other commitments of this type, then, upon demand by such
Lender (with a copy of such demand to the Administrative Agent), the Borrower
shall pay to the Administrative Agent for the account of such Lender, from time
to time as specified by such Lender, additional amounts sufficient to compensate
such Lender or such corporation in the light of such circumstances, to the
extent that such Lender reasonably determines such increase in capital to be
allocable to the existence of such Lender's commitment to lend hereunder. A
certificate as contemplated by Section 2.10(c) as to such amounts submitted to
the Borrower and the Administrative Agent by such Lender, setting forth a
reasonable basis for the calculation thereof, shall be conclusive and binding
for all purposes, absent manifest error.
(c) Each Lender will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, that will entitle such Lender to compensation pursuant to this
Section and will use reasonable efforts (consistent with its internal policy and
legal and regulatory restrictions) to designate a different Applicable Lending
Office if such designation would avoid the need for, or reduce the amount of,
such compensation and would not, in the reasonable judgment of such Lender, be
otherwise disadvantageous to such Lender. In determining such amount, such
Lender may use any reasonable averaging and attribution methods. A certificate
of any Lender claiming compensation under this Section and setting forth in
reasonable detail the additional amount or amounts to be paid to it hereunder
and the basis for the calculation thereof shall be conclusive in the absence of
manifest error.
SECTION 2.11. Illegality. Notwithstanding any other provision
of this Agreement, if any Lender shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for any Lender or its Eurodollar
<PAGE>
Lending Office to perform its obligations hereunder to make Eurodollar Rate
Advances or to fund or maintain Eurodollar Rate Advances hereunder, (i) each
Eurodollar Rate Advance will automatically, upon such demand, Convert into a
Base Rate Advance and (ii) the obligation of the Lenders to make, or to Convert
Advances into, Eurodollar Rate Advances shall be suspended until the
Administrative Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist.
SECTION 2.12. Payments and Computations. (a) The Borrower
shall make each payment hereunder and under the Notes not later than 11:00 A.M.
(New York City time) on the day when due in U.S. dollars to the Administrative
Agent at the Administrative Agent's Account in same day funds. The
Administrative Agent will promptly thereafter cause to be distributed like funds
relating to the payment of principal or interest or commitment fees ratably
(other than amounts payable pursuant to Section 2.10, 2.13 or 8.04(c)) to the
Lenders for the account of their respective Applicable Lending Offices, and like
funds relating to the payment of any other amount payable to any Lender to such
Lender for the account of its Applicable Lending Office, in each case to be
applied in accordance with the terms of this Agreement. Upon its acceptance of
an Assignment and Acceptance and recording of the information contained therein
in the Register pursuant to Section 8.07(d), from and after the effective date
specified in such Assignment and Acceptance, the Administrative Agent shall make
all payments hereunder and under the Notes in respect of the interest assigned
thereby to the Lender assignee thereunder, and the parties to such Assignment
and Acceptance shall make all appropriate adjustments in such payments for
periods prior to such effective date directly between themselves.
(b) The Borrower hereby authorizes each Lender, if and to the
extent payment owed to such Lender is not made when due hereunder or under the
Note held by such Lender, to charge from time to time against any or all of the
Borrower's accounts with such Lender any amount so due. Each Lender agrees
promptly to notify the Borrower after any such charge, provided that the failure
to give such notice shall not affect the validity of such charge.
(c) All computations of interest based on the Base Rate shall
be made by the Administrative Agent on the basis of a year of 365 or 366 days,
as the case may be, and all computations of interest based on the Eurodollar
Rate or the Federal Funds Rate and of commitment fees shall be made by the
Administrative Agent on the basis of a year of 360 days, in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or commitment fees are payable.
Each determination by the Administrative Agent of an interest rate hereunder
shall be conclusive and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of
<PAGE>
payment of interest or commitment fee, as the case may be; provided, however,
that, if such extension would cause payment of interest on or principal of
Eurodollar Rate Advances to be made in the next following calendar month, such
payment shall be made on the next preceding Business Day.
(e) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the Lenders
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the
Administrative Agent, each Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.
SECTION 2.13. Taxes. (a) Subject to Sections 2.13(e) and (f),
any and all payments by the Borrower hereunder or under the Notes shall be made,
in accordance with Section 2.12, free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in the case
of each Lender and each Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it in lieu of overall net income taxes, by the United
States or any political subdivision thereof, or by the jurisdiction under the
laws of which such Lender or such Agent (as the case may be) is organized or any
political subdivision thereof and, in the case of each Lender, taxes imposed on
its overall net income, and franchise taxes imposed on it in lieu of overall net
income taxes, by the jurisdiction of such Lender's Applicable Lending Office or
any political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder or under the Notes being hereinafter referred to as "Taxes"). Subject
to Sections 2.13(e) and (f), if the Borrower shall be required by law to deduct
any Taxes from or in respect of any sum payable hereunder or under any Note to
any Lender or any such Agent, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.13) such Lender or
such Agent (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies that arise from any payment made hereunder or under the Notes
or from the execution, delivery or registration
<PAGE>
of, performing under, or otherwise with respect to, this Agreement or the Notes
(hereinafter referred to as "Other Taxes").
(c) The Borrower shall indemnify each Lender and each Agent
for the full amount of Taxes or Other Taxes (including, without limitation, any
taxes imposed by any jurisdiction on amounts payable under this Section 2.13)
imposed on or paid by such Lender or such Agent (as the case may be) and any
liability (including penalties, additions to tax, interest and expenses) arising
therefrom or with respect thereto. This indemnification shall be made within 30
days from the date such Lender or such Agent (as the case may be) makes written
demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 8.02, the original or a certified copy of a receipt evidencing
payment thereof. In the case of any payment hereunder or under the Notes by or
on behalf of the Borrower through an account or branch outside the United States
or by or on behalf of the Borrower by a payor that is not a United States
person, if the Borrower determines that no Taxes are payable in respect thereof,
the Borrower shall furnish, or shall cause such payor to furnish, to the
Administrative Agent, at such address, an opinion of counsel acceptable to the
Administrative Agent stating that such payment is exempt from Taxes. For
purposes of this subsection (d) and subsection (e), the terms "United States"
and "United States person" shall have the meanings specified in Section 7701 of
the Internal Revenue Code.
(e) Each Lender organized under the laws of a jurisdiction
outside the United States, on or prior to the date of its execution and delivery
of this Agreement in the case of each Initial Lender and on the date of the
Assignment and Acceptance pursuant to which it becomes a Lender in the case of
each other Lender, and from time to time thereafter as reasonably requested in
writing by the Borrower (but only so long as such Lender remains lawfully able
to do so), shall provide each of the Administrative Agent and the Borrower with
two original Internal Revenue Service forms 1001 or 4224, as appropriate, or any
successor or other form prescribed by the Internal Revenue Service, certifying
that such Lender is exempt from or entitled to a reduced rate of United States
withholding tax on payments pursuant to this Agreement or the Notes. If the
forms provided by a Lender at the time such Lender first becomes a party to this
Agreement indicate a United States interest withholding tax rate in excess of
zero, withholding tax at such rate shall be considered excluded from Taxes
unless and until such Lender provides the appropriate forms certifying that a
lesser rate applies, whereupon withholding tax at such lesser rate only shall be
considered excluded from Taxes for periods governed by such forms; provided,
however, that, if at the date of the Assignment and Acceptance pursuant to which
a Lender assignee becomes a party to this Agreement, the Lender assignor was
entitled to payments under subsection (a) in respect of United States
withholding tax with respect to interest paid at such date, then, to such
extent, the term Taxes shall include (in addition to withholding taxes that may
be imposed in the
<PAGE>
future or other amounts otherwise includable in Taxes) United States withholding
tax, if any, applicable with respect to the Lender assignee on such date.
(f) For any period with respect to which a Lender has failed
to provide the Borrower with the appropriate form described in Section 2.13(e)
(other than if such failure is due to a change in law occurring subsequent to
the date on which a form originally was required to be provided, or if such form
otherwise is not required under the first sentence of subsection (e) above
because the Borrower has not requested in writing such form subsequent to the
date on which such Lender became a Lender hereunder), such Lender shall not be
entitled to indemnification under Section 2.13(a) or (c) with respect to Taxes
imposed by the United States by reason of such failure; provided, however, that
should a Lender become subject to Taxes because of its failure to deliver a form
required hereunder, the Borrower shall take such steps as the Lender shall
reasonably request to assist the Lender to recover such Taxes.
(g) Any Lender claiming any additional amounts payable
pursuant to this Section 2.13 agrees to use reasonable efforts (consistent with
its internal policy and legal and regulatory restrictions) to change the
jurisdiction of its Eurodollar Lending Office if the making of such a change
would avoid the need for, or reduce the amount of, any such additional amounts
that may thereafter accrue and would not, in the reasonable judgment of such
Lender, be otherwise disadvantageous to such Lender.
SECTION 2.14. Sharing of Payments, Etc. If any Lender shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of the Advances owing to it (other
than pursuant to Section 2.10, 2.13 or 8.04(c)) in excess of its ratable share
of payments on account of the Advances obtained by all the Lenders, such Lender
shall forthwith purchase from the other Lenders such participations in the
Advances owing to them as shall be necessary to cause such purchasing Lender to
share the excess payment ratably with each of them; provided, however, that if
all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent of
such recovery together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 2.14
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of the Borrower in the amount of such
participation.
SECTION 2.15. Use of Proceeds. The proceeds of the Advances
shall be available (and the Borrower agrees that it shall use such proceeds)
solely for general corporate
<PAGE>
purposes of the Borrower and its Subsidiaries, including, without limitation, to
repay the ICN Acquisition Debt, to finance Investments permitted under Section
5.02(h) and for Non-hostile Acquisitions.
SECTION 2.16. Substitution of Lenders. In the event that (x)
any Lender, pursuant to Section 2.10, 2.11 or 2.13 hereof, incurs any increased
costs, receives a reduced payment or is required to make any payment for which
such Lender demands compensation pursuant to such Section, which compensation
increases the effective lending rate of such Lender in excess of the effective
lending rate of the other Lenders, and such Lender has not mitigated such
increased costs, reduced payment or additional payment within 60 days after
receipt by such Lender from the Borrower of a written notice that such Lender's
effective lending rate has so exceeded the effective lending rate of the other
Lenders, or (y) any Lender has determined pursuant to Section 2.07 hereof that
it may not make or maintain all or certain of its Eurodollar Rate Advances at
such time (and the other Lenders shall continue to be able to make or maintain
their corresponding Eurodollar Rate Advances at such time) and the inability of
such Lender to make or maintain such Eurodollar Rate Advances continues for 60
or more days after the receipt by such Lender from the Borrower of written
notice of such inability and that the Borrower requests that such Lender
alleviate such inability, then and in any such event, the Borrower may
substitute for such Lender (the "Affected Lender") another financial
institution, which financial institution shall be an Eligible Assignee, for such
Lender to assume the Commitment of such Affected Lender and to purchase the Note
of such Affected Lender hereunder in accordance with Section 8.07. Such
assumption and purchase shall be effected by execution and delivery by such
Affected Lender and such replacement Lender of an Assignment and Acceptance, and
shall otherwise be made in the manner described in Section 8.07, provided that
the Affected Lender's obligation to so assign and sell its Commitment and Note
shall be subject to the condition that all amounts owing to such Affected Lender
(including, without limitation, principal, accrued and unpaid interest and fees,
and all amounts owing to such Affected Lender under Sections 2.10, 2.11, 2.13
and 8.04) shall have been paid in full.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Section
2.01. Section 2.01 of this Agreement shall become effective on and as of the
first date (the "Effective Date") on which the following conditions precedent
have been satisfied:
(a) There shall have occurred no Material Adverse Change since
December 31, 1995.
<PAGE>
(b) There shall exist no action, suit, investigation,
litigation or proceeding affecting the Borrower or any of its
Subsidiaries pending or threatened before any court, governmental
agency or arbitrator that (i) would be reasonably likely to have a
Material Adverse Effect or (ii) purports to affect the legality,
validity or enforceability of this Agreement or any Note or the
consummation of the transactions contemplated hereby.
(c) The Lenders shall have received the Information Package,
and be satisfied with the Consolidated financial statements of the
Borrower and its Subsidiaries for the six months ended June 30, 1996.
(d) Nothing shall have come to the attention of the Lenders
during the course of their due diligence investigation to lead them to
believe that the Information Package was or has become misleading,
incorrect or incomplete in any material respect; without limiting the
generality of the foregoing, the Lenders shall have been given such
access to the management, records, books of account, contracts and
properties of the Borrower and its Subsidiaries as they shall have
reasonably requested.
(e) All governmental and third party consents and approvals
necessary in connection with the transactions contemplated hereby shall
have been obtained (without the imposition of any conditions that are
not acceptable to the Lenders in their reasonable judgment) and shall
remain in effect, and no law or regulation shall be applicable in the
reasonable judgment of the Lenders that restrains, prevents or imposes
materially adverse conditions upon the transactions contemplated
hereby.
(f) The Lenders shall be reasonably satisfied with (i) the
terms and conditions of all arrangements and agreements between the
Borrower or any of its Subsidiaries on the one hand and Sprint or any
of its Subsidiaries or Affiliates on the other hand, and (ii) the
corporate and legal structure and capitalization of the Borrower,
including the terms and conditions of the charter, bylaws and each
class of capital stock of the Borrower and of each agreement or
instrument relating to such structure or capitalization other than the
agreements and instruments listed on Schedule 3.01(f) hereto; since the
execution of this Agreement by the Lenders, there shall have been no
change in any agreement or instrument listed on Schedule 3.01(f) hereto
that, in the reasonable judgment of the Lenders, adversely affects the
Borrower or the Lenders, other than changes reasonably acceptable to
the Lenders.
(g) The Borrower shall have paid all accrued fees and expenses
of the Agents (including the accrued fees and expenses of counsel to
the Administrative Agent) and all accrued fees of the Initial Lenders
and the Existing Lenders (including, without limitation, upfront fees
and commitment fees).
<PAGE>
(h) The Borrower shall have given each Agent at least three
Business Days' prior written notice as to the proposed Effective Date.
(i) On the Effective Date, the following statements shall be
true and the Administrative Agent shall have received for the account
of each Lender a certificate signed by a duly authorized officer of the
Borrower, dated the Effective Date, stating that:
(i) The representations and warranties contained in
Section 4.01 are correct on and as of the Effective Date, and
(ii) No event has occurred and is continuing that
constitutes a Default.
(j) The Administrative Agent shall have received on or before
the Effective Date the following, each dated such day, in form and
substance satisfactory to the Administrative Agent and (except for the
Notes) in sufficient copies for each Lender:
(i) The Notes to the order of the Lenders,
respectively.
(ii) Certified copies of the resolutions of the Board
of Directors of the Borrower approving this Agreement and the
Notes, and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with
respect to this Agreement and the Notes.
(iii) A certificate of the Secretary or an Assistant
Secretary of the Borrower certifying the names and true
signatures of the officers of the Borrower authorized to sign
this Agreement and the Notes and the other documents to be
delivered hereunder.
(iv) A copy of the most recent letters from each of
S&P, Moody's and Duff & Phelps, certified by the chief
financial officer of the Borrower, confirming the Public Debt
Rating then in effect.
(v) A certified copy of the Exchange and Merger
Agreement as in effect on the Effective Date, together with
any amendments thereto or waivers thereof.
(vi) A favorable opinion of Kevin Gallagher, General
Counsel of the Borrower, substantially in the form of Exhibit
D hereto and as to such other matters as any Lender through
the Administrative Agent may reasonably request.
<PAGE>
(vii) A favorable opinion of Shearman & Sterling,
counsel for the Administrative Agent, in form and substance
satisfactory to the Administrative Agent.
SECTION 3.02. Conditions Precedent to Each Borrowing. The
obligation of each Lender to make an Advance pursuant to Sections 2.01(b) and
2.02 on the occasion of each Borrowing shall be subject to the conditions
precedent that the Effective Date shall have occurred and on the date of such
Borrowing (a) the following statements shall be true (and each of the giving of
the applicable Notice of Borrowing and the acceptance by the Borrower of the
proceeds of such Borrowing shall constitute a representation and warranty by the
Borrower that on the date of such Borrowing such statements are true):
(i) the representations and warranties contained in Section
4.01 are correct on and as of the date of such Borrowing, before and
after giving effect to such Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date, and
(ii) no event has occurred and is continuing, or would result
from such Borrowing or from the application of the proceeds therefrom,
that constitutes a Default;
and (b) the Administrative Agent shall have received such other approvals,
opinions or documents as any Lender through the Administrative Agent may
reasonably request.
SECTION 3.03. Determinations Under Section 3.01. For purposes
of determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Administrative Agent responsible for the transactions contemplated by
this Agreement shall have received notice from such Lender prior to the date
that the Borrower, by notice to the Lenders, designates as the proposed
Effective Date, specifying its objection thereto. The Administrative Agent shall
promptly notify the Agents and the Lenders of the occurrence of the Effective
Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
<PAGE>
(a) The Borrower (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and (ii) has all requisite corporate power and authority
(including, without limitation, all governmental licenses, permits and
other approvals and all intellectual property) to own or lease and
operate its properties and to carry on its business as now conducted
and as proposed to be conducted.
(b) Set forth on Schedule 4.01(b) hereto is a complete and
accurate list of all Restricted Subsidiaries showing as of the Original
Effective Date (as to each such Restricted Subsidiary) whether it is a
Major Subsidiary or a Minor Subsidiary, the jurisdiction of its
incorporation or organization, the number of shares of each class of
capital stock authorized (if applicable), and the number outstanding,
as of the Original Effective Date and the percentage of the outstanding
shares (or other ownership interest, as applicable) of each such class
owned (directly or indirectly) by the Borrower and the number of shares
(or other ownership interest, as applicable) covered by all outstanding
options, warrants, rights of conversion or purchase and similar rights
as of the Original Effective Date. Each Restricted Subsidiary (i) is a
corporation duly organized, validly existing and in good standing or a
partnership or joint venture validly organized and in good standing
under the laws of the jurisdiction of its incorporation or organization
and (ii) has all requisite corporate power and authority (including,
without limitation, all governmental licenses, permits and other
approvals) to own or lease and operate its properties and to carry on
its business as now conducted and as proposed to be conducted except
where the failure to have such authority would not be reasonably likely
to have a Material Adverse Effect. As of the Effective Date, there are
no Unrestricted Subsidiaries.
(c) The execution, delivery and performance by the Borrower of
this Agreement and the Notes, and the consummation of the transactions
contemplated hereby, are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, and do not
contravene (i) the Borrower's charter or bylaws or (ii) law or any
material contractual restriction binding on the Borrower or to which
the Borrower is subject. Neither the Borrower nor any of the Borrower's
Subsidiaries nor, to the best of the Borrower's knowledge, any other
party to any Material Contract is in breach of such Material Contract,
except where such breach would not be reasonably likely to have a
Material Adverse Effect.
