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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-28262
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AERIAL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 39-1706857
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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8410 WEST BRYN MAWR AVENUE, SUITE 1100, CHICAGO, ILLINOIS 60631
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER: (773) 399-4200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
---------------------------
Common Shares, $1 par value
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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___
As of February 29, 2000, the aggregate market value of registrant's Common
Shares held by nonaffiliates was approximately $830 million (based upon the
closing price of the Common Shares on February 29, 2000, of $59.94, as reported
by the NASDAQ).
The number of shares outstanding of each of the registrant's classes of
common stock, as of February 29, 2000, is 42,729,834 Shares, $1 par value, and
52,924,151 Series A Common Shares, $1 par value.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TABLE OF CONTENTS
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PAGE NUMBER
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Item 1. Business.................................................... 3
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Item 7A. Qualitative and Quantitative Disclosures About Market
Risk...................................................... 24
Item 8. Financial Statements and Supplementary Data................. 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 44
Item 10. Directors and Executive Officers of the Registrant.......... 44
Item 11. Executive Compensation...................................... 48
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 57
Item 13. Certain Relationships and Related Transactions.............. 63
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 71
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PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY
STATEMENT
THIS ANNUAL REPORT ON FORM 10-K, INCLUDING EXHIBITS, CONTAINS STATEMENTS
THAT ARE NOT BASED ON HISTORICAL FACT, INCLUDING THE WORDS "BELIEVES",
"ANTICIPATES", "INTENDS", "EXPECTS", AND SIMILAR WORDS. THESE STATEMENTS
CONSTITUTE "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE
THE ACTUAL RESULTS, EVENTS OR DEVELOPMENTS TO BE SIGNIFICANTLY DIFFERENT FROM
ANY FUTURE RESULTS, EVENTS OR DEVELOPMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-
LOOKING STATEMENTS. SUCH FACTORS INCLUDE:
- GENERAL ECONOMIC AND BUSINESS CONDITIONS, BOTH NATIONALLY AND IN THE
REGIONS IN WHICH THE COMPANY OPERATES;
- TECHNOLOGY CHANGES;
- COMPETITION;
- CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS;
- CHANGES IN GOVERNMENT REGULATION;
- THE COMPANY'S ABILITY AND THE ABILITY OF THIRD-PARTY SUPPLIERS TO TAKE
CORRECTIVE ACTION IN A TIMELY MANNER WITH RESPECT TO THE YEAR 2000 ISSUE;
- AVAILABILITY OF FUTURE FINANCING;
- CHANGES IN GROWTH IN PCS CUSTOMERS, PENETRATION RATES AND CHURN RATES; AND
- COMPLETION AND TIMING OF THE MERGER BETWEEN THE COMPANY AND VOICESTREAM.
THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
READERS SHOULD EVALUATE ANY STATEMENTS IN LIGHT OF THESE IMPORTANT FACTORS.
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AERIAL COMMUNICATIONS, INC.
8410 WEST BRYN MAWR AVENUE - SUITE 1100 - CHICAGO, IL 60631
[LOGO]
TELEPHONE (773) 399-4200
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PART I
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ITEM 1. BUSINESS
COMPANY
Aerial Communications, Inc. (the "Company" or "Aerial"), [NASDAQ: AERL]
together with its subsidiaries, is a provider of Personal Communications
Services ("PCS") in the Minneapolis, Tampa-St. Petersburg-Orlando, Houston,
Pittsburgh, Kansas City and Columbus (Ohio) Major Trading Areas ("MTAs")
(collectively, the "PCS Markets"). The PCS Markets include approximately
27.9 million population equivalents ("POPs"). The Company has constructed
networks for its PCS Markets using Global System for Mobile Communication
("GSM") technology. The Company has commenced service in all its markets. By
year-end 1999, the Company had expanded its system coverage to total more than
80% of the six MTAs' total population.
The Company was formed in 1991 under Delaware law as a wholly-owned
subsidiary of Telephone and Data Systems, Inc. [AMEX: TDS] and was formerly
named American Portable Telecom, Inc. In November 1996 the Company changed its
name to Aerial Communications, Inc. TDS owned 78.2 million shares of common
stock of the Company at December 31, 1999, representing 82.1% of the combined
total of the Company's outstanding Common and Series A Common Shares and 98.0%
of the voting power.