(d) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
or any other third party is required for the due execution, delivery
and performance by the Borrower of this Agreement or the Notes or for
the consummation of the transactions contemplated hereby, except for
those authorizations, approvals, actions, notices and filings listed on
Schedule 4.01(d) hereto or, upon the occurrence of the ICN Acquisition,
the consummation of the ICN Acquisition
<PAGE>
except for those authorizations, approvals, actions, notices and
filings as may be required in connection therewith, all of which have
been duly obtained, taken, given or made and are in full force and
effect except, with respect to authorizations, approvals, actions,
notices and filings required by third parties (other than any
governmental authority or regulatory body) in connection with the
Spin-Off and the ICN Acquisition, those which the failure to obtain,
take, give or make would not be reasonably likely to be materially
adverse to the Borrower and its Subsidiaries, taken as a whole.
(e) This Agreement has been, and each of the Notes when
delivered hereunder will have been, duly executed and delivered by the
Borrower. This Agreement is, and each of the Notes when delivered
hereunder will be, the legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with their
respective terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally.
(f) The Consolidated balance sheet of the Borrower and its
Subsidiaries as at December 31, 1995, and the related Consolidated
statements of income and cash flows of the Borrower and its
Subsidiaries for the fiscal year then ended, accompanied by an opinion
of Ernst & Young LLP, independent public accountants, and the
Consolidated balance sheet of the Borrower and its Subsidiaries as at
June 30, 1996, and the related Consolidated statements of income and
cash flows of the Borrower and its Subsidiaries for the 6 months then
ended, duly certified by the chief financial officer of the Borrower,
copies of which have been furnished to each Lender, fairly present,
subject, in the case of said balance sheet as at June 30, 1996, and
said statements of income and cash flows for the 6 months then ended,
to year-end audit adjustments, the Consolidated financial condition of
the Borrower and its Subsidiaries as at such dates and the Consolidated
results of the operations of the Borrower and its Subsidiaries for the
periods ended on such dates, all in accordance with generally accepted
accounting principles consistently applied. Since December 31, 1995,
there has been no Material Adverse Change.
(g) There is no pending or threatened action, suit,
investigation, litigation or proceeding, including, without limitation,
any Environmental Action, affecting the Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator that
(i) would be reasonably likely to have a Material Adverse Effect or
(ii) purports to affect the legality, validity or enforceability of
this Agreement or any Note or the consummation of the transactions
contemplated hereby.
(h) The Consolidated forecasted balance sheets, income
statements and cash flows statements of the Borrower and its
Subsidiaries delivered to the Lender Parties in the Information
Memorandum, the Information Package or pursuant to Section 5.01(i)(iii)
(collectively, the "Projections") were prepared in good faith on the
basis of the
<PAGE>
assumptions stated therein, which assumptions were fair in the light of
conditions existing at the time of delivery of such forecasts, and
represented, at the time of delivery and, in the case of the
Projections contained in the Information Memorandum, at the time of the
Original Effective Date, and in the case of the Projections contained
in the Information Package, at the time of the Effective Date, the
Borrower's reasonable estimate of its future financial performance but
without any assurance by the Borrower of the future achievement of such
performance; none of the Information Memorandum, the Information
Package or any other information, exhibits or reports, taken as a
whole, furnished by the Borrower to any Agent or any Lender in
connection with the negotiation of this Agreement and the Notes or
pursuant to the terms of hereof (other than the Projections) contained
at the time they were furnished any untrue statement of a material fact
or omitted to state a material fact necessary to make the statements
made therein, in light of the circumstances under which they were made,
not misleading.
(i) The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System), and no proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock (other than, to
the extent applicable, in connection with the acquisitions referred to
in Section 4.01(j)).
(j) No proceeds of any Advance will be used to acquire any
equity security of a class that is registered pursuant to Section 12 of
the Securities Exchange Act of 1934 (other than, to the extent
applicable, in connection with a Non-hostile Acquisition).
(k) Following application of the proceeds of each Advance, not
more than 25% of the value of the assets (either of the Borrower only
or of the Borrower and its Subsidiaries on a Consolidated basis)
subject to the provisions of Section 5.02(a) or 5.02(f) or subject to
any restriction contained in any agreement or instrument between the
Borrower and any Lender or any Affiliate of any Lender relating to Debt
and within the scope of Section 6.01(d) will be margin stock (within
the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System).
(l) No ERISA Event has occurred or is reasonably expected to
occur with respect to any Plan.
(m) As of the last annual actuarial valuation date, the funded
current liability percentage, as defined in Section 302(d)(8) of ERISA,
of each Plan exceeds 90% and there has been no material adverse change
in the funding status of any such Plan since such date.
<PAGE>
(n) Neither the Borrower nor any ERISA Affiliate has incurred
or is reasonably expected to incur any Withdrawal Liability to any
Multiemployer Plan.
(o) Neither the Borrower nor any ERISA Affiliate has been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or has been terminated, within the meaning of
Title IV of ERISA, and no such Multiemployer Plan is reasonably
expected to be in reorganization or to be terminated, within the
meaning of Title IV of ERISA.
(p) Except as set forth in the financial statements referred
to in this Section 4.01 and in Section 5.01, the Borrower and its
Subsidiaries have no material liability with respect to "expected post
retirement benefit obligations" within the meaning of Statement of
Financial Accounting Standards No. 106.
(q) The operations and properties of the Borrower and each of
its Subsidiaries comply with all applicable Environmental Laws and
Environmental Permits except where the failure to comply would not be
reasonably likely to have a Material Adverse Effect, all past
non-compliance with such Environmental Laws and Environmental Permits
has been resolved without ongoing obligations or costs except where the
failure to be so resolved would not be reasonably likely to have a
Material Adverse Effect, and, to the best knowledge of the Borrower, no
event has occurred or condition exists that would be reasonably likely
to (i) form the basis of an Environmental Action against the Borrower
or any of its Subsidiaries or any of their properties that would be
reasonably likely to have a Material Adverse Effect or (ii) cause any
such property to be subject to any restrictions on ownership,
occupancy, use or transferability under any Environmental Law that
would be reasonably likely to have a Material Adverse Effect.
(r) None of the properties currently or formerly owned or
operated by the Borrower or any of its Subsidiaries is listed or
proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("NPL") or on the Comprehensive Environmental Response,
Compensation and Liability Information System maintained by the U.S.
Environmental Protection Agency ("CERCLIS") or any analogous foreign,
state or local list or, to the knowledge of the Borrower, is adjacent
to any such property; there are no and never have been any underground
or aboveground storage tanks or any surface impoundments, septic tanks,
pits, sumps or lagoons in which Hazardous Materials are being or have
been treated, stored or disposed of on any property currently owned or
operated by the Borrower or any of its Subsidiaries or, to its
knowledge, on any property formerly owned or operated by the Borrower
or any of its Subsidiaries; there is no asbestos or asbestos-containing
material on any property currently owned or operated by the Borrower or
any of its Subsidiaries; and Hazardous Materials have not been
released, discharged or disposed of on any
<PAGE>
property currently or formerly owned or operated by the Borrower or any
of its Subsidiaries or, to its knowledge, any adjoining property,
except where the events or conditions giving rise to the listing or
proposed listing of properties or adjacent properties, the presence of
storage tanks, surface impoundments, septic tanks, pits, sumps,
lagoons, asbestos or asbestos-containing material and the release,
discharge or disposal of Hazardous Materials described in this
subsection would not, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect. For purposes of this
subsection, "knowledge" means the knowledge of any current Responsible
Officer or regional vice president of the Borrower or any current
employee of the Borrower involved in environmental management.
(s) Neither the Borrower nor any of its Subsidiaries is
undertaking, and has not completed, either individually or together
with other potentially responsible parties, any investigation or
assessment or remedial or response action relating to any actual or
threatened release, discharge or disposal of Hazardous Materials at any
site, location or operation, either voluntarily or pursuant to the
order of any governmental or regulatory authority or the requirements
of any Environmental Law that would reasonably be expected to have a
Material Adverse Effect; and all Hazardous Materials generated, used,
treated, handled or stored at or transported to or from any property
currently or formerly owned or operated by the Borrower or any of its
Subsidiaries have been disposed of in a manner not reasonably expected
to result in a Material Adverse Effect.
(t) Neither the Borrower nor any of its Subsidiaries is an
"investment company," or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended. Neither the
making of any Advances nor the application of the proceeds or repayment
thereof by the Borrower, nor the consummation of the other transactions
contemplated hereby, will violate any provision of such Act or any
rule, regulation or order of the Securities and Exchange Commission
thereunder.
(u) The Spin-Off will not be taxable to the Borrower or Sprint
or any of their Subsidiaries or Affiliates or shareholders.
(v) The common parent of the affiliated group (within the
meaning of Section 1504(a)(1) of the Internal Revenue Code) of which
the Borrower is a member has paid to the Internal Revenue Service or
other taxing authority the full amount that such affiliated group is
required to pay in respect of Federal income tax for all fiscal years
of the Borrower ending on or before December 31, 1995 except any such
taxes which are being contested in good faith and by appropriate
proceedings and for which adequate provision has been made and the
Borrower and its Subsidiaries have received any amounts payable to
them, and have not paid amounts in respect of taxes (Federal, state,
local or
<PAGE>
foreign) in excess of the amount they are required to pay, under any
tax agreements to which they are a party.
(w) The Borrower and each of its Subsidiaries is in
compliance, in all material respects, with all applicable laws, rules,
regulations and orders, except in any case where the failure to so
comply, either individually or in the aggregate, would not be
reasonably likely to have a Material Adverse Effect.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance
shall remain unpaid or any Lender shall have any Commitment hereunder, the
Borrower will:
(a) Compliance with Laws, Etc. Comply, and cause each of its
Restricted Subsidiaries to comply, in all material respects, with all
applicable laws, rules, regulations and orders, such compliance to
include, without limitation, compliance with ERISA and Environmental
Laws as provided in Section 5.01(j), except in any case where the
failure to so comply, either individually or in the aggregate, would
not be reasonably likely to be materially adverse to the Borrower, its
Restricted Subsidiaries or the Lenders.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each
of its Restricted Subsidiaries to pay and discharge, before the same
shall become delinquent, (i) all income and other material taxes,
assessments and governmental charges or levies imposed upon it or upon
its property and (ii) all lawful claims that, if unpaid, might by law
become a Lien upon its property to the extent not otherwise permitted
under Section 5.02(a); provided, however, that neither the Borrower nor
any of its Restricted Subsidiaries shall be required to pay or
discharge any such tax, assessment, charge or claim that is being
contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained, unless and until any Lien
resulting therefrom attaches to its property and becomes enforceable
against its other creditors.
(c) Maintenance of Insurance. Maintain, and cause each of its
Restricted Subsidiaries to maintain, insurance with responsible and
reputable insurance companies or associations in such amounts and
covering such risks as is customarily carried by companies engaged in
similar businesses and owning similar properties, taking into account
the general areas in which the Borrower or such Restricted Subsidiary
operates.
<PAGE>
(d) Preservation of Corporate Existence, Etc. Preserve and
maintain, and cause each of its Restricted Subsidiaries to preserve and
maintain, its corporate or partnership existence, rights (charter and
statutory), permits, licenses, approvals, privileges and franchises;
provided, however, that the Borrower and its Restricted Subsidiaries
may consummate any merger or consolidation permitted under Section
5.02(b) and provided further that neither the Borrower nor any of its
Restricted Subsidiaries shall be required to preserve or maintain the
corporate or partnership existence of any Restricted Subsidiary or any
right, permit, license, approval, privilege or franchise if, in the
case of the preservation and maintenance of the corporate or
partnership existence of any Restricted Subsidiary, the Board of
Directors of the entity owning such Restricted Subsidiary or, in any
other case, a Responsible Officer of the Borrower or Restricted
Subsidiary with authority to do so, in his or her reasonable business
judgment, shall determine that the preservation and maintenance thereof
is no longer desirable in the conduct of the business of the Borrower
or such Restricted Subsidiary, as the case may be, and that the loss
thereof is not disadvantageous in any material respect to the Borrower
or such Restricted Subsidiary or the Lenders.
(e) Visitation Rights. At any reasonable time and from time to
time (which, so long as no Default shall have occurred and be
continuing, shall be upon reasonable prior telephonic notice), permit
any Agent or any of the Lenders or any agents or representatives
thereof, to examine and make copies of and abstracts from the records
and books of account of, and visit the properties of, the Borrower and
any of its Restricted Subsidiaries, and to discuss the affairs,
finances and accounts of the Borrower and any of its Restricted
Subsidiaries with any of their officers or directors and with their
independent certified public accountants.
(f) Keeping of Books. Keep, and cause each of its Restricted
Subsidiaries to keep, proper books of record and account, in which full
and correct entries shall be made of all financial transactions and the
assets and business of the Borrower and each such Restricted Subsidiary
in accordance with generally accepted accounting principles in effect
from time to time.
(g) Maintenance of Properties, Etc. Except as otherwise
permitted by this Agreement, maintain and preserve, and cause each of
its Restricted Subsidiaries to maintain and preserve, all of its
properties that are used or useful in the conduct of its business in
good working order and condition, ordinary wear and tear excepted.
(h) Transactions with Affiliates. Conduct, and cause each of
its Subsidiaries to conduct, all transactions otherwise permitted under
this Agreement with any of their Affiliates or with Sprint or any of
its Subsidiaries or Affiliates or with ICNP or any of its Subsidiaries
or Affiliates on terms that are fair and reasonable and no less
favorable to the
<PAGE>
Borrower than it would obtain in a comparable arm's-length transaction
with a Person not an Affiliate, other than as set forth on Schedule
5.01(h) hereto.
(i) Reporting Requirements. Furnish to the Lenders:
(i) as soon as available and in any event within 45
days (or, in the case of clause (i) below, 60 days) after the
end of each of the first three quarters of each fiscal year of
the Borrower, Consolidated balance sheets of the Borrower and
its Subsidiaries and of the Unrestricted Subsidiaries as of
the end of such quarter and Consolidated statements of income
and cash flows of the Borrower and its Subsidiaries and of the
Unrestricted Subsidiaries for the period commencing at the end
of the previous fiscal year and ending with the end of such
quarter, duly certified (subject to year-end audit
adjustments) by the chief financial officer of the Borrower as
having been prepared in accordance with generally accepted
accounting principles and certificates of the chief financial
officer of the Borrower as to (i) the identity of all Major
Subsidiaries and Minor Subsidiaries and the percentage of
outstanding shares of each class of capital stock (or other
ownership interest) directly or indirectly owned by the
Borrower for each such Subsidiary as at the end of such
quarter, (ii) a statement of reconciliation setting forth the
accounting adjustments used in the Consolidation of the
financial statements of the Unrestricted Subsidiaries with
those of the Borrower and its Subsidiaries and (iii)
compliance with the terms of this Agreement and setting forth
in reasonable detail the calculations necessary to demonstrate
compliance with Section 5.03, provided that in the event of
any change in GAAP used in the preparation of such financial
statements of the Borrower and its Restricted Subsidiaries,
the Borrower shall also provide, if necessary for the
determination of compliance with Section 5.03, a statement of
reconciliation conforming such financial statements to GAAP;
(ii) as soon as available and in any event within 90
days after the end of each fiscal year of the Borrower, a copy
of the annual audit report for such year for the Borrower and
its Subsidiaries, containing Consolidated balance sheets of
the Borrower and its Subsidiaries and of the Unrestricted
Subsidiaries as of the end of such fiscal year and
Consolidated statements of income and cash flows of the
Borrower and its Subsidiaries and of the Unrestricted
Subsidiaries for such fiscal year, in each case accompanied by
an opinion acceptable to the Required Lenders by Ernst & Young
LLP or other independent public accountants acceptable to the
Required Lenders, provided that in the event of any change in
GAAP used in the preparation of such financial statements of
the Borrower and its Restricted Subsidiaries, the Borrower
shall also provide, if necessary for the determination of
compliance with Section 5.03, a statement of reconciliation
conforming such financial statements to GAAP and certificates
of the chief financial officer of the
<PAGE>
Borrower as to (i) the identity of all Major Subsidiaries and
Minor Subsidiaries, the percentage of outstanding shares of
each class of capital stock (or other ownership interest)
directly or indirectly owned by the Borrower, and the total
assets, intercompany Debt, Debt owing to third parties and
equity, for each such Subsidiary as at the end of the fiscal
year then ended and total service revenues, equipment sales
and EBITDA for each such Subsidiary for the fiscal year then
ended, (ii) a statement of reconciliation setting forth the
accounting adjustments used in the Consolidation of the
financial statements of the Unrestricted Subsidiaries with
those of the Borrower and its Subsidiaries and (iii)
compliance with the terms of this Agreement and setting forth
in reasonable detail the calculations necessary to demonstrate
compliance with Section 5.03;
(iii) as soon as available and in any event no later
than 45 days after the end of each fiscal year of the
Borrower, forecasts prepared by management of the Borrower, in
form reasonably satisfactory to the Agents, of Consolidated
balance sheets, income statements and cash flow statements on
a quarterly basis for the fiscal year following such fiscal
year then ended and on an annual basis for two fiscal years
thereafter;
(iv) as soon as possible and in any event within five
Business Days after a Responsible Officer of the Borrower or
any Restricted Subsidiary knows or reasonably should know of
the occurrence of each Default continuing on the date of such
statement, a statement of the chief financial officer of the
Borrower setting forth details of such Default and the action
that the Borrower has taken and proposes to take with respect
thereto;
(v) promptly after the sending or filing thereof,
copies of all reports that the Borrower sends to its
securityholders in a general distribution, and copies of all
reports and effective registration statements that the
Borrower or any Subsidiary files with the Securities and
Exchange Commission or any national securities exchange (other
than registration statements on Form S-8 and Annual Reports on
Form 11-K);
(vi) promptly after the commencement thereof, notice
of all actions and proceedings before any court, governmental
agency or arbitrator affecting the Borrower or any of its
Subsidiaries of the type described in Section 4.01(g)(i) or
(ii) of which a Responsible Officer of the Borrower or any
Restricted Subsidiary has or reasonably should have knowledge;
(vii) (i) promptly and in any event within 10 days
after the Borrower or any ERISA Affiliate knows or has reason
to know that any ERISA Event has
<PAGE>
occurred, a statement of the chief financial officer of the
Borrower describing such ERISA Event and the action, if any,
that the Borrower or such ERISA Affiliate has taken and
proposes to take with respect thereto and (ii) on the date any
records, documents or other information must be furnished to
the PBGC with respect to any Plan pursuant to Section 4010 of
ERISA, a copy of such records, documents and information;
(viii) promptly and in any event within two Business
Days after receipt thereof by the Borrower or any ERISA
Affiliate, copies of each notice from the PBGC stating its
intention to terminate any Plan or to have a trustee appointed
to administer any Plan;
(ix) promptly and in any event within 30 days after
the filing thereof with the Internal Revenue Service, copies
of each Schedule B (Actuarial Information) to the annual
report (Form 5500 Series) with respect to each Plan;
(x) promptly and in any event within five Business
Days after receipt thereof by the Borrower or any ERISA
Affiliate from the sponsor of a Multiemployer Plan, copies of
each notice concerning (A) the imposition of Withdrawal
Liability by any such Multiemployer Plan, (B) the
reorganization or termination, within the meaning of Title IV
of ERISA, of any such Multiemployer Plan or (C) the amount of
liability incurred, or that may be incurred, by the Borrower
or any ERISA Affiliate in connection with any event described
in clause (A) or (B);
(xi) promptly after the assertion or occurrence
thereof, notice of any Environmental Action against or of any
noncompliance by the Borrower or any of its Subsidiaries with
any Environmental Law or Environmental Permit that would
reasonably be expected to have a Material Adverse Effect;
(xii) promptly after the designation thereof, notice
of the designation of any Subsidiary of the Borrower as an
Unrestricted Subsidiary;
(xiii) promptly and in any event within five Business
Days after the Borrower obtains knowledge of any such change,
notice that S&P or Moody's has made any change in the Public
Debt Rating;
(xiv) promptly after the occurrence thereof, notice
of any regulatory action or change or any change in, amendment
to or waiver of any term of any Material Contract that, in
each case, would be reasonably likely to have a Material
<PAGE>
Adverse Effect of which a Responsible Officer has or
reasonably should have knowledge; and
(xv) such other information respecting the Borrower
or any of its Subsidiaries as any Lender through the
Administrative Agent may from time to time reasonably request.
(j) Compliance with Environmental Laws. Comply, and cause each
of its Restricted Subsidiaries and all lessees and other Persons
operating or occupying its properties to comply, in all material
respects, with all applicable Environmental Laws and Environmental
Permits; obtain and renew and cause each of its Restricted Subsidiaries
to obtain and renew all Environmental Permits necessary for its
operations and properties; and conduct, and cause each of its
Restricted Subsidiaries to conduct, any investigation, study, sampling
and testing, and undertake any cleanup, removal, remedial or other
action necessary to remove and clean up all Hazardous Materials from
any of its properties, in accordance with the requirements of all
Environmental Laws; provided, however, that neither the Borrower nor
any of its Restricted Subsidiaries shall be required to undertake any
such cleanup, removal, remedial or other action to the extent that its
obligation to do so is being contested in good faith and by proper
proceedings and appropriate reserves are being maintained with respect
to such circumstances.
(k) Interest Rate Hedging. Enter into prior to the Effective
Date, and maintain at all times thereafter, interest rate Hedge
Agreements, such that as a result, at least 50% of Debt of the Borrower
and its Subsidiaries of the types described in clauses (a) through (e)
of the definition of "Debt" (including, without limitation, Debt in
respect of the Advances) shall be effectively fixed rate.
SECTION 5.02. Negative Covenants. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Borrower
will not:
(a) Liens, Etc. Create or suffer to exist, or permit any of
its Restricted Subsidiaries to create or suffer to exist, any Lien on
or with respect to any of its properties, whether now owned or
hereafter acquired, or assign, or permit any of its Restricted
Subsidiaries to assign, any right to receive income, other than:
(i) Permitted Liens,
(ii) purchase money Liens upon or in any real
property or equipment acquired or held by the Borrower or any
of its Restricted Subsidiaries in the ordinary course of
business to secure the purchase price of such property or
equipment or to secure Debt incurred solely for the purpose of
financing the
<PAGE>
acquisition of such property or equipment, and Liens existing
on such property or equipment at the time of its acquisition
(other than any such Liens created in contemplation of such
acquisition that were not incurred to finance the acquisition
of such property) or extensions, renewals or replacements of
any of the foregoing for the same or a lesser amount,
provided, however, that no such Lien shall extend to or cover
any properties of any character other than the real property
or equipment being acquired, and no such extension, renewal or
replacement shall extend to or cover any properties not
theretofore subject to the Lien being extended, renewed or
replaced, provided further that the aggregate principal amount
of the indebtedness secured by the Liens referred to in this
clause (ii) shall not exceed the amounts specified therefor in
Section 5.02(d)(iii)(B) at any time outstanding,
(iii) the Liens existing on the Original Effective
Date and described on Schedule 5.02(a) hereto,
(iv) Liens on property of a Person that becomes a
Restricted Subsidiary after the Original Effective Date in
accordance with the terms of Section 5.02(h) or through the
designation of an Unrestricted Subsidiary as a Restricted
Subsidiary existing at the time such Person is merged into or
consolidated with the Borrower or any Restricted Subsidiary of
the Borrower or becomes a Restricted Subsidiary of the
Borrower; provided that such Liens were not created solely in
contemplation of such merger, consolidation or acquisition and
do not extend to any assets other than those of the Person so
merged into or consolidated with the Borrower or such
Restricted Subsidiary or acquired by the Borrower or such
Restricted Subsidiary,
(v) Liens arising in connection with Capitalized
Leases permitted under Section 5.02(d)(iii)(B); provided that
no such Lien shall extend to or cover any assets other than
the assets subject to such Capitalized Leases;
(vi) Liens arising out of judgments or awards (other
than any judgment described in Section 6.01(f) or (g) hereof
and constituting an Event of Default thereunder) in an
aggregate amount outstanding not to exceed $15,000,000 in
respect of which the Borrower or any of its Restricted
Subsidiaries shall in good faith be prosecuting an appeal or
proceedings for review and in respect of which it shall have
secured a subsisting stay of execution pending such appeal or
proceedings for review, provided it shall have set aside on
its books adequate reserves, in accordance with GAAP, with
respect to such judgment or award;
(vii) the replacement, extension or renewal of any
Lien permitted by clause (ii), (iii), (iv) or (v) above upon
or in the same property theretofore subject
<PAGE>
thereto or the replacement, extension or renewal (without
increase in the amount or change in any direct or contingent
obligor) of the Debt secured thereby;
(viii) Liens created in the ordinary course of
business on money market or mutual accounts maintained by the
Borrower and any funds or other assets contained therein in
favor of the financial institution with which such account is
maintained to secure the payment of customary fees and charges
incurred in connection with such account;
(ix) additional Liens securing Debt permitted under
Section 5.02(d)(i)(G); and
(x) Liens on accounts receivable of the Borrower
solely in connection with a transaction permitted by Section
5.02(f)(v).
(b) Mergers, Etc. Merge or consolidate with or into any
Person, or permit any of its Restricted Subsidiaries to do so, except
that: (i) any Subsidiary of the Borrower may merge into or consolidate
with the Borrower and, in connection with any acquisition of a Person
made pursuant to Section 5.02(h), such Person may merge into or
consolidate with the Borrower, so long as, in each case, the Borrower
is the surviving corporation, provided that immediately after giving
effect thereto, the Borrower shall be in pro forma compliance
(calculated based on historical financial statements most recently
furnished or required to be furnished pursuant to Section 5.01(i)) with
the covenants set forth in Section 5.03; (ii) any Major Subsidiary may
merge into or consolidate with any other Major Subsidiary; (iii) any
Minor Subsidiary may merge into or consolidate with any other Minor
Subsidiary; (iv) any Minor Subsidiary may merge into or consolidate
with any Major Subsidiary so long as the surviving entity is a Major
Subsidiary; and (v) any Unrestricted Subsidiary or any other Person may
merge into or consolidate with any Restricted Subsidiary solely, with
respect to mergers or consolidations involving Persons other than
Unrestricted Subsidiaries, in order to consummate an acquisition or
investment permitted under Section 5.02(h), and so long as a Major
Subsidiary is the surviving entity of any such merger or consolidation
to which a Major Subsidiary is a party and a Restricted Subsidiary is
the surviving entity of any such merger or consolidation to which a
Minor Subsidiary is a party, provided that immediately after giving
effect thereto, the Borrower shall be in pro forma compliance
(calculated based on historical financial statements most recently
furnished or required to be furnished pursuant to Section 5.01(i)) with
the covenants set forth in Section 5.03, provided further, in each
case, that no Default shall have occurred and be continuing at the time
of such proposed transaction or would result therefrom.
<PAGE>
(c) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies or
reporting practices, except as required or permitted by generally
accepted accounting principles.
(d) Debt. Create, incur, assume or suffer to exist, or permit
any of its Restricted Subsidiaries to create, incur, assume or suffer
to exist, any Debt other than:
(i) in the case of the Borrower,
(A) Debt in respect of this Agreement and
the Notes,
(B) Debt in respect of the Senior Notes,
(C) Debt existing on the Original Effective
Date and described on Schedule 5.02(d) hereto (the
"Surviving Debt") and Debt in respect of the
Subordinated Notes, and any Debt extending the
maturity of, or refunding or refinancing, in whole or
in part, any Surviving Debt or the Subordinated
Notes, provided that the terms relating to principal
amount, amortization, maturity, collateral (if any)
and subordination (if any), and other material terms
taken as a whole, of any such extending, refunding or
refinancing Debt, and of any agreement entered into
and of any instrument issued in connection therewith,
are no less favorable in any material respect to the
Borrower or the Lenders than the terms of any
agreement or instrument governing the Surviving Debt
or Subordinated Notes, as the case may be, being
extended, refunded or refinanced and the interest
rate applicable to any such extending, refunding or
refinancing Debt does not exceed the then market
interest rate, and provided further that the
principal amount of such Surviving Debt or
Subordinated Notes, as the case may be, shall not be
increased above the principal amount thereof
outstanding immediately prior to such extension,
refunding or refinancing, and the direct and
contingent obligors therefor shall not be changed, as
a result of or in connection with such extension,
refunding or refinancing,
(D) Debt in respect of Hedge Agreements not
entered into for speculative purposes and designed to
hedge against fluctuations in interest rates or
foreign exchange rates incurred in the ordinary
course of business and consistent with prudent
business practice, provided that with respect to
foreign exchange hedging arrangements, such hedging
arrangements shall be in an aggregate notional amount
not to exceed $10,000,000 at any time outstanding,
<PAGE>
(E) Debt owed to any Restricted Subsidiary,
(F) Debt incurred in the ordinary course of
business in an aggregate face amount not to exceed
$7,000,000 outstanding at any time and consisting of
surety bonds, standby letters of credit, trade
letters of credit, bankers' acceptances and
reimbursement obligations in respect thereof,
(G) Debt incurred in the ordinary course of
business maturing within one year from the date
incurred, and aggregating not more than $50,000,000
at any time outstanding, and
(H) additional unsecured Debt (other than
Debt of the type described in clauses (i) and (j) of
the definition of "Debt"), provided that at the time
such Debt is incurred, (i) no Default exists before
or after giving effect to the incurrence of such
Debt, (ii) the maturity thereof is at least two years
after the Termination Date and any amortization
thereof shall commence no earlier than the
Termination Date, (iii) the terms relating to
principal amount, amortization, maturity, collateral
(if any) and subordination (if any), and other
material terms taken as a whole, of such Debt and of
any agreement entered into and of any instrument
issued in connection therewith are no less favorable
in any material respect to the Borrower or the
Lenders than the terms and conditions of this
Agreement, and (iv) the interest rate borne by such
Debt does not exceed 10% per annum; and
(ii) in the case of the Minor Subsidiaries, Debt owed
to the Borrower in an aggregate amount for all such
Subsidiaries not to exceed $25,000,000 at any time
outstanding, and in the case of the Major Subsidiaries, Debt
owed to the Borrower, in each case evidenced by one or more
senior promissory notes; and
(iii) in the case of the Borrower and its Restricted
Subsidiaries,
(A) Debt of any Person that becomes a
Restricted Subsidiary after the date hereof through
Investments made in accordance with the terms of
Section 5.02(h) or through the designation of an
Unrestricted Subsidiary as a Restricted Subsidiary
that is existing at the time such Person becomes a
Restricted Subsidiary (other than Debt incurred
solely in contemplation of such Person becoming a
Subsidiary of the Borrower) in an aggregate principal
amount not to exceed $35,000,000 at any time
outstanding,
<PAGE>
(B) Capitalized Leases and Debt secured by
Liens permitted by Section 5.02(a)(ii) or (v) not to
exceed in the aggregate $25,000,000 at any time
outstanding,
(C) Debt incurred in the ordinary course of
business in connection with the Borrower's cash
management system, consisting of daylight overdrafts
not to exceed in the aggregate $500,000 at any time
outstanding,
(D) Debt incurred in connection with a
transaction permitted by Section 5.02(f)(v), and
(E) indorsement of negotiable instruments
for deposit or collection or similar transactions in
the ordinary course of business.
(e) Lease Obligations. Create, incur, assume or suffer to
exist, or permit any of its Restricted Subsidiaries to create, incur,
assume or suffer to exist, any obligations as lessee for the rental or
hire of real or personal property of any kind under leases or
agreements to lease having an original term of one year or more (other
than Capitalized Leases) that would cause the direct and contingent
liabilities of the Borrower and its Restricted Subsidiaries, on a
Consolidated basis and without duplication, in respect of all such
obligations to exceed $20,000,000 payable in any period of 12
consecutive months.
(f) Sales, Etc. of Assets. Sell, lease, transfer or otherwise
dispose of, or permit any of its Restricted Subsidiaries to sell,
lease, transfer or otherwise dispose of, any assets, or grant any
option or other right to purchase, lease or otherwise acquire any
assets, except:
(i) sales of inventory in the ordinary course of its
business,
(ii) in a transaction authorized by Section 5.02(b),
(iii) sales or other dispositions of damaged,
worn-out or obsolete property that is no longer necessary for
the proper conduct of the business of the Borrower and its
Subsidiaries for fair value in the ordinary course of
business,
(iv) sales or transfers of assets from any Major
Subsidiary to any other Major Subsidiary or from any Minor
Subsidiary to any Restricted Subsidiary for cash and for fair
value,
<PAGE>
(v) the sale of accounts receivable for cash and fair
value in the ordinary course of business of the Borrower and
its Subsidiaries; provided that recourse to the Borrower and
its Subsidiaries in connection with sales of accounts
receivables for cash and fair value under this clause (v)
shall be limited to recourse that is customary in connection
with such sales, it being agreed that recourse with respect to
collectibility of such accounts receivable will not be
considered customary for purposes of this clause (v),
(vi) sales or transfers of assets from any Major
Subsidiary to any Minor Subsidiary for cash and for fair
value,
(vii) sales or transfers of assets from the Borrower
to any Restricted Subsidiary for cash for no less than fair
value,
(viii) sales or transfers of assets from any
Restricted Subsidiary to the Borrower for cash for no more
than fair value, and
(ix) in addition to the foregoing items, sales of
assets for cash and exchanges of assets, in each case for fair
value in an aggregate amount for such sales and exchanges not
to exceed an amount equal to 20% of Consolidated EBITDA of the
Borrower and its Restricted Subsidiaries for the 12-month
period then most recently ended and not to exceed, in the
aggregate from the date hereof to the Termination Date, 35% of
the greatest amount of Consolidated EBITDA of the Borrower and
its Restricted Subsidiaries for any consecutive 12-month
period commencing after the Effective Date,
provided that, with respect to clauses (vi), (vii) and (ix) to the
extent the Net Cash Proceeds thereof shall not have been reinvested
within 12 months after the receipt thereof by the Borrower or such
Restricted Subsidiary in assets necessary in the same or similar line
of businesses as the businesses of the Borrower and the Restricted
Subsidiaries, the Borrower shall, at the end of such 12 month period,
prepay the Advances pursuant to Section 2.09(b) in an amount equal to
the amount by which such Net Cash Proceeds exceeds the amount thereof
so reinvested.
(g) Dividends, Etc. Declare or make any dividend payment or
other distribution of assets, properties, cash, rights, obligations or
securities on account of any shares of any class of capital stock of
the Borrower, or purchase, redeem or otherwise acquire for value (or
permit any of its Subsidiaries to do so) any shares of any class of
capital stock of the Borrower or any warrants, rights or options to
acquire any such shares, now or hereafter outstanding, or issue or sell
any capital stock or any warrants, rights or options to acquire such
capital stock except that, so long as no Default shall have occurred
<PAGE>
and be continuing at the time of any action described below or would
result therefrom, the Borrower may (i) declare and make any dividend
payment or other distribution payable in common stock of the Borrower,
(ii) declare and make any dividend payment or other distribution, or
redeem any shares of any class of capital stock of the Borrower,
pursuant to and to the extent required by the Rights Agreement, (iii)
issue and sell shares of common stock of the Borrower for cash, (iv)
issue shares of common stock of the Borrower in connection with
Investments permitted under Section 5.02(h) to the extent permitted
therein, and (v) purchase its own stock through market purchases to be
reissued and sold in connection with the Borrower's employee benefit
programs, provided that the amount expended by the Borrower to
repurchase such stock from and after the date hereof shall not exceed
the sum of $5,000,000 plus the net cash proceeds received by the
Borrower from the reissuance and sale of any such stock through such
programs (it being understood that the amount of such net cash proceeds
shall not include any proceeds received by the Borrower from the
reissuance and sale of any such stock prior to the date hereof).
(h) Investments in Other Persons. Make or hold, or permit any
of its Restricted Subsidiaries to make or hold, any Investment in any
Person other than:
(i) loans and advances to employees in the ordinary
course of the business of the Borrower and its Restricted
Subsidiaries as presently conducted in an aggregate principal
amount not to exceed $1,000,000 at any time outstanding;
(ii) Investments in Marketable Securities;
(iii) Investments existing on the Original Effective
Date and described on Schedule 5.02(h) hereto;
(iv) Investments in accounts receivable and prepaid
expenses arising in the ordinary course of business;
(v) Investments by the Borrower in Hedge Agreements
permitted under Section 5.02(d)(i)(D);
(vi) Investments consisting of intercompany Debt
permitted under Section 5.02(d)(i)(E) or (ii);
(vii) other Investments consisting of (A) Investments
by the Borrower and its Restricted Subsidiaries in their
Restricted Subsidiaries, (B) Investments in Affiliates of the
Borrower existing on the Effective Date, and upon the
occurrence of the ICN Acquisition, Affiliates of the Borrower
existing on the date of the ICN
<PAGE>
Acquisition as a result of the occurrence of the ICN
Acquisition, and (C) Investments in any other Person, provided
that after giving effect to such Investment, such Person would
be a Restricted Subsidiary; and
(viii) other Investments (other than Investments
consisting of intercompany Debt permitted under Section
5.02(d)(i)(E) or (ii)) and including, without limitation,
Investments in Unrestricted Subsidiaries, in an aggregate
amount invested (in any combination of cash and securities of
the Borrower) not to exceed $100,000,000 at any time
outstanding;
provided that with respect to Investments made under clauses (vii) and
(viii) above:
(a) immediately before and after giving
effect thereto, no Default shall have occurred and be
continuing or would result therefrom,
(b) immediately before and after giving
effect to such Investment, the Borrower shall be in
pro forma compliance (calculated based on historical
financial statements most recently furnished or
required to be furnished pursuant to Section 5.01(i))
with the covenants set forth in Section 5.03,
(c) any business acquired or invested in
pursuant to clause (vii) or (viii) shall be in the
same or a similar line of business as the business of
the Borrower or any of its Restricted Subsidiaries,
and
(d) any such Investment shall be for fair
value.
(i) Change in Nature of Business. Make, or permit any of its
Restricted Subsidiaries to make, any material change in the nature of
its business as carried on at the date hereof.
(j) Charter Amendments. Amend, or permit any of its Restricted
Subsidiaries to amend, its certificate of incorporation or bylaws in
any material respect that would be reasonably likely to be adverse to
the Borrower, any Restricted Subsidiary or the Lenders.
(k) Prepayments, Etc. of Debt. Prepay, redeem, purchase,
defease or otherwise satisfy prior to the scheduled maturity thereof in
any manner, or make any payment in violation of any subordination terms
of, any Debt, other than (i) the prepayment of the Advances in
accordance with the terms of this Agreement, (ii) the prepayment of
Debt assumed pursuant to a Non-Hostile Acquisition including, without
limitation, the ICN Acquisition Debt, provided that such assumed Debt
is prepaid or
<PAGE>
refinanced simultaneously with such Non-Hostile Acquisition and (iii)
regularly scheduled or required repayments or redemptions or
refinancing of Surviving Debt or the Subordinated Notes or as otherwise
permitted hereunder, or amend, modify or change in any manner any term
or condition of any Surviving Debt, the Subordinated Notes or the
Senior Notes except as otherwise permitted hereunder, or permit any of
its Subsidiaries to do any of the foregoing other than to prepay any
Debt payable to the Borrower or as otherwise permitted hereunder.
(l) Designation of Restricted and Unrestricted Subsidiaries.
(i) Designate a Subsidiary, in connection with an acquisition permitted
under Section 5.02(h), as an Unrestricted Subsidiary or redesignate an
Unrestricted Subsidiary as a Restricted Subsidiary unless, in either
case, immediately before and after giving effect thereto, no Default
shall have occurred and be continuing or would result therefrom and the
Borrower shall be in pro forma compliance (calculated based on
historical financial statements most recently furnished or required to
be furnished pursuant to Section 5.01(i)) with the covenants set forth
in Section 5.03, or (ii) redesignate a Restricted Subsidiary as an
Unrestricted Subsidiary.
(m) Limitation on Dividend Restrictions. Enter into or suffer
to exist, or permit any Restricted Subsidiary to enter into or suffer
to exist, any agreement prohibiting the declaration or payment by any
Restricted Subsidiary of dividends or other distributions in respect of
its capital stock to the Borrower or any Restricted Subsidiary of the
Borrower, unless such agreement was in effect at the time such
Restricted Subsidiary became a Subsidiary of the Borrower, and such
agreement was not entered into solely in contemplation of such Person
becoming a Subsidiary of the Borrower.
(n) Amendment, Etc. of the Exchange and Merger Agreement and
the Subordinated Notes. Amend, modify or change in any manner any term
or condition of the Exchange and Merger Agreement or the Subordinated
Notes or give any consent, waiver or approval thereunder, waive any
default under or any breach of any term or condition of the Exchange
and Merger Agreement or the Subordinated Notes, or take any other
action in connection with the Exchange and Merger Agreement or the
Subordinated Notes that would materially impair the value of the
interest or rights of the Borrower thereunder or that would materially
impair the rights or interests of any Agent or any Lender.
(o) Amendment, Etc. of the Senior Note Indenture. Amend,
modify or change in any manner any term or condition of the Senior Note
Indenture and the Senior Notes issued pursuant thereto or give any
consent, waiver or approval thereunder, waive any default under or any
breach of any term or condition of the Senior Note Indenture and the
Senior Notes issued pursuant thereto, or take any other action in
connection with the
<PAGE>
Senior Note Indenture and the Senior Notes issued pursuant thereto that
would materially impair the value of the interest or rights of the
Borrower thereunder or that would materially impair the rights or
interests of any Agent or any Lender.
(p) The ICN Acquisition. Consummate, or permit any of its
Subsidiaries to consummate, the ICN Acquisition except in accordance
with the following:
(i) The ICN Acquisition shall be consummated in
accordance with (A) all applicable laws and (B) the terms and
conditions of the Exchange and Merger Agreement;
(ii) Concurrently with the ICN Acquisition, the
Borrower shall have issued the Subordinated Notes in
accordance with the Exchange and Merger Agreement;
(iii) On the date of the ICN Acquisition, the
following statements shall be true and the Administrative
Agent shall have received for the account of each Lender a
certificate signed by a duly authorized officer of the
Borrower, dated such date, stating that:
(A) The representations and warranties
contained in Section 4.01 are correct on and as of
such date,
(B) No event has occurred and is continuing
that constitutes a Default, and
(C) Immediately before and after giving
effect to the ICN Acquisition, the Borrower shall be
in pro forma compliance (calculated based on
historical financial statements most recently
furnished or required to be furnished pursuant to
Section 5.01(i)) with the covenants set forth in
Section 5.03;
(iv) The Administrative Agent shall have received on
or before the date of the ICN Acquisition the following, each
dated such day, in form and substance satisfactory to the
Administrative Agent and in sufficient copies for each Lender:
(1) Certified copies of each of the
Subordinated Notes;
(2) Certified copies of the Exchange and
Merger Agreement, as in effect on the date of the ICN
Acquisition, together with any amendments thereto or
waivers thereof; and
<PAGE>
(3) Evidence that concurrently with the ICN
Acquisition, the ICN Acquisition Debt shall have been
repaid and the commitments of the lenders thereunder
and all Liens in favor of such lenders thereunder
shall have been terminated;
(v) As of the date of the ICN Acquisition, and after
giving effect to the consummation thereof, there shall have
been no change to the corporate and legal structure of the
Borrower or any of its Restricted Subsidiaries resulting from
the ICN Acquisition (other than the pro forma changes
indicated on Schedule 5.02(p) hereto and any other changes
reasonably acceptable to the Lenders) that adversely affects
the Borrower or the Lenders; and
(vi) To the extent attributable to the ICN
Acquisition, the Borrower shall have paid all accrued fees and
expenses of the Agents (including the accrued fees and
expenses of counsel to the Administrative Agent).
SECTION 5.03. Financial Covenants. So long as any Advance
shall remain unpaid or any Lender shall have any Commitment hereunder, the
Borrower will:
(a) Leverage Ratio. Maintain at the end of each fiscal quarter
of the Borrower a ratio of Consolidated Debt of the Borrower and its
Restricted Subsidiaries (excluding, for purposes of this Section
5.03(a), Debt of the types referred to in clauses (b), (g), (h) and (j)
of the definition of "Debt" and Debt of the type described in clause
(i) of the definition of "Debt" to the extent that the Debt being
guarantied thereby was of the type referred to in clause (b), (g), (h)
or (j) of the definition of "Debt") to Consolidated EBITDA of the
Borrower and its Restricted Subsidiaries of not greater than the amount
set forth below for each Rolling Period set forth below:
<PAGE>
Rolling Period
Ending On Ratio
--------- -----
December 31, 1995 6.00:1
March 31, 1996 6.00:1
June 30, 1996 5.75:1
September 30, 1996 5.75:1
December 31, 1996 5.50:1
March 31, 1997 5.50:1
June 30, 1997 5.00:1
September 30, 1997 5.00:1
December 31, 1997 4.50:1
March 31, 1998 4.50:1
June 30, 1998 4.00:1
September 30, 1998 4.00:1
December 31, 1998
and thereafter 3.50:1
provided that in the event that the Borrower or any of its Restricted
Subsidiaries shall have acquired a Restricted Subsidiary or sold or
otherwise disposed of Restricted Subsidiaries that, at the time of such
sale or disposition, were individually, or if taken in the aggregate
would have been, a Material Subsidiary during any Rolling Period, the
ratio described above shall be calculated on a historical pro forma
basis for such Rolling Period as though such Restricted Subsidiary had
been acquired, sold or otherwise disposed of on the first day of such
Rolling Period.
(b) Interest Coverage Ratio. Maintain at the end of each
fiscal quarter of the Borrower a ratio of Consolidated EBITDA of the
Borrower and its Restricted Subsidiaries to interest payable on, and
amortization of debt discount in respect of, all Debt during such
period, in each case, by the Borrower and its Restricted Subsidiaries
of not less than the amount set forth below for each Rolling Period set
forth below:
Rolling Period
Ending On Ratio
--------- -----
December 31, 1995 2.00:1
March 31, 1996 2.00:1
June 30, 1996 2.00:1
September 30, 1996 2.00:1
December 31, 1996 2.25:1
March 31, 1997 2.25:1
June 30, 1997 2.25:1
<PAGE>
Rolling Period
Ending On Ratio
--------- -----
September 30, 1997 2.25:1
December 31, 1997 2.75:1
March 31, 1998 2.75:1
June 30, 1998 2.75:1
September 30, 1998 2.75:1
December 31, 1998
and thereafter 3.00:1
provided that in the event that the Borrower or any of its Restricted
Subsidiaries shall have acquired a Restricted Subsidiary or sold or
otherwise disposed of Restricted Subsidiaries that, at the time of such
sale or disposition, were individually, or if taken in the aggregate
would have been, a Material Subsidiary during any Rolling Period, the
ratio described above shall be calculated on a historical pro forma
basis for such Rolling Period as though such Restricted Subsidiary had
been acquired, sold or otherwise disposed of on the first day of such
Rolling Period.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any
Advance when the same becomes due and payable; or the Borrower shall
fail to pay any interest on any Advance or make any other payment of
fees or other amounts payable under this Agreement or any Note within
three Business Days after the same becomes due and payable; or
(b) Any representation or warranty made by the Borrower herein
or by the Borrower (or any of its officers) in connection with this
Agreement shall prove to have been incorrect in any material respect
when made; or
(c) (i) The Borrower shall fail to perform or observe any
term, covenant or agreement contained in Section 5.01(d) (as to the
corporate or partnership existence of the
<PAGE>
Borrower or any Restricted Subsidiary), (e), (h) or (i), 5.02 or 5.03,
or (ii) the Borrower shall fail to perform or observe any other term,
covenant or agreement contained in this Agreement on its part to be
performed or observed if such failure shall remain unremedied for 15
Business Days after the earlier of the date on which (A) a Responsible
Officer of the Borrower becomes aware of such failure or (B) written
notice thereof shall have been given to the Borrower by any Agent or
any Lender; or
(d) The Borrower or any of its Subsidiaries shall fail to pay
any principal of or premium or interest on any Debt that is outstanding
in a principal or notional amount of at least $15,000,000, in the case
of the Borrower or any Restricted Subsidiary, or at least $25,000,000,
in the case of any Unrestricted Subsidiary, in the aggregate (but
excluding Debt outstanding hereunder) of the Borrower or such
Subsidiary (as the case may be), when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the
applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other event shall occur or
condition shall exist under any agreement or instrument relating to any
such Debt and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event
or condition is to accelerate, or to permit the acceleration of, the
maturity of such Debt; or any such Debt shall be declared to be due and
payable, or required to be prepaid or redeemed (other than by a
regularly scheduled required prepayment or redemption), purchased or
defeased, or an offer to prepay, redeem, purchase or defease such Debt
shall be required to be made, in each case prior to the stated maturity
thereof; or
(e) The Borrower or any of its Subsidiaries in which the
Borrower has an Investment, directly or indirectly, aggregating at
least $15,000,000, in the case of any Restricted Subsidiary, or at
least $25,000,000, in the case of any Unrestricted Subsidiary, shall
generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against the Borrower or any such Subsidiary
seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment
of a receiver, trustee, custodian or other similar official for it or
for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either
such proceeding shall remain undismissed or unstayed for a period of 45
days, or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official
for, it or for any substantial part of its property) shall occur; or
the Borrower or
<PAGE>
any such Subsidiary shall take any corporate action to authorize any of
the actions set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess
of $15,000,000, in the case of the Borrower or any Restricted
Subsidiary, or in excess of $25,000,000, in the case of any
Unrestricted Subsidiary, shall be rendered against the Borrower or any
of its Subsidiaries and either (i) a warrant of attachment or execution
or similar process shall have been issued or levied against any
property or assets of the Borrower or any of its Subsidiaries to
enforce any such judgment or (ii) there shall be any period of 15
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in
effect; provided, however, that any such judgment or order shall not be
an Event of Default under this Section 6.01(f) if and for so long as
(i) the amount by which such judgment or order exceeds $15,000,000, in
the case of the Borrower or any Restricted Subsidiary, or $25,000,000,
in the case of any Unrestricted Subsidiary, is covered by a valid and
binding policy of insurance between the defendant and the insurer
covering payment thereof and (ii) such insurer, which shall be rated at
least "A" by A.M. Best Company, has been notified of, and has not
disputed the claim made for payment of, an amount not less than the
amount by which such judgment or order exceeds $15,000,000, in the case
of the Borrower or any Restricted Subsidiary, or $25,000,000, in the
case of any Unrestricted Subsidiary; or
(g) Any non-monetary judgment or order shall be rendered
against the Borrower or any of its Subsidiaries that could be
reasonably expected to have a Material Adverse Effect, and there shall
be any period of 15 consecutive days during which a stay of enforcement
of such judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; or
(h) (i) Any Person or two or more Persons acting in concert
shall have acquired beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934), directly or indirectly, of Voting Stock of the
Borrower (or other securities convertible into such Voting Stock)
representing 30% or more of the combined voting power of all Voting
Stock of the Borrower; or (ii) during any period of up to 24
consecutive months, commencing after the date of this Agreement,
individuals who at the beginning of such 24-month period were directors
of the Borrower shall cease for any reason to constitute a majority of
the board of directors of the Borrower; or (iii) any Person or two or
more Persons acting in concert shall have acquired by contract or
otherwise, or shall have entered into a contract or arrangement that,
upon consummation, will result in its or their acquisition of, control
over Voting Stock of the Borrower (or other securities convertible into
such Voting Stock) representing 30% or more of the combined voting
power of all Voting Stock of the Borrower; or
<PAGE>
(i) Any ERISA Event shall have occurred with respect to a Plan
and the sum (determined as of the date of occurrence of such ERISA
Event) of the Insufficiency of such Plan and the Insufficiency of any
and all other Plans with respect to which an ERISA Event shall have
occurred and then exist (or the liability of the Borrower and the ERISA
Affiliates related to such ERISA Event) exceeds $15,000,000; or
(j) The Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan in an amount that, when
aggregated with all other amounts required to be paid to Multiemployer
Plans by the Borrower and the ERISA Affiliates as Withdrawal Liability
(determined as of the date of such notification), exceeds $15,000,000
or requires payments exceeding $3,000,000 per annum; or
(k) The Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or is being terminated, within the meaning of
Title IV of ERISA, and as a result of such reorganization or
termination the aggregate annual contributions of the Borrower and the
ERISA Affiliates to all Multiemployer Plans that are then in
reorganization or being terminated have been or will be increased over
the amounts contributed to such Multiemployer Plans for the plan years
of such Multiemployer Plans immediately preceding the plan year in
which such reorganization or termination occurs by an amount exceeding
$3,000,000;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrower,
declare the Commitment and the obligation of each Lender to make Advances to be
terminated, whereupon the same shall forthwith terminate, and (ii) shall at the
request, or may with the consent, of the Required Lenders, by notice to the
Borrower, declare the Notes, all interest thereon and all other amounts payable
under this Agreement to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; provided, however, that in
the event of an actual or deemed entry of an order for relief with respect to
the Borrower under the Federal Bankruptcy Code, (A) the obligation of each
Lender to make Advances shall automatically be terminated and (B) the Notes, all
such interest and all such amounts shall automatically become and be due and
payable, without presentment, demand, protest or any notice of any kind, all of
which are hereby expressly waived by the Borrower.
<PAGE>
ARTICLE VII
THE AGENTS
SECTION 7.01. Authorization and Action. Each Lender hereby
appoints and authorizes the Administrative Agent, each Syndication Agent and the
Documentation Agent to take such action as agent on its behalf and to exercise
such powers and discretion under this Agreement as are delegated to such Agent
by the terms hereof, together with such powers and discretion as are reasonably
incidental thereto. As to any matters not expressly provided for by this
Agreement (including, without limitation, enforcement or collection of the
Notes), no Agent shall be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders, and such instructions shall be binding upon all Lenders
and all holders of Notes; provided, however, that no Agent shall be required to
take any action that exposes such Agent to personal liability or that is
contrary to this Agreement or applicable law. Each Agent agrees to give to each
Lender prompt notice of each notice given to it by the Borrower pursuant to the
terms of this Agreement.
SECTION 7.02. Administrative Agent's Reliance, Etc. Neither
any Agent nor any of its directors, officers, agents or employees shall be
liable for any action taken or omitted to be taken by it or them under or in
connection with this Agreement, except for its or their own gross negligence or
willful misconduct. Without limitation of the generality of the foregoing, each
Agent: (i) may treat the payee of any Note as the holder thereof until, in the
case of the Administrative Agent, the Administrative Agent receives and accepts
an Assignment and Acceptance entered into by the Lender that is the payee of
such Note, as assignor, and an Eligible Assignee, as assignee, or, in the case
of any other Agent, such Agent has received notice from the Administrative Agent
that it has received and accepted such Assignment and Acceptance, in each case
as provided in Section 8.07; (ii) may consult with legal counsel (including
counsel for the Borrower), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations (whether written or oral) made in or in connection with this
Agreement; (iv) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement on the part of the Borrower or to inspect the property (including the
books and records) of the Borrower; (v) shall not be responsible to any Lender
for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; and (vi) shall incur no liability under or in respect
of this Agreement by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telecopier, telegram or telex) believed
by it to be genuine and signed or sent by the proper party or parties.
<PAGE>
SECTION 7.03. Citibank, BankAmerica, TD Bank and Chase and
Affiliates. With respect to its Commitment, the Advances made by it and the Note
issued to it, each of Citibank, BankAmerica, TD Bank and Chase shall have the
same rights and powers under this Agreement as any other Lender and may exercise
the same as though it were not an Agent; and the term "Lender" or "Lenders"
shall, unless otherwise expressly indicated, include each of Citibank,
BankAmerica, TD Bank and Chase in its individual capacity. Each of Citibank,
BankAmerica, TD Bank and Chase and its Affiliates may accept deposits from, lend
money to, act as trustee under indentures of, accept investment banking
engagements from and generally engage in any kind of business with, the
Borrower, any of its Subsidiaries and any Person who may do business with or own
securities of the Borrower or any such Subsidiary, all as if Citibank,
BankAmerica, TD Bank or Chase, as the case may be, were not an Agent and without
any duty to account therefor to the Lenders.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon any Agent or any other
Lender and based on the financial statements referred to in Section 4.01 and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon any Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 7.05. Indemnification. The Lenders agree to indemnify
each Agent (to the extent not reimbursed by the Borrower), ratably according to
the respective principal amounts of the Notes then held by each of them (or if
no Notes are at the time outstanding or if any Notes are held by Persons that
are not Lenders, ratably according to the respective amounts of their
Commitments), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever that may be imposed on, incurred by, or
asserted against such Agent in any way relating to or arising out of this
Agreement or any action taken or omitted by such Agent under this Agreement,
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender agrees to
reimburse each Agent promptly upon demand for its ratable share of any
reasonable out-of-pocket expenses (including reasonable counsel fees) incurred
by such Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, to the extent that such Agent
is not reimbursed for such expenses by the Borrower.
SECTION 7.06. Successor Agents. Any Agent may resign at any
time by giving written notice thereof to the Lenders and the Borrower and may be
removed at any time with or
<PAGE>
without cause by the Required Lenders. Upon the resignation or removal of the
Administrative Agent, the Required Lenders shall have the right to appoint a
successor Administrative Agent, provided that as long as no Default shall have
occurred and be continuing, the Borrower shall have the right to consent to any
such successor Administrative Agent, such consent not to be unreasonably
withheld or delayed. If no successor Administrative Agent shall have been so
appointed by the Required Lenders (and, if required, consented to by the
Borrower), and shall have accepted such appointment, within 30 days after the
retiring Administrative Agent's giving of notice of resignation or the Required
Lenders' removal of the retiring Administrative Agent, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent (which, so long as no Default shall have occurred and be
continuing, shall be subject to the consent of the Borrower, such consent not to
be unreasonably withheld or delayed), which shall be a commercial bank organized
under the laws of the United States of America or of any state thereof and
having a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, discretion, privileges
and duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Article VII shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
SECTION 7.07. Agents. None of the Banks identified on the
cover page or in the recital of parties or on the signature pages of this
Agreement as an Agent (other than the Administrative Agent) shall have any
right, power, obligation, liability, responsibility or duty under this Agreement
other than those applicable to all Lenders as such. Without limiting the
foregoing, none of the Lenders so identified as an Agent (other than the
Administrative Agent) shall have or be deemed to have any fiduciary relationship
with any Lender.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Notes, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Required Lenders and the Borrower, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment, waiver
or consent shall, unless in writing and signed by all the Lenders and the
Borrower, do any of the following: (a) waive any of the conditions specified in
Section 3.01, (b) increase any
<PAGE>
Commitment of any Lender or subject any Lender to any additional monetary
obligations, (c) reduce the principal of, or interest on, any Note or any fee or
other amount payable hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, any Note or any fee or other amount payable
hereunder, (e) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes, or the number of Lenders, that shall be
required for the Lenders or any of them to take any action hereunder or (f)
amend this Section 8.01; and provided further that no amendment, waiver or
consent shall, unless in writing and signed by the Administrative Agent in
addition to the Lenders required above to take such action, affect the rights or
duties of the Administrative Agent under this Agreement or any Note.
SECTION 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic or telex communication) and mailed, telecopied, telegraphed, telexed
or delivered, if to the Borrower, at its address at 8725 West Higgins Road,
Chicago, IL 60631-2702, Attention: Corporate Secretary, with a copy to the
Treasurer; if to any Initial Lender, at its Domestic Lending Office specified
opposite its name on Schedule I hereto; if to any other Lender, at its Domestic
Lending Office specified in the Assignment and Acceptance pursuant to which it
became a Lender; if to Citibank, as Administrative Agent, at its address at 399
Park Avenue, New York, NY 10043, Attention: Global Communications Department; if
to Chase, as Syndication Agent, at its address at 270 Park Avenue, New York, NY
10017, Attention: Laurie Perper; if to TD Bank, as Documentation Agent, at its
address at 31 West 52nd Street, New York, NY 10019, Attention: Brian O'Reilly;
and if to BankAmerica, as Syndication Agent, at its address at 231 S. LaSalle
Street, Chicago, IL 60697, Attention: Patricia DelGrande; or, as to the Borrower
or any Agent, at such other address as shall be designated by such party in a
written notice to the other parties and, as to each other party, at such other
address as shall be designated by such party in a written notice to the Borrower
and the Administrative Agent. All such notices and communications shall, when
mailed, telecopied, telegraphed or telexed, be effective when deposited in the
mails, telecopied, delivered to the telegraph company or confirmed by telex
answerback, respectively, except that notices and communications to any Agent
pursuant to Article II, III or VII shall not be effective until received by such
Agent. Delivery by telecopier of an executed counterpart of any amendment or
waiver of any provision of this Agreement or the Notes or of any Exhibit hereto
to be executed and delivered hereunder shall be effective as delivery of a
manually executed counterpart thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of
any Lender or any Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
<PAGE>
SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to
pay on demand all costs and expenses of the Agents in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, (A) all due diligence, syndication (including
printing, distribution and bank meetings), transportation, computer,
duplication, appraisal, consultant, and audit expenses and (B) the reasonable
fees and expenses of one law firm (Shearman & Sterling or another law firm) as
counsel for the Administrative Agent with respect thereto and with respect to
advising the Administrative Agent as to its rights and responsibilities under
this Agreement. The Borrower further agrees to pay on demand all costs and
expenses of the Agents and the Lenders (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this
Agreement, the Notes and the other documents to be delivered hereunder,
including, without limitation, reasonable fees and expenses of counsel for each
Agent and each Lender in connection with the enforcement of rights under this
Section 8.04(a).
(b) The Borrower agrees to indemnify and hold harmless each
Agent and each Lender and each of their Affiliates and their officers,
directors, employees, agents and advisors (each, an "Indemnified Party") from
and against any and all claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and expenses of counsel) that
may be incurred by or asserted or awarded against any Indemnified Party, in each
case arising out of or in connection with or by reason of, or in connection with
the preparation for a defense of, any investigation, litigation or proceeding
arising out of, related to or in connection with (i) the Notes, this Agreement,
any of the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances or (ii) the actual or alleged presence of Hazardous
Materials on any property of the Borrower or any of its Subsidiaries or any
Environmental Action relating in any way to the Borrower or any of its
Subsidiaries, in each case whether or not such investigation, litigation or
proceeding is brought by the Borrower, its directors, shareholders or creditors
or an Indemnified Party or any other Person or any Indemnified Party is
otherwise a party thereto and whether or not the transactions contemplated
hereby are consummated (but excluding any such claims, damages, losses,
liabilities or expenses (i) to the extent such claim, damage, loss, liability or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct or (ii) arising from disputes among two or more Lenders (but
not including any such dispute that involves a Lender to the extent that such
Lender is acting in any different capacity, such as Agent, under the Credit
Agreement or to the extent it involves the Agents' syndication activities). The
Borrower also agrees not to, and will not permit any Affiliate to, assert any
claim against any Agent, any Lender, any of their Affiliates, or any of their
respective directors, officers, employees, attorneys and agents, on any theory
of liability, for special, indirect, consequential or punitive damages arising
out of or otherwise relating to the Notes, this Agreement, any of the
transactions contemplated herein or the actual or proposed use of the proceeds
of the Advances.
<PAGE>
(c) If any payment of principal of, or Conversion of, any
Eurodollar Rate Advance is made by the Borrower to or for the account of a
Lender other than on the last day of the Interest Period for such Advance, as a
result of a payment or Conversion pursuant to Section 2.07(d), 2.09 or 2.11,
acceleration of the maturity of the Notes pursuant to Section 6.01 or for any
other reason, or by an Eligible Assignee to a Lender Party other than on the
last day of the Interest Period for such Advance upon an assignment of rights
and obligations under this Agreement pursuant to Section 8.07 as a result of a
demand by the Borrower pursuant to Section 2.16, the Borrower shall, upon demand
by such Lender (with a copy of such demand to the Administrative Agent), pay to
the Administrative Agent for the account of such Lender any amounts required to
compensate such Lender for any additional losses, costs or expenses that it may
reasonably incur as a result of such payment or Conversion, including, without
limitation, any loss (including loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by any Lender to fund or maintain such Advance.
(d) Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the Borrower
contained in Sections 2.02(c), 2.10, 2.13 and 8.04 shall survive the payment in
full of principal, interest and all other amounts payable hereunder and under
the Notes.
SECTION 8.05. Right of Set-off. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent specified by Section 6.01 to authorize
the Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender or such Affiliate to or for the credit or the account
of the Borrower against any and all of the obligations of the Borrower now or
hereafter existing under this Agreement and the Note to which the Borrower is a
party held by such Lender, whether or not such Lender shall have made any demand
under this Agreement or such Note and although such obligations may be
unmatured. Each Lender agrees promptly to notify the Borrower after any such
set-off and application, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each Lender
and its Affiliates under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) that such
Lender and its Affiliates may have.
SECTION 8.06. Binding Effect. (a) This Agreement shall become
effective (other than Section 2.01, which shall only become effective upon
satisfaction of the conditions precedent set forth in Section 3.01) when it
shall have been executed by the Borrower and the Agents and when the
Administrative Agent shall have been notified by each Initial Lender that such
Initial Lender has executed it and thereafter shall be binding upon and inure to
the benefit
<PAGE>
of the Borrower, each Agent and each Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lenders.
(b) As to any Lender the Commitment of which is listed on the
signature pages hereto as zero, such Lender is bound hereunder only with respect
to such Lender's consent to the increase in Commitments hereunder and by the
provisions of Sections 2.01(a) and 8.12 applicable to such Lender.
Notwithstanding any of the foregoing, each Existing Lender who becomes an
Initial Lender hereunder is, and agrees to be, bound by all provisions hereunder
applicable to it as a Lender hereunder.
SECTION 8.07. Assignments and Participations. (a) Each Lender
may and, if demanded by the Borrower pursuant to Section 2.16, will assign to
one or more Persons all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment,
the Advances owing to it and the Note or Notes held by it); provided, however,
that (i) each such assignment shall be of a constant, and not a varying,
percentage of all rights and obligations under this Agreement, (ii) except in
the case of an assignment to a Person that, immediately prior to such
assignment, was a Lender or an assignment of all of a Lender's rights and
obligations under this Agreement, the amount of the Commitment of the assigning
Lender being assigned pursuant to each such assignment (determined as of the
date of the Assignment and Acceptance with respect to such assignment) shall in
no event be less than $10,000,000 or an integral multiple of $1,000,000 in
excess thereof, (iii) each such assignment shall be to an Eligible Assignee, and
(iv) the parties to each such assignment shall execute and deliver to the
Administrative Agent, for its acceptance and recording in the Register, an
Assignment and Acceptance, together with any Note subject to such assignment and
a processing and recordation fee of $3,000, provided that if such assignment is
the result of a demand by the Borrower pursuant to Section 2.16, the Borrower
shall pay the processing and recordation fee therefor. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, (x) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and (y) the Lender assignor thereunder shall,
to the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto).
(b) By executing and delivering an Assignment and Acceptance,
the Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect
<PAGE>
to any statements, warranties or representations made in or in connection with
this Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any other instrument or
document furnished pursuant hereto; (ii) such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under this Agreement or any other instrument
or document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in Section 4.01 and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon any Agent, such assigning Lender or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (v) such assignee confirms that it is an
Eligible Assignee; (vi) such assignee appoints and authorizes each Agent to take
such action as agent on its behalf and to exercise such powers and discretion
under this Agreement as are delegated to such Agent by the terms hereof,
together with such powers and discretion as are reasonably incidental thereto;
and (vii) such assignee agrees that it will perform in accordance with their
terms all of the obligations that by the terms of this Agreement are required to
be performed by it as a Lender.
(c) The Administrative Agent shall maintain at its address
referred to in Section 8.02 a copy of each Assignment and Acceptance delivered
to and accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment of, and principal amount of the
Advances owing to, each Lender from time to time (the "Register"). The entries
in the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower, the Administrative Agent and the Lenders may
treat each Person whose name is recorded in the Register as a Lender hereunder
for all purposes of this Agreement. The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an assignee representing that it is an Eligible
Assignee, together with any Note or Notes subject to such assignment, the
Administrative Agent shall, if such Assignment and Acceptance has been completed
and is in substantially the form of Exhibit C hereto, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the Register
and (iii) give prompt notice thereof to the Borrower and the other Agents.
Within five Business Days after its receipt of such notice, the Borrower, at its
own expense, shall execute and deliver to the Administrative Agent in exchange
for the surrendered Note a new Note to the order of such Eligible Assignee in an
amount equal to the Commitment assumed by it pursuant to such Assignment and
Acceptance and, if the assigning Lender has retained a Commitment hereunder, a
new Note to the order of the assigning Lender in an amount equal to the
Commitment retained
<PAGE>
by it hereunder. Such new Note or Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Note or
Notes, shall be dated the effective date of such Assignment and Acceptance and
shall otherwise be in substantially the form of Exhibit A hereto.
(e) Each Lender may sell participations to one or more banks
or other entities (other than the Borrower or any of its Affiliates) in or to
all or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment, the Advances owing to it
and the Note or Notes held by it); provided, however, that (i) such Lender's
obligations under this Agreement (including, without limitation, its Commitment
hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement, (iv) the Borrower, the Agents and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and (v) no participant
under any such participation shall have any right to approve any amendment or
waiver of any provision of this Agreement or any Note, or any consent to any
departure by the Borrower therefrom, except to the extent that such amendment,
waiver or consent would reduce the principal of, or interest on, the Notes or
any fees or other amounts payable hereunder, in each case to the extent subject
to such participation, or postpone any date fixed for any payment of principal
of, or interest on, the Notes or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation.
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower furnished to such Lender by
or on behalf of the Borrower; provided that, prior to any such disclosure, the
assignee or participant or proposed assignee or participant shall agree in
writing to preserve the confidentiality of any Confidential Information relating
to the Borrower received by it from such Lender.
(g) Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Advances owing to it and the Note held by it) in favor of any Federal Reserve
Bank in accordance with Regulation A of the Board of Governors of the Federal
Reserve System.
SECTION 8.08. Confidentiality. Neither any Agent nor any
Lender shall disclose any Confidential Information to any other Person without
the consent of the Borrower, other than (a) to such Agent's or such Lender's
Affiliates and their officers, directors, employees, auditors, accountants,
counsel, agents and advisors and, as contemplated by Section 8.07(f), to actual
or
<PAGE>
prospective assignees and participants, and then only on a confidential basis,
(b) as required by any law, rule or regulation or judicial process and (c) as
requested or required by any state, federal or foreign authority or examiner
regulating banks or banking or to whose jurisdiction such Agent or Lender may be
subject.
SECTION 8.09. Governing Law. This Agreement and the Notes
shall be governed by, and construed in accordance with, the laws of the State of
New York.
SECTION 8.10. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York state court or
federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the Notes, or for recognition or enforcement of
any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in any such New York state court or, to
the extent permitted by law, in such federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that any party may otherwise have to bring any action or proceeding
relating to this Agreement or the Notes in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or the Notes
in any New York state or federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
SECTION 8.12. Effective Date Assignments; Etc. (a) As of the
Effective Date, prior to giving effect to any assignment under this Agreement as
of such date, each Existing Lender represents and warrants, as to the assignment
effected by such Existing Lender by this Agreement that as of the Effective Date
(i) its Existing Commitment is in the dollar amount specified as its Existing
Commitment on Schedule 8.12 hereto and the aggregate outstanding principal
amount of Existing Advances owing to it is in the dollar amount specified as the
<PAGE>
aggregate outstanding principal amount of Existing Advances owing to such
Existing Lender on Schedule 8.12 hereto; and (ii) that such Existing Lender is
the legal and beneficial owner of such interest being assigned by it hereunder
and that such interest is free and clear of any adverse claim created by such
Existing Lender.
(b) Each Existing Lender and Initial Lender confirms to, and
agrees with, each of the other Initial Lenders as to the assignment effected by
this Agreement by such Existing Lender or Initial Lender, as the case may be, as
follows: (i) except as set forth in subsection (a) above, each such Existing
Lender makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with the Original Credit Agreement or this Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Original Credit Agreement or this Agreement or any other instrument or
document furnished pursuant thereto or hereto; (ii) each such Existing Lender
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the Borrower or any of its Subsidiaries or the
performance or observance by the Borrower or any of its Subsidiaries of any of
its obligations under the Original Credit Agreement or this Agreement or any
other instrument or document furnished pursuant thereto or hereto; (iii) each
Initial Lender confirms that it has received such documents and information as
it has deemed appropriate to make its own credit analysis and decision to
execute and deliver this Agreement and agrees that it shall have no recourse
against any of the Agents, any Existing Lender or any other Lender with respect
to any matters relating to the Original Credit Agreement or this Agreement; and
(iv) each Initial Lender will, independently and without reliance upon any
Agent, any Existing Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement, the Note
or Notes held by it and the other documents executed in connection herewith.
(c) As of the Effective Date, (i) each Initial Lender shall be
a party to this Agreement and, to the extent provided herein, have the rights
and obligations of a Lender hereunder and (ii) each Existing Lender shall, to
the extent provided herein, relinquish its rights and be released from its
obligations under this Agreement as to any assignment effected herein.
(d) From and after the Effective Date, the Administrative
Agent shall make all payments under this Agreement in respect of the interest
assigned hereby (including, without limitation, all payments of principal,
interest and commitment fees with respect thereto) to the Initial Lenders and
other Lenders hereunder.
(e) On or before the Effective Date, the Borrower shall have
paid all accrued interest, fees and other amounts payable and owing to the
Existing Lenders and the Original Agents as of the Effective Date in connection
with the Original Credit Agreement. Without prejudice to the survival of any
other agreement of the Borrower under the Original Credit
<PAGE>
Agreement, all amounts that would be payable under Sections 2.10, 2.13 and 8.04
of the Original Credit Agreement shall be payable under this Agreement to the
extent that such amounts have not been paid as of the Effective Date.
(f) As of the Effective Date, (i) the Original Credit
Agreement is amended and restated in full as set forth in this Agreement, (ii)
the Existing Commitments are held by the Initial Lenders under this Agreement,
(iii) the Original Notes are cancelled and replaced by the Notes, (iv) all
obligations which, by the terms of the Original Credit Agreement, are evidenced
by the Original Notes are evidenced by the Notes and (v) no fees shall be
payable by the Borrower pursuant to Section 2.03(a) of the Original Credit
Agreement, except to the extent that such fees become due and payable, and
remain unpaid, on or prior to the Effective Date.
<PAGE>
SECTION 8.13. Waiver of Jury Trial. Each of the Borrower, the
Agents and the Lenders hereby (or by execution and delivery of an Assignment and
Acceptance) irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to: (i) this Agreement; (ii) the Notes; or (iii) the
actions of any Agent or any Lender in the negotiation, administration,
performance or enforcement thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
360 COMMUNICATIONS COMPANY
By
Title:
CITIBANK, N.A.,
as Administrative Agent
By
Title:
THE CHASE MANHATTAN BANK
(as successor to Chemical Bank),
as Syndication Agent
By
Title:
<PAGE>
TORONTO DOMINION (TEXAS), INC.,
as Documentation Agent
By
Title:
BANK OF AMERICA ILLINOIS
as Syndication Agent
By
Title:
Initial Lenders
Commitment
Agents
$46,000,000 CITIBANK, N.A.
By
Title:
$46,000,000 THE CHASE MANHATTAN BANK
(as successor to Chemical Bank)
By
Title:
<PAGE>
$46,000,000 TORONTO DOMINION (TEXAS), INC.
By
Title:
$46,000,000 BANK OF AMERICA ILLINOIS
By
Title:
Co-Agents
$36,000,000 ABN AMRO BANK N.V.
By
Title:
$36,000,000 THE BANK OF NEW YORK
By
Title:
$36,000,000 BARCLAYS BANK PLC
By
Title:
<PAGE>
$36,000,000 CREDIT LYONNAIS NEW YORK BRANCH
By
Title:
$36,000,000 FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By
Title:
$36,000,000 THE FUJI BANK, LIMITED, CHICAGO
BRANCH
By
Title:
$36,000,000 THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By
Title:
$36,000,000 MELLON BANK, N.A.
By
Title:
<PAGE>
$36,000,000 MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By
Title:
$36,000,000 NATIONSBANK OF TEXAS, N.A.
By
Title:
$36,000,000 THE ROYAL BANK OF CANADA
By
Title:
$36,000,000 THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By
Title:
Other Lenders
$10,000,000 BANK OF IRELAND GRAND CAYMAN
By
Title:
<PAGE>
$20,000,000 BANK OF MONTREAL
By
Title:
$25,000,000 THE BANK OF TOKYO - MITSUBISHI
TRUST COMPANY
By
Title:
$20,000,000 BANKERS TRUST COMPANY
By
Title:
$32,000,000 BANQUE NATIONALE DE PARIS
By
Title:
$15,000,000 CREDIT SUISSE
By
Title:
<PAGE>
$20,000,000 THE DAI-ICHI KANGYO BANK, LTD.,
CHICAGO BRANCH
By
Title:
$15,000,000 FIRST HAWAIIAN BANK
By
Title:
$30,000,000 THE FIRST NATIONAL BANK OF
CHICAGO
By
Title:
$25,000,000 FLEET NATIONAL BANK
By
Title:
$25,000,000 MITSUBISHI TRUST & BANKING
CORP.
By
Title:
<PAGE>
$18,000,000 THE NORTHERN TRUST COMPANY
By
Title:
$32,000,000 PNC BANK, NATIONAL
ASSOCIATION
By
Title:
$30,000,000 THE SAKURA BANK, LTD., CHICAGO
BRANCH
By
Title:
$32,000,000 THE SANWA BANK, LIMITED,
CHICAGO BRANCH
By
Title:
$15,000,000 THE TOKAI BANK, LTD.,
CHICAGO BRANCH
By
Title:
<PAGE>
$20,000,000 THE YASUDA TRUST AND BANKING
COMPANY, LTD.
By
Title:
$0 DEUTSCHE BANK AG-NEW YORK
BRANCH
By
Title:
By
Title:
$1,000,000,000.00 Total of the Commitments
<PAGE>
<TABLE>
SCHEDULE I
360 COMMUNICATION COMPANY
$1,000,000,000 CREDIT AGREEMENT
APPLICABLE LENDING OFFICES
<CAPTION>
Name of Initial
Lender Domestic Lending Office Eurodollar Lending Office
- ------ ----------------------- -------------------------
<S> <C> <C>
Citibank, N.A. One Court Square, 7th Floor One Court Square, 7th Floor
Long Island City, NY 11120 Long Island City, NY 11120
Attention: Wendy Rutherford Attention: Wendy Rutherford
Telephone: (718) 248-4807 Telephone: (718) 248-4807
Telecopier: (718) 248-4844 Telecopier: (718) 248-4844
Bank of America 200 West Jackson Street 200 West Jackson Street
Illinois Chicago, IL 60697 Chicago, IL 60697
Attention: Account Attention: Account
Administration- Administration-
Patricia Thomas-Horne Patricia Thomas-Horne
Telephone: (312) 828-3869 Telephone: (312) 828-3869
Telecopier: (312) 974-9626 Telecopier: (312) 974-9626
Toronto Dominion 909 Fannin Street 909 Fannin Street
(Texas), Inc. Houston, TX 77010 Houston, TX 77010
Attention: Manager, Attention: Manager,
Credit Administration- Credit Administration-
Darlene Riedel Darlene Riedel
Telephone: (713) 653-8246 Telephone: (713) 653-8246
Telecopier: (713) 951-9921 Telecopier: (713) 951-9921
The Chase Manhattan One Chase Manhattan Plaza One Chase Manhattan Plaza
Bank Media & Telecommunications Group Media & Telecommunications Group
4th Floor 4th Floor
New York, New York 10081 New York, New York 10081
Attention: Ann Kerns Attention: Ann Kerns
Telephone: (212) 552-5982 Telephone: (212) 552-5982
Telecopier: (212) 552-4266 Telecopier: (212) 552-4266
ABN AMRO Bank N.V. 135 S. LaSalle Street, Suite 625 135 S. LaSalle Street, Suite 625
Chicago, IL 60674-9135 Chicago, IL 60674-9135
Attention: James Johnston Attention: James Johnston
Telephone: (312) 904-6588 Telephone: (312) 904-6588
Telecopier: (312) 606-8425 Telecopier: (312) 606-8425
<PAGE>
Page 2 of 6
Name of Initial
Lender Domestic Lending Office Eurodollar Lending Office
- ------ ----------------------- -------------------------
Bank of Ireland 640 Fifth Avenue 640 Fifth Avenue
Grand Cayman New York, NY 10019 New York, NY 10019
Attention: Robert Powell Attention: Robert Powell
Telephone: (212) 408-9409 Telephone: (212) 408-9409
Telecopier: (212) 307-5559 Telecopier: (212) 307-5559
Bank of Montreal 115 South LaSalle Street 115 South LaSalle Street
Chicago, Illinois 60603 Chicago, Illinois 60603
Attention: Lora Benton Attention: Lora Benton
Telephone: (312) 750-3844 Telephone: (312) 750-3844
Telecopier: (312) 750-4345 Telecopier: (312) 750-4345
The Bank of New York One Wall Street, 16th Floor One Wall Street, 16th Floor
New York, NY 10286 New York, NY 10286
Attention: Jerome Kapelus Attention: Jerome Kapelus
Telephone: (212) 635-8694 Telephone: (212) 635-8694
Telecopier: (212) 635-8593 Telecopier: (212) 635-8593
The Bank of Tokyo- 1251 Avenue of the Americas 1251 Avenue of the Americas
Mitsubishi Trust 12th Floor 12th Floor
Company New York, NY 10220-1104 New York, NY 10220-1104
Attention: John P. Judge Attention: John P. Judge
Telephone: (212) 782-4383 Telephone: (212) 782-4383
Telecopier: (212) 782-4935 Telecopier: (212) 782-4935
Bankers Trust Company 130 Liberty Street 130 Liberty Street
New York, NY 10006 New York, NY 10006
Attention: Mary Kay Coyle Attention: Mary Kay Coyle
Telephone: (212) 250-9094 Telephone: (212) 250-9094
Telecopier: (212) 250-7218 Telecopier: (212) 250-7218
Banque Nationale de Chicago Branch Chicago Branch
Paris 209 S. LaSalle Street, 5th Floor 209 S. LaSalle Street, 5th Floor
Chicago, IL 60604 Chicago, IL 60604
Attention: Rosalie Hawley Attention: Rosalie Hawley
Telephone: (312) 977-2203 Telephone: (312) 977-2203
Telecopier: (312) 977-1380 Telecopier: (312) 977-1380
Barclays Bank PLC 222 Broadway 222 Broadway
New York, NY 10038 New York, NY 10038
Attention: Christina Challenger Attention: Christina Challenger
Telephone: (212) 412-3701 Telephone: (212) 412-3701
Telecopier: (212) 412-5306/5307 Telecopier: (212) 412-5306/5307
<PAGE>
Name of Initial
Lender Domestic Lending Office Eurodollar Lending Office
- ------ ----------------------- -------------------------
Page 3 of 6
Credit Lyonnais 1301 Avenue of the Americas 1301 Avenue of the Americas
New York Branch New York, NY 10019 New York, NY 10019
Attention: Steve Levi Attention: Steve Levi
Telephone: (212) 261-7324 Telephone: (212) 261-7324
Telecopier: (212) 261-3288 Telecopier: (212) 261-3288
Credit Suisse Risk Management Risk Management
12 East 49th Street, 41st Floor 12 East 49th Street, 41st Floor
New York, NY 10017 New York, NY 10017
Attention: Hazel Leslie Attention: Hazel Leslie
Telephone: (212) 238-5218 Telephone: (212) 238-5218
Telecopier: (212) 238-5246 Telecopier: (212) 238-5246
The Dai-Ichi Kangyo 10 South Wacker Drive 10 South Wacker Drive
Bank, Ltd., 26th Floor 26th Floor
Chicago Branch Chicago, IL 60606 Chicago, IL 60606
Attention: Gary Marthaler, Attention: Gary Marthaler,
Credit Administration Credit Administration
Telephone: (312) 715-6451 Telephone: (312) 715-6451
Telecopier: (312) 876-2011 Telecopier: (312) 876-2011
First Hawaiian Bank 1132 Bishop Street, 19th Floor 1132 Bishop Street, 19th Floor
Honolulu, HI 96813 Honolulu, HI 96813
Attention: Brenda Deakins Attention: Brenda Deakins
Telephone: (808) 525-8100 Telephone: (808) 525-8100
Telecopier: (808) 525-6372 Telecopier: (808) 525-6372
The First National One First National Plaza One First National Plaza
Bank of Chicago Suite 0363 Suite 0363
Chicago, IL 60670 Chicago, IL 60670
Attention: William Banks/ Attention: William Banks/
Ronald Coleman Ronald Coleman
Telephone: (312) 732-9781 Telephone: (312) 732-9781
(312) 732-2009 (312) 732-2009
Telecopier:(312) 732-3055 Telecopier: (312) 732-3055
First Union National 1 First Union Center, TW-19 1 First Union Center, TW-19
Bank of Charlotte, NC 28228-0735 Charlotte, NC 28228-0735
North Carolina Attention: Hilda Weathers Attention: Hilda Weathers
Telephone: (704) 374-4897 Telephone: (704) 374-4897
Telecopier: (704) 374-4092 Telecopier:(704) 374-4092
<PAGE>
Name of Initial
Lender Domestic Lending Office Eurodollar Lending Office
- ------ ----------------------- -------------------------
Fleet National Bank One Federal Street, 3rd Floor One Federal Street, 3rd Floor
Boston, MA 02110 Boston, MA 02110
Attention: Jeff McLaughlin Attention: Jeff McLaughlin
Telephone: (617) 346-3774 Telephone: (617) 346-3774
Telecopier: (617) 346-4346 Telecopier: (617) 346-4346
The Fuji Bank, 225 West Wacker Drive 225 West Wacker Drive
Limited, Suite 2000 Suite 2000
Chicago Branch Attention: Vir Guiang Attention: Vir Guiang
Telephone: (312) 621-3385 Telephone: (312) 621-3385
Telecopier: (312) 621-0539 Telecopier: (312) 621-0539
The Industrial Bank Chicago Branch Chicago Branch
of Japan, Limited 227 West Monroe 227 West Monroe
Suite 2600 Suite 2600
Chicago, IL 60606 Chicago, IL 60606
Attention: Jennifer Buchhaas Attention: Jennifer Buchhaas
Telephone: (312) 855-8444 Telephone: (312) 855-8444
Telecopier: (312) 855-8200 Telecopier: (312) 855-8200
Mellon Bank, N.A. 3 Mellon Bank Center 3 Mellon Bank Center
Room 153-2304 Room 153-2304
Pittsburgh, PA 15259 Pittsburgh, PA 15259
Attention: Sandy Castelli Attention: Sandy Castelli
Telephone: (412) 234-3699 Telephone: (412) 234-3699
Telecopier: (412) 236-2027 Telecopier: (412) 236-2027
Mitsubishi Trust & 520 Madison Avenue 520 Madison Avenue
Banking Corp. 26th Floor 26th Floor
New York, NY 10022 New York, NY 10022
Attention: Beatrice Kossodo Attention: Beatrice Kossodo
Telephone: (212) 891-8363 Telephone: (212) 891-8363
Telecopier: (212) 644-6825/ Telecopier: (212) 644-6825/
593-4691 593-4691
Morgan Guaranty Trust 60 Wall Street Nassau Bahamas Office
Company of New York New York, NY 10260-0060 c/o J.P. Morgan Services, Inc.
Attention: George Stapleton Euro-Loan Servicing Unit
Telephone: (212) 648-7831 500 Stanton Christiana Road
Telecopier: (212) 648-5014 Newark, DE 19713
Attention: Multi-Option Unit/
Loan Department
Telephone: (302) 634-1800
Telecopier: (302) 634-1094
<PAGE>
Name of Initial
Lender Domestic Lending Office Eurodollar Lending Office
- ------ ----------------------- -------------------------
NationsBank of 901 Main Street, 64th Floor 901 Main Street, 64th Floor
Texas, N.A. Dallas, Texas 75202-3748 Dallas, Texas 75202-3748
Attention: Doug Stuart Attention: Doug Stuart
Telephone: (214) 508-0922 Telephone: (214) 508-0922
Telecopier: (214) 508-9390 Telecopier: (214) 508-9390
The Northern 50 South LaSalle Street 50 South LaSalle Street
Trust Company Chicago, IL 60675 Chicago, IL 60675
Attention: Linda Honda Attention: Linda Honda
Telephone: (312) 444-3532 Telephone: (312) 444-3532
Telecopier: (312) 630-1566 Telecopier: (312) 630-1566
PNC Bank, Mail Stop F2-F070-21-1 Mail Stop F5-F070-21-1
National AssociationCommunications Banking Division Communications Banking Division
21st Floor 21st Floor
1600 Market Street 1600 Market Street
Philadelphia, PA 19103 Philadelphia, PA 19103
Attention: Pat Marchisello Attention: Pat Marchisello
Telephone: (215) 585-8105 Telephone: (215) 585-8105
Telecopier: (215) 585-7485 Telecopier: (215) 585-7485
The Royal Bank of New York Branch New York Branch
Canada One Financial Square One Financial Square
23rd Floor 23rd Floor
New York, NY 10005-3531 New York, NY 10005-3531
Attention: Jim Rankin, Attention: Jim Rankin
Credit Administration Credit Administration
Telephone: (212) 428-6204 Telephone: (212) 428-6204
Telecopier: (212) 428-2372 Telecopier: (212) 428-2372
The Sakura Bank, 227 W. Monroe Street 227 W. Monroe Street
Ltd., Suite 4700 Suite 4700
Chicago Branch Chicago, IL 60606 Chicago, IL 60606
Attention: Kristin Hays Attention: Kristin Hays
Telephone: (312) 580-3276 Telephone: (312) 580-3276
Telecopier: (312) 332-5345 Telecopier: (312) 332-5345
The Sanwa Bank, 10 S. Wacker Drive 10 S. Wacker Drive
Limited, 31st Floor 31st Floor
Chicago Branch Chicago, IL 60606 Chicago, IL 60606
Attention: Kenneth Eichwald Attention: Kenneth Eichwald
Telephone: (312) 368-3006 Telephone: (312) 368-3006
Telecopier: (312) 346-6677 Telecopier: (312) 346-6677
<PAGE>
Name of Initial
Lender Domestic Lending Office Eurodollar Lending Office
- ------ ----------------------- -------------------------
The Sumitomo Bank, 233 South Wacker Drive 233 South Wacker Drive
Limited, Suite 4800 Suite 4800
Chicago Branch Chicago, IL 60606-6448 Chicago, IL 60606-6448
Attention: Patrick Kennedy Attention: Patrick Kennedy
Telephone: (312) 876-6453 Telephone: (312) 876-6453
Telecopier: (312) 876-6436 Telecopier: (312) 876-6436
The Tokai Bank, Ltd., 181 W. Madison Street 181 W. Madison Street
Chicago Branch Suite 3600 Suite 3600
Chicago, IL 60602 Chicago, IL 60602
Attention: Tom Kania Attention: Tom Kania
Telephone: (312) 456-3422 Telephone: (312) 456-3422
Telecopier: (312) 977-0003 Telecopier: (312) 977-0003
The Yasuda Trust Chicago Branch Chicago Branch
and Banking 181 W. Madison Street 181 W. Madison Street
Company, Ltd. Suite 4500 Suite 4500
Chicago, IL 60602 Chicago, IL 60602
Attention: Charles Hagel Attention: Mary Blochberger
Telephone: (312) 683-3844 Telephone: (312) 683-3852
Telecopier: (312) 683-3899 Telecopier: (312) 683-3899
</TABLE>
<PAGE>
Schedule 3.01(f) - Agreements and Insruments Relating to Structure and
Capitalization
(Filed as Schedule 3.01(f) to Exhibit 10.9 to the Company's Annual Report of
Form 10-K for the fiscal year ended December 31, 1995; File No. 1-14108, and
incorporated herein by reference.)
Schedule 4.01(b) - Restricted Subsidiaries
(Filed as Schedule 4.01(b) to Exhibit 10.9 to the Company's Annual Report of
Form 10-K for the fiscal year ended December 31, 1995; File No. 1-14108, and
incorporated herein by reference.)
Schedule 4.01(d) - Required Authorizations, Approvals, Actions, Notices and
Filings
(Filed as Schedule 4.01(d) to Exhibit 10.9 to the Company's Annual Report of
Form 10-K for the fiscal year ended December 31, 1995; File No. 1-14108, and
incorporated herein by reference.)
Schedule 4.01(b) - Restricted Subsidiaries
(Filed as Schedule 4.01(b) to Exhibit 10.9 to the Company's Annual Report of
Form 10-K for the fiscal year ended December 31, 1995; File No. 1-14108, and
incorporated herein by reference.)
Schedule 5.01(h) - Transactions with Affiliates
(Filed as Schedule 5.01(h) to Exhibit 10.9 to the Company's Annual Report of
Form 10-K for the fiscal year ended December 31, 1995; File No. 1-14108, and
incorporated herein by reference.)
Schedule 5.02(a) - Existing Liens
(Filed as Schedule 5.02(a) to Exhibit 10.9 to the Company's Annual Report of
Form 10-K for the fiscal year ended December 31, 1995; File No. 1-14108, and
incorporated herein by reference.)
Schedule 5.02(d) - Surviving Debt
(Filed as Schedule 5.02(d) to Exhibit 10.9 to the Company's Annual Report of
Form 10-K for the fiscal year ended December 31, 1995; File No. 1-14108, and
incorporated herein by reference.)
Schedule 5.02(h) - Existing Investments
(Filed as Schedule 5.02(h) to Exhibit 10.9 to the Company's Annual Report of
Form 10-K for the fiscal year ended December 31, 1995; File No. 1-14108, and
incorporated herein by reference.)
<PAGE>
Schedule 5.02(p)
<TABLE>
PRO FORMA STRUCTURE AND CAPITALIZATION
Reflecting the Effect of the ICN Acquisition
on the Corporate Structure of the Borrower
Acquired Corporations
<CAPTION>
Percentage
of Voting
Securities
Stock Controlled Jurisdiction
Certificates Authorized Issued by the of
Corporation Issued To Shares Shares Borrower Organization
- ----------- --------- ------ ------ -------- ------------
<S> <C> <C> <C> <C> <C>
Commonwealth Cellular 360 Communications Company 1,000 100 100% Delaware
Telephone Sevices, Inc.*
Williamsport Cellular Commonwealth Cellular 100,000 27,054.4559 95.318% Delaware
Telephone Company, Inc. (93.949%)Telephone Services, Inc.*
Williamsport/PA-8 Cellular
(1.978%)Limited Partnership
Independent Cellular N/A N/A N/A N/A Delaware
Network, Inc.**
- ------------
<FN>
*Virginia Metronet, Inc., a wholly-owned Virginia subsidiary of 360
Communications Company, will be merged into Commonwealth Cellular Telephone
Services, Inc. ("CCTS"), a Delaware corporation. CCTS will then change its name
to Virginia Metronet, Inc.
**Independent Cellular Network, Inc. will be merged into TeleSpectrum, Inc., a
wholly-owned Kansas subsidiary of 360 Communications Company.
</FN>
</TABLE>
<PAGE>
Schedule 5.02(p)
Acquired Partnerships
Percentage
of Voting
Securities
Controlled Jurisdiction
by the of
Partnership Borrower Organization
- ----------- -------- ------------
Cellular Plus, L.P. 100% Illinois
Williamsport/PA-8 Cellular Limited Partnership 98.837% Illinois
ICN-Charleston, West Virginia Limited Partnership 85% West Virginia
Ohio Cellular RSA, L.P. 100% Illinois
Northeast Pennsylvania SMSA Limited Partnership 78.98% Delaware
Pennslyvania 3 Sector 2 Limited Partnership 16.66% Delaware
CLNS General Partnership 40% Pennslyvania
Pennslyvania RSA No. 5 General Partnership 40% Pennslyvania
Reading SMSA Limited Partnership 10% Delaware
Allentown SMSA Limited Partnership 4% Delaware
<PAGE>
SCHEDULE 8.12 - EXISTING COMMITMENTS AND EXISTING ADVANCES
================================================================================
Existing Existing
Lender Commitment Advances
- --------------------------------------------------------------------------------
Agents
- --------------------------------------------------------------------------------
Citibank, N.A. $40,000,000 $23,250,000
- --------------------------------------------------------------------------------
Bank of America Illinois $40,000,000 $23,250,000
- --------------------------------------------------------------------------------
The Chase Manhattan Bank $40,000,000 $23,250,000
- --------------------------------------------------------------------------------
Toronto Dominion (Texas), Inc. $40,000,000 $23,250,000
- --------------------------------------------------------------------------------
Co-Agents
- --------------------------------------------------------------------------------
ABN AMRO Bank N.V. $25,000,000 $14,531,250
- --------------------------------------------------------------------------------
The Bank of New York $30,000,000 $17,437,500
- --------------------------------------------------------------------------------
Barclays Bank Plc $30,000,000 $17,437,500
- --------------------------------------------------------------------------------
Credit Lyonnais Cayman Island Branch $36,000,000 $17,437,500
- --------------------------------------------------------------------------------
First Union National Bank of North Carolina $30,000,000 $17,437,500
- --------------------------------------------------------------------------------
The Fuji Bank, Limited, Chicago Branch $25,000,000 $14,531,250
- --------------------------------------------------------------------------------
The Industrial Bank of Japan, Limited $25,000,000 $14,531,250
- --------------------------------------------------------------------------------
Mellon Bank, N.A. $30,000,000 $17,437,500
- --------------------------------------------------------------------------------
Morgan Guaranty Trust Company of New
York $30,000,000 $17,437,500
- --------------------------------------------------------------------------------
NationsBank of Texas, N.A. $25,000,000 $14,531,250
- --------------------------------------------------------------------------------
The Royal Bank of Canada $35,000,000 $20,343,750
- --------------------------------------------------------------------------------
The Sumitomo Bank, Limited, Chicago Branch $30,000,000 $17,437,500
- --------------------------------------------------------------------------------
Lenders
- --------------------------------------------------------------------------------
Bank of Ireland Grand Cayman $10,000,000 $5,812,500
- --------------------------------------------------------------------------------
Bank of Montreal $0 $0
- --------------------------------------------------------------------------------
The Bank of Tokyo Trust Company $15,000,000 $8,718,750
- --------------------------------------------------------------------------------
Bankers Trust Company $15,000,000 $8,718,750
<PAGE>
================================================================================
Existing Existing
Lender Commitment Advances
- --------------------------------------------------------------------------------
Banque Nationale de Paris $25,000,000 $14,531,250
- --------------------------------------------------------------------------------
Credit Suisse $15,000,000 $8,718,750
- --------------------------------------------------------------------------------
The Dai-Ichi Kangyo Bank, Ltd., Chicago
Branch $15,000,000 $8,718,750
- --------------------------------------------------------------------------------
Deutsche Bank AG - New York Branch $30,000,000 $17,437,500
- --------------------------------------------------------------------------------
First Hawaiian Bank $15,000,000 $8,718,750
- --------------------------------------------------------------------------------
The First National Bank of Chicago $25,000,000 $14,531,250
- --------------------------------------------------------------------------------
Fleet National Bank $0 $0
- --------------------------------------------------------------------------------
Mitsubishi Trust & Banking Corp. $25,000,000 $14,531,250
- --------------------------------------------------------------------------------
The Northern Trust Company $15,000,000 $8,718,750
- --------------------------------------------------------------------------------
PNC Bank, National Association $25,000,000 $14,531,250
- --------------------------------------------------------------------------------
The Sakura Bank, Ltd., Chicago Branch $15,000,000 $8,718,750
- --------------------------------------------------------------------------------
The Sanwa Bank, Limited, Chicago Branch $25,000,000 $14,531,250
- --------------------------------------------------------------------------------
The Tokai Bank, Ltd., Chicago Branch $10,000,000 $5,812,500
- --------------------------------------------------------------------------------
The Yasuda Trust and Banking Company, Ltd. $15,000,000 $8,718,750
================================================================================
<PAGE>
EXHIBIT A - FORM OF
PROMISSORY NOTE
U.S.$_______________ Dated: _______________, ____
FOR VALUE RECEIVED, the undersigned, 360 Communications
Company, a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the
order of _________________________ (the "Lender") for the account of its
Applicable Lending Office on the Termination Date (each as defined in the Credit
Agreement referred to below) the principal sum of U.S.$[amount of the Lender's
Commitment in figures] or, if less, the aggregate unpaid principal amount of the
Advances made by the Lender to the Borrower pursuant to the Amended and Restated
Credit Agreement dated as of October 31, 1996 among the Borrower, the Lender and
certain other lenders parties thereto, Citibank, N.A., as Administrative Agent,
The Chase Manhattan Bank, as Syndication Agent, Toronto Dominion (Texas), Inc.,
as Documentation Agent, and Bank of America Illinois, as Syndication Agent (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"; the terms defined therein being used herein as therein defined)
outstanding on the Termination Date.
The Borrower promises to pay interest on the unpaid principal
amount of each Advance made to it from the date of such Advance until such
principal amount is paid in full, at such interest rates, and payable at such
times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to Citibank, N.A., as Administrative Agent, at 399 Park
Avenue, New York, New York 10043, in same day funds. Each Advance owing to the
Lender by the Borrower pursuant to the Credit Agreement, and all payments made
on account of principal thereof, shall be recorded by the Lender and, prior to
any transfer hereof, endorsed on the grid attached hereto which is part of this
Promissory Note.
This Promissory Note is one of the Notes referred to in, and
is entitled to the benefits of, the Credit Agreement. The Credit Agreement,
among other things, (i) provides for the making of Advances by the Lender to the
Borrower from time to time in an aggregate amount not to exceed at any time
outstanding the U.S. dollar amount first above mentioned, the indebtedness of
the Borrower resulting from each such Advance being evidenced by this Promissory
Note, and (ii) contains provisions for acceleration of the maturity hereof upon
the happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified.
360 COMMUNICATIONS COMPANY
By
Title:
<PAGE>
ADVANCES AND PAYMENTS OF PRINCIPAL
================================================================================
Amount of Unpaid
Amount of Principal Paid Principal Notation
Date Advance or Prepaid Balance Made By
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
EXHIBIT B - FORM OF
NOTICE OF BORROWING
Citibank, N.A., as Administrative Agent
for the Lenders parties to the
Credit Agreement referred to below
399 Park Avenue
New York, New York 10043
[Date]
Attention: ____________________
Ladies and Gentlemen:
The undersigned, 360 Communications Company, refers to the
Amended and Restated Credit Agreement, dated as of October 31, 1996 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement",
the terms defined therein being used herein as therein defined), among the
undersigned, certain Lenders parties thereto, Citibank, N.A., as Administrative
Agent, The Chase Manhattan Bank, as Syndication Agent, Toronto Dominion (Texas),
Inc., as Documentation Agent, and Bank of America Illinois, as Syndication Agent
and hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit
Agreement that the undersigned hereby requests a Borrowing under the Credit
Agreement, and in that connection sets forth below the information relating to
such Borrowing (the "Proposed Borrowing") as required by Section 2.02(a) of the
Credit Agreement:
(i) The Business Day of the Proposed Borrowing is
_______________, 199_/20__.
(ii) The Type of Advances comprising the Proposed Borrowing is
[Base Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed Borrowing is
$---------------.
[(iv) The initial Interest Period for each Eurodollar Rate
Advance made as part of the Proposed Borrowing is __________ month[s].]
The undersigned hereby certifies that the following statements
are true on the date hereof, and will be true on the date of the Proposed
Borrowing:
(A) the representations and warranties contained in Section
4.01 of the Credit Agreement are correct, before and after giving
effect to the Proposed Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date; and
<PAGE>
(B) no event has occurred and is continuing, or would result
from such Proposed Borrowing or from the application of the proceeds
therefrom, that constitutes a Default.
Very truly yours,
360 COMMUNICATIONS COMPANY
By
Title:
<PAGE>
EXHIBIT C - FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Amended and Restated Credit Agreement
dated as of October 31, 1996 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement") among 360 Communications Company, a
Delaware corporation (the "Borrower"), the Lenders (as defined in the Credit
Agreement) and Citibank, N.A., as Administrative Agent (the "Administrative
Agent"), The Chase Manhattan Bank ("Chase"), Toronto Dominion (Texas), Inc., as
Documentation Agent (the "Documentation Agent"), and Bank of America Illinois
("BankAmerica", together with Chase each a "Syndication Agent" and collectively
the "Syndication Agents", and the Syndication Agents together with the
Administrative Agent and the Documentation Agent, the "Agents"). Terms defined
in the Credit Agreement are used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule I
hereto agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, an interest in and
to the Assignor's rights and obligations under the Credit Agreement as of the
date hereof equal to the percentage interest specified on Schedule 1 hereto of
all outstanding rights and obligations under the Credit Agreement. After giving
effect to such sale and assignment, the Assignee's Commitment and the amount of
the Advances owing to the Assignee will be as set forth on Schedule 1 hereto.
2. The Assignor (i) represents and warrants that it is the
legal and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Credit Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement or any other
instrument or document furnished pursuant thereto; (iii) makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of the Borrower or the performance or observance by the Borrower of
any of its obligations under the Credit Agreement or any other instrument or
document furnished pursuant thereto; and (iv) attaches the Note held by the
Assignor and requests that the Administrative Agent exchange such Note for a new
Note payable to the order of the Assignee in an amount equal to the Commitment
assumed by the Assignee pursuant hereto or new Notes payable to the order of the
Assignee in an amount equal to the Commitment assumed by the Assignee pursuant
hereto and the Assignor in an amount equal to the Commitment retained by the
Assignor under the Credit Agreement, respectively, as specified on Schedule 1
hereto.
<PAGE>
3. The Assignee (i) confirms that it has received a copy of
the Credit Agreement, together with copies of the financial statements referred
to in Section 4.01 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (ii) agrees that it will, independently and
without reliance upon any Agent, the Assignor or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv)
appoints and authorizes each Agent to take such action as agent on its behalf
and to exercise such powers and discretion under the Credit Agreement as are
delegated to such Agent by the terms thereof, together with such powers and
discretion as are reasonably incidental thereto; (v) agrees that it will perform
in accordance with their terms all of the obligations that by the terms of the
Credit Agreement are required to be performed by it as a Lender; and (vi)
attaches any U.S. Internal Revenue Service forms required under Section 2.13 of
the Credit Agreement.
4. Following the execution of this Assignment and Acceptance,
it will be delivered to the Administrative Agent for acceptance and recording by
the Administrative Agent. The effective date for this Assignment and Acceptance
(the "Effective Date") shall be the date of acceptance hereof by the
Administrative Agent, unless otherwise specified on Schedule 1 hereto.
5. Upon such acceptance and recording by the Administrative
Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit
Agreement and, to the extent provided in this Assignment and Acceptance, have
the rights and obligations of a Lender thereunder and (ii) the Assignor shall,
to the extent provided in this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Administrative
Agent, from and after the Effective Date, the Administrative Agent shall make
all payments under the Credit Agreement and the Notes in respect of the interest
assigned hereby (including, without limitation, all payments of principal,
interest and commitment fees with respect thereto) to the Assignee. The Assignor
and Assignee shall make all appropriate adjustments in payments under the Credit
Agreement and the Notes for periods prior to the Effective Date directly between
themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute
<PAGE>
one and the same agreement. Delivery of an executed counterpart of Schedule 1 to
this Assignment and Acceptance by telecopier shall be effective as delivery of a
manually executed counterpart of this Assignment and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused
Schedule 1 to this Assignment and Acceptance to be executed by their officers
thereunto duly authorized as of the date specified thereon.
<PAGE>
Schedule 1
to
Assignment and Acceptance
Percentage interest assigned: _____%
Assignee's Commitment: $______________
Aggregate outstanding principal amount of Advances assigned:$______________
Principal amount of Note payable to Assignee: $______________
Principal amount of Note payable to Assignor: $______________
Effective Date1: _______________, [199_][20__]
[NAME OF ASSIGNOR], as Assignor
By
Title:
Dated: _______________, [199_][20__]
[NAME OF ASSIGNEE], as Assignee
By
Title:
Domestic Lending Office:
[Address]
Eurodollar Lending Office:
[Address]
- --------
1 This date should be no earlier than five Business Days after the delivery
of this Assignment and Acceptance to the Administrative Agent.
<PAGE>
Accepted [and Approved]2 this
__________ day of _______________, [199_][20__]
CITIBANK, N.A., as Administrative Agent
By
Title:
[Approved this __________ day
of _______________, [199_][20__]
360 COMMUNICATIONS COMPANY
By ]2
Title:
- --------
2 Required if the Assignee is an Eligible Assignee solely by reason of clause
(viii) of the definition of "Eligible Assignee".
<PAGE>
Exhibit D - Form of Opinion of General Counsel of the Borrower
October 31, 1996
To the Lenders party to the Credit Agreement referred to below and to Citibank,
N.A., as Administrative Agent, The Chase Manhattan Bank and Bank of America
Illinois, as Syndication Agents, and Toronto Dominion (Texas), Inc., as
Documentation Agent
Ladies and Gentlemen:
I am Senior Vice President, General Counsel and Secretary of 360o
Communications Company, a Delaware corporation (the "Borrower"). Reference is
made to that certain Amended and Restated Credit Agreement (the "Credit
Agreement") dated as of October 31, 1996 among the Borrower and each of you, and
the related documents described herein.
This opinion is being furnished to you pursuant to Section 3.01(i)(vi)
of the Credit Agreement. Capitalized terms used and not otherwise defined herein
shall have the respective meanings set forth in the Credit Agreement.
In connection with this opinion, I have examined and am familiar with
original or copies, certified or otherwise identified to my satisfaction, of the
following:
(i) the Credit Agreement;
(ii) those certain Notes of even date herewith executed by the
Borrower in favor of each Lender;
(iii) the Amended and Restated Certificate of Incorporation, as
amended (the "Charter"), and the Amended and Restated Bylaws
(the "Bylaws") of the Borrower;
(iv) certain resolutions of the Board of Directors of the Borrower
duly adopted by unanimous written consent on March 1, 1996,
and at a meeting of the Board of Directors held on August 13,
1996; and
(v) a certificate from the Secretary of State of the State of
Delaware as to the corporate existence and good standing of
the Borrower in such jurisdiction.
The Credit Agreement and the Notes described in clause (ii) above are
herein referred to
<PAGE>
collectively as the "Credit Documents."
I have also examined originals or copies, certified or otherwise
identified to my satisfaction, of such corporate records of the Borrower, public
records, agreements and other instruments, certificates of public officials,
certificates of officers of the Borrower and such other documents and questions
of law as I have deemed relevant in connection with the rendering of this
opinion.
In my examination I have assumed, without any investigation, the
genuineness of all signatures (other than those of the Borrower), the legal
capacity of natural persons, the authenticity of all documents submitted to me
as originals, the conformity to original documents of all documents presented to
me as certified or photostatic copies and the authenticity of the originals of
such documents. As to any questions of fact material to the opinions herein
expressed that I did not independently verify or establish, I have relied upon
written statements of officers of the Borrower and I have no reason to believe
such reliance was not justified. Whenever my opinion in this letter is qualified
by the phrase "to the best of my knowledge" or a phrase of similar import, such
phrase is intended to signify that no information has come to my attention or to
the attention of the lawyers acting under my supervision that would give us
actual current knowledge of the existence or absence of such factual matter in
question.
I am a member of the Bar of the State of Illinois, and I do not express
any opinion as to the laws of any jurisdiction other than the State of Illinois,
the General Corporation Law of the State of Delaware, the federal securities
laws of the United States and, to the extent applicable to the Borrower and its
subsidiaries, the federal laws of the United States relating specifically to
public utilities and/or telecommunications companies.
Based upon and subject to the foregoing, I am of the opinion that:
1. The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has, either itself
or through its subsidiaries, all requisite corporate power and authority
(including, without limitation, all governmental licenses, permits and other
approvals and all intellectual property) adequate to own or lease and operate
its properties and to carry on its business as described in the Borrower's
registration statement referred to in Section 3.01(d) of the Original Credit
Agreement.
2. The execution and delivery by the Borrower of the Credit Documents
and the performance by the Borrower of its obligations thereunder, each in
accordance with its terms, and the consummation of the transactions contemplated
thereby, are within the Borrower's corporate powers, have been duly authorized
by all necessary corporate action, and do not (a) conflict with the Charter or
the Bylaws, (b) contravene any judgment, order or decree binding on or affecting
the Borrower or any of its Subsidiaries or any of their respective properties or
(c) to the best of my knowledge, after reasonable inquiry, conflict or be
inconsistent with or result in any breach of or constitute a default under any
material contractual obligation of the Borrower or any of its Subsidiaries.
-2-
<PAGE>
3. To the best of my knowledge, neither the execution, delivery or
performance by the Borrower of the Credit Documents nor the compliance by the
Borrower with the terms and provisions thereof nor the consummation of the
transactions contemplated thereby, will contravene any provision of any
Applicable Law. For purposes of the opinion expressed in this paragraph 3,
"Applicable Laws" shall mean those laws, rules and regulations of the State of
Illinois, the General Corporation Law of the State of Delaware and, to the
extent applicable to the Borrower and its Subsidiaries, the federal laws of the
United States relating specifically to public utilities and/or
telecommunications companies which, in my experience, are normally applicable to
transactions of the type contemplated by the Credit Documents and are not
otherwise the subject of a specific opinion herein that expressly refers to a
particular law or laws.
4. No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority or, to the best of my knowledge, any
other third party, which has not been obtained or taken and is not in full force
and effect, is required to authorize or is legally required in connection with
the due execution, delivery and performance by the Borrower of any of the Credit
Documents or for the consummation of the transactions contemplated thereby,
except for those authorizations, approvals, actions, notices and filings as may
be required in connection with the pending ICN Acquisition as to which I express
no opinion herein.
5. Each of the Credit Documents has been duly executed and delivered by
the Borrower. In any action or proceeding arising out of or relating to the
Credit Documents in any court of the State of Illinois or in any federal court
sitting in the State of Illinois, such court should recognize and give effect to
the governing law provision of the Credit Agreement wherein the parties thereto
agree that the Credit Documents shall be governed by the laws of the State of
New York. Without limiting the generality of the foregoing, a court of the State
of Illinois or a federal court sitting in the State of Illinois should apply the
usury law of the State of New York to the Credit Documents. However, if a court
were to hold that the Credit Documents are governed by, and to be construed in
accordance with, the laws of the State of Illinois, each of the Credit Documents
would be, under the laws of the State of Illinois, the legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in accordance with
its terms, subject as to enforceability, to the effect of any applicable
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar laws affecting
creditors' rights generally from time to time in effect and to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
6. The Borrower has not been served with and there is not, to the best
of my knowledge, after reasonable inquiry, any litigation, arbitration or
administrative proceeding including, without limitation, any Environmental
Action, of or before any court, arbitrator or governmental authority pending or
threatened by or against the Borrower or against any of its Subsidiaries (a)
which purports to affect the legality, validity or enforceability of the Credit
Documents, or the consummation of the transactions contemplated thereby, or (b)
which, if adversely determined, would be reasonably likely to have a Material
Adverse Effect.
-3-
<PAGE>
7. The provisions of the Credit Documents (without regard for any
provisions thereof limiting the payment of interest or any other sums thereunder
to the highest rate permitted by applicable law) do not violate any applicable
law of the State of Illinois relating to usury.
8. Neither the Borrower nor any of its Subsidiaries is an "investment
company," or an "affiliated person" of, or "promotor" or "principal underwriter"
for, an "investment company," as such terms are defined in the Investment
Company Act of 1940, as amended.
This opinion is being furnished solely to you, is solely for your
benefit and the benefit of financial institutions that may become Lenders under
the Credit Agreement after the date hereof, and is being issued solely in
connection with the transactions contemplated by the Credit Documents. This
opinion may not be relied upon by any other person for any other purpose without
my prior written consent. The opinion set forth herein is rendered as of the
date hereof and will not be updated at any time as a result of, or in response
to, any change in law or fact.
Very truly yours,
Kevin C. Gallagher
-4-
EXHIBIT 12
360 COMMUNICATIONS COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(THOUSANDS OF DOLLARS)
For the Year Ended December 31, 1996
-------------------------------------------------------
Earnings 1996 1995 1994 1993 1992
---------- --------- ---------- ----------- ---------
Income (loss) before
cumulative effects of
changes in
accounting principles $ 59,519 $ (1,695)$ (19,757) $ (49,897) $(62,220)
Adjustment for minority
interest in majority
owned affiliates 46,622 34,269 22,110 9,697 4,467
Share of distributed
income of less-than
50%-owned affiliates
net of equity pick-up (27,838) (7,206) (10,899) (10,466) (5,320)
Adjustment for 50%-
owned affiliates (10,327) (4,847) (4,966) (1,727) (13,376)
Capitalized interest (2,234) (1,553) (1,097) (712) (1,061)
Income tax provision 57,829 25,405 5,697 (7,112) (17,309)
---------- --------- ---------- ---------- ----------
Subtotal 123,571 44,373 (8,912) (60,217) (94,819)
Fixed charges
Interest charges 108,598 128,793 99,534 86,121 87,723
Interest portion of
operating rents 6,753 5,868 4,115 2,524 1,851
Adjustment for 50%-
owned affiliates 2,200 2,474 1,990 1,698 1,481
---------- ---------- ---------- ---------- ----------
Total fixed charges 117,551 137,135 105,639 90,343 91,055
---------- ---------- ---------- ---------- ----------
Earnings, as adjusted $ 241,121 $ 181,508 $ 96,727 $ 30,126 $ (3,764)
========== ========== ========== ========== ==========
Ratio of earnings to
fixed charges 2.05 1.32
========== ==========
- ------------
NOTE: The ratio of earnings to fixed charges have been computed by dividing
fixed charges into the sum of (a) income (loss) before cumulative effects
of changes in accounting principles, less capitalized interest and with
adjustments to appropriately reflect the Company's majority-owned,
50%-owned, and less-than-50%-owned affiliates, (b) income taxes, and (c)
fixed charges. Fixed charges consist of interest on all indebtedness and
the interest component of operating rents, with adjustments as
appropriate to reflect the Company's 50%-owned affiliates. For each of
the three years in the period ended December 31, 1994, the deficit of
earnings to fixed charges was $8,912,000, $60,217,000 and $94,819,000,
respectively.
<TABLE>
SUBSIDIARIES OF 360 COMMUNICATIONS COMPANY
<CAPTION>
Percentage
of Voting
Securities
Jurisdiction of Owned by Its
Incorporation or Immediate
Name Organization Parent
- ---- ----------------- -----------
<S> <C> <C>
360 Communications Company of Alabama Delaware 100
360 Communications Company of Charlottesville Virginia 100
360 Communications Company of Ft. Walton Beach Florida 30
Limited Partnership
360 Communications Company of Hickory North Carolina 3
Limited Partnership
360 Communications Company of Hickory No. 1 Delaware 100
Subsidiary:
--360 Communications Company of Hickory North Carolina 97
Limited Partnership
360 Communications Company of Indiana No. 1 Delaware 100
Subsidiary:
--Indiana RSA 2 Partnership Indiana 75
360 Communications Company of Missouri No. 1 Delaware 100
360 Communications Company of Nebraska Delaware 100
Subsidiaries:
--Kansas RSA 15 Limited Partnership Delaware 99
--Omaha Cellular General Partnership Nebraska 50
360 Communications Company of Nevada Nevada 72
Limited Partnership
360 Communications Company of New Mexico Delaware 100
360 Communications Company of North Carolina North Carolina 57
Limited Partnership
360 Communications Company of Ohio No. 1 Delaware 100
Subsidiary:
--Ohio RSA 2 Limited Partnership Delaware 67
360 Communications Company of Ohio No. 2 Delaware 100
Subsidiary:
--Ohio RSA 5 Limited Partnership Delaware 68
360 Communications Company of Ohio No. 3 Delaware 100
Subsidiary:
--Ohio Cellular RSA L.P. Illinois 17
--Ohio RSA 6 Limited Partnership Delaware 82
360 Communications Company of Ohio No. 4 Delaware 100
Subsidiary:
--Kansas RSA 15 Limited Partnership Delaware 1
--Ohio Cellular RSA L.P. Illinois 83
- 1 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percentage
of Voting
Securities
Jurisdiction of Owned by Its
Incorporation or Immediate
Name Organization Parent
- ---- -------------- ------------
<S> <C> <C>
360 Communications Company of Peoria Illinois 100
360 Communications Company of Pennsylvania No. 1 Delaware 100
Subsidiary:
--Cellular Plus L.P. Illinois 18
Subsidiary:
--Williamsport/PA-8 Cellular Limited Partnership Illinois 69
Subsidiary:
--Williamsport Cellular Telephone Company, Inc. Delaware 1.978
Subsidiaries:
--Pennsylvania RSA 1 Limited Partnership Delaware 80
--Pennsylvania RSA No. 6(I) Limited Partnership Delaware 57
--Pennsylvania RSA No. 10B(I) Limited Partnership Delaware 67
360 Communications Company of Pennsylvania No. 2 Delaware 100
Subsidiary:
--Cellular Plus L.P. Illinois 82
--Pennsylvania RSA 12 Limited Partnership Delaware 67
360 Communications Company of Pennsylvania No. 3 Delaware 100
360 Communications Company of South Carolina No. 1 Delaware 100
360 Communications Company of Tennessee No. 1 Delaware 100
Subsidiary:
--Tennessee RSA 8 Limited Partnership Delaware 50
360 Communications Company of Tennessee No. 2 Delaware 100
360 Communications Company of Texas Texas 67
Limited Partnership
360 Communications Company of Texas No. 1 Delaware 100
Subsidiary:
--Texas RSA 7B2 Limited Partnership Delaware 98
360 Communications Company of Texas No. 2 Delaware 100
Subsidiary:
--Texas RSA #10B2 Limited Partnership Delaware 75
360 Communications Company of Texas No. 3 Delaware 100
360 Communications Company of Virginia Virginia 100
Subsidiaries:
--360 Communications Company of Lynchburg Virginia 100
--360 Communications Company of Danville Virginia 75
Limited Partnership
--Virginia RSA 1 Limited Partnership Delaware 5
- 2 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percentage
of Voting
Securities
Jurisdiction of Owned by Its
Incorporation or Immediate
Name Organization Parent
- ---- ----------------- -------------
<S> <C> <C>
360 Communications Company of Virginia No. 1 Delaware 100
Subsidiaries:
--Virginia RSA 1 Limited Partnership Delaware 95
--Virginia RSA 2 Limited Partnership Delaware 67
360 Communications Investment Company Delaware 100
Subsidiaries:
--Centel Cellular Company of Laredo Delaware 100
--360 Communications Company of Petersburg Virginia 100
Subsidiaries:
--Petersburg Cellular Partnership Delaware 22
--Petersburg Cellular Telephone Company, Inc. Virginia 100
Subsidiary:
--Petersburg Cellular Partnership Delaware 51
360 Communications Investment Company of Delaware Delaware 100
Subsidiary:
--360 Communications Company of Florida Delaware 100
Subsidiaries:
--360 Communications Company of Tallahassee Florida 90
Limited Partnership
--360 Communications Company of Ft. Walton Beach Florida 70
Limited Partnership
Subsidiary:
--360 Communications Company of North Carolina No. 1 Delaware 100
Subsidiary:
--North Carolina RSA 6 Limited Partnership Delaware 88
Subsidiary:
--360 Communications Company of South Carolina No. 2 Delaware 100
Subsidiaries:
--South Carolina RSA No. 2 Cellular General South Carolina 50
Partnership
--South Carolina RSA No. 4 Cellular General South Carolina 50
Partnership
--South Carolina RSA No. 5 Cellular General South Carolina 50
Partnership
--South Carolina RSA No. 6 Cellular General South Carolina 50
Partnership
--South Carolina RSA No. 8 Cellular General South Carolina 50
Partnership
360 Communications Investment Company of Greensboro North Carolina 100
Subsidiary:
--360 Communications Company of North Carolina North Carolina 5
Limited Partnership
360 Long Distance, Inc. Iowa 100
360 Paging, Inc. Delaware 100
360 Telephone Company of North Carolina Delaware 100
- 3 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percentage
of Voting
Securities
Jurisdiction of Owned by Its
Incorporation or Immediate
Name Organization Parent
- ---- --------------- ------------
<S> <C> <C>
Centel Cellular Company of Iowa Delaware 100
Subsidiary:
--Waterloo MSA Limited Partnership Delaware 89
Dubuque MSA Limited Partnership Delaware 85
North Carolina RSA 6 Limited Partnership Delaware 12
North Carolina RSA 15 North Sector Limited Partnership North Carolina 67
Pennsylvania RSA No. 10B(I) Limited Partnership Delaware 33
TeleSpectrum, Inc. Kansas 100
Subsidiaries:
--Empire Cellular, Inc. Kansas 100
--TeleSpectrum of Virginia, Inc. Virginia 100
--Charleston-North Charleston MSA Limited Delaware 75
Partnership
--Greenville MSA Limited Partnership Delaware 89
--ICN-Charleston, West Virginia Limited West Virginia 85
Partnership
--Raleigh-Durham MSA Limited Partnership Delaware 92
--South Bend/Mishawaka MSA Limited Partnership Delaware 84
--Susquehanna Cellular Communications Limited Delaware 87
Partnership
--Toledo MSA Limited Partnership Delaware 75
--Tyler/Longview/Marshall MSA Limited Partnership Delaware 60
--Youngstown-Warren MSA Limited Partnership Delaware 97
Tennessee RSA 8 Limited Partnership Delaware 50
Texas RSA 9B3 Limited Partnership Texas 70
Texas RSA 10B4 Limited Partnership Texas 75
Virginia Metronet, Inc. Delaware 100
Subsidiaries:
--Northeast Pennsylvania SMSA Limited Partnership Delaware 79
--Williamsport Cellular Telephone Company, Inc. Delaware 93.949
Subsidiary:
--Williamsport/PA-8 Cellular Limited Partnership Illinois 31
Virginia RSA 2 Limited Partnership Delaware 5
- 4 -
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
360 Communications Company and in the related prospectuses of our report dated
February 26, 1997, with respect to the consolidated financial statements and
schedule of 360 Communications Company and Subsidiaries included in this Annual
Report (Form 10-K) for the year ended December 31, 1996:
$500 Million Shelf Registration Form S-3 No. 333-21331
Retirement Savings Plan Form S-8 No. 333-1378
Replacement Stock Option Plan Form S-8 No. 333-1380
1996 Equity Incentive Program and Director
Equity and Deferred Compensation Form S-8 No. 333-1382
Ernst & Young LLP
Chicago, Illinois
March 26, 1997
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the following Registration
Statements of 360 Communications Company and in the related prospectuses of our
report dated February 14, 1997, with respect to the financial statements of
Kansas City SMSA Limited Partnership included in this Annual Report (Form 10-K)
for the year ended December 31, 1996. The financial statements referred to above
are not included in this Form 10-K.
$500 Million Shelf Registration Form S-3 No. 333-21331
Retirement Savings Plan Form S-8 No. 333-1378
Replacement Stock Option Plan Form S-8 No. 333-1380
1996 Equity Incentive Program and Director
Equity and Deferred Compensation Form S-8 No. 333-1382
Ernst & Young LLP
San Antonio, Texas
March 27, 1997
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accounts, we hereby consent to the incorporation by
reference in the following previously filed Registration Statements of 360
Communications Company and in the related prospectuses of our report dated
February 24, 1997, included in this Form 10-K, with respect to the consolidated
financial statements of GTE Mobilnet of South Texas Limited Partnership; such
financial statements are not included separately in this Form 10-K.
$500 Million Shelf Registration Form S-3 No. 333-21331
Retirement Savings Plan Form S-8 No. 333-1378
Replacement Stock Option Plan Form S-8 No. 333-1380
1996 Equity Incentive Program and Director
Equity and Deferred Compensation Form S-8 No. 333-1382
ARTHUR ANDERSEN LLP
Atlanta, Gerogia
March 27, 1997
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
360 Communications Company and in the related prospectuses of our report dated
January 17, 1997, with respect to the consolidated financial statements of
Chicago SMSA Limited Partnership, included in 360 Communications Company's
Annual Report on Form 10-K for the year ended December 31, 1996; such financial
statements are not included separately in the Form 10-K.
$500 Million Shelf Registration Form S-3 No. 333-21331
Retirement Savings Plan Form S-8 No. 333-1378
Replacement Stock Option Plan Form S-8 No. 333-1380
1996 Equity Incentive Program and Director
Equity and Deferred Compensation Form S-8 No. 333-1382
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 27, 1997
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
360 Communications Company on Form S-3 (No. 333-21331), Form S-8 (No. 333-1378),
Form S-8 (No. 333-1380), and Form S-8 (333-1382) of our report dated February
13, 1997, on our audits of the financial statements of the New York SMSA Limited
Partnership (the "Partnership") as of and for the years ended December 31, 1996
and 1995, and of our report dated March 21, 1996, on our audits of the financial
statements of the Partnership as of and for the years ended December 31, 1995
and 1994, which reports are included in the 360 Communications Company Annual
Report on Form 10-K for the year ended December 31, 1996. The financial
statements referred to above are not included separately in the Annual Report on
Form 10-K.
Coopers & Lybrand L.L.P.
New York, New York
March 27, 1997
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statements on
(Form S-8 No. 333-1378, pertaining to the 360 Communications Company Retirement
Savings Plan; Form S-8 No. 333-1382, pertaining to the 360 Communications
Company 1996 Equity Incentive Program and Director Equity and Deferred
Compensation Plan; Form S-8 No. 333-1380, pertaining to the 360 Communications
Company Replacement Stock Option Plan; and Form S-3 No. 333-21331 pertaining to
the 360 Communications Company $500 Million Shelf Registration) of 360
Communications Company of our report dated February 7, 1997 on our audit of the
financial statements of the Orlando SMSA Limited Partnership as of and for the
year ended December 31, 1996, which report is included in this Annual Report on
Form 10-K; such financial statements are not included separately in this Form
10-K.
Coopers & Lybrand L.L.P.
Atlanta, Georgia
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA
FROM THE ANNUAL FINANCIAL STATEMENTS INCLUDED
AS PART OF 360'S 1996 10K
</LEGEND>
<CIK> 0001003959
<NAME> 360 COMMUNICATIONS COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,554
<SECURITIES> 0
<RECEIVABLES> 108,213
<ALLOWANCES> 5,730
<INVENTORY> 35,908
<CURRENT-ASSETS> 228,843
<PP&E> 1,499,407
<DEPRECIATION> 415,981
<TOTAL-ASSETS> 2,812,069
<CURRENT-LIABILITIES> 350,848
<BONDS> 1,699,778
0
0
<COMMON> 1,233
<OTHER-SE> 461,267
<TOTAL-LIABILITY-AND-EQUITY> 2,812,069
<SALES> 43,146
<TOTAL-REVENUES> 1,095,872
<CGS> 104,327
<TOTAL-COSTS> 99,745
<OTHER-EXPENSES> 202,617
<LOSS-PROVISION> 23,952
<INTEREST-EXPENSE> 106,364
<INCOME-PRETAX> 117,348
<INCOME-TAX> 57,829
<INCOME-CONTINUING> 59,519
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,519
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