PCS is the term used to describe the wireless telecommunications services
that are offered by those companies that acquired licenses for radio spectrum
(frequency range 1850-1990 MHz) in the Federal Communications Commission ("FCC")
auctions and are the newest entrants in the wireless telecommunications market.
PCS competes directly with existing cellular phone, paging and specialized
mobile radio services. PCS providers were the first in most markets to offer
mass market all-digital mobile networks. In addition, the Company believes PCS
providers may be among the first to be able to offer mass market wireless local
loop applications, in competition with switched and direct access local
telecommunications services.
The Company's strategic goal is to take full advantage of the potential of
wireless telecommunications. The Company sees an opportunity for significant
growth in the wireless telecommunications market through the shift of existing
wireless usage patterns from applications focused on business use, special
occasions and emergencies to much broader applications for everyday use. The
Company is structured to meet the increasingly competitive challenges of the
wireless telecommunications marketplace, and has a marketing-oriented approach
focused on serving its customers and their needs. Since the introduction of
cellular phone service in 1983, the demand for wireless telecommunications
services has grown dramatically as cellular, paging and other emerging wireless
personal communications services have become widely available and increasingly
affordable. As of December 31, 1999, there were an estimated 86 million domestic
wireless phone subscribers (representing both cellular and PCS customers), which
represented U.S. market penetration of approximately 32%.
During 1996 and early 1997, the Company contracted for network equipment,
billing systems, support software and the equipment and services necessary to
launch service. Additionally during this period, the Company completed the
design for its PCS networks, acquired and built out the switching centers
serving each market, leased and built out a National Operations Center, leased
or purchased the cell sites required to launch and commenced zoning and building
the sites. The Columbus MTA launched service on March 27, 1997. The Company's
five remaining MTAs launched service during the
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second quarter of 1997. Across all six markets, the Company launched with
approximately 600 cell sites in service. The Company had approximately 1,278
cell sites in service by the end of 1999. The coverage of the Company's PCS
networks includes the major metropolitan areas within the PCS Markets, as well
as portions of the major highway corridors extending out from those areas.
In November 1996, the Company entered into a Member Control Agreement
("Agreement") forming a joint venture with Rural Cellular Corporation ("RCC"),
the Wireless Alliance LLC ("WALLC"), to build out certain rural areas covering
approximately 925,000 POPs in the Minneapolis MTA. The Company has contributed
20 MHz of its Minneapolis MTA license covering certain territories as defined in
the Agreement in return for a 30% equity interest in the joint venture. RCC
built the network and is responsible for the ongoing operations. The WALLC
launched service in 1998. The joint venture purchases services such as network
switching from the Company. The network uses GSM technology.
Minority Investor
On September 8, 1998, pursuant to the terms of a Purchase Agreement dated
June 1, 1998 (the "Purchase Agreement"), Sonera Corporation ("Sonera", formerly
known as Sonera Ltd.) made a $200 million investment in Aerial Operating
Company, Inc. ("AOC"), a then wholly owned subsidiary of the Company. Sonera
purchased approximately 2.4 million shares of common stock of AOC at a price of
approximately $83 per share representing a 19.4% equity interest in AOC. Sonera
has the right, subject to adjustment under certain circumstances, to exchange
each share of AOC common stock that it owns for 6.72919 Common Shares of Aerial.
Upon the exchange of all of the above AOC shares, Sonera would have owned (prior
to its additional investment in the Company, as described below under
"VoiceStream Merger") an 18.4% equity interest in Aerial, reflecting a purchase
price equivalent of $12.33 per Common Share of Aerial (the "Equivalent Purchase
Price").
Following the announcement by TDS on December 18, 1998, that it intended to
distribute to its shareholders all of the capital stock of Aerial that it owns
(the "spin-off announcement"), and that Aerial would seek additional financing
from sources other than TDS in connection therewith, Sonera contacted TDS to
express certain concerns. Sonera asserted, among other things, that Aerial and
TDS misrepresented and failed to disclose certain material facts to Sonera,
thereby inducing Sonera to pay an excessive price for AOC common stock. Sonera
requested the renegotiation of certain matters related to Sonera's investment in
AOC, including an adjustment in the Equivalent Purchase Price, and raised the
possibility of litigation in connection therewith.
Under the Purchase Agreement, the number of AOC shares purchased by Sonera
is subject to reduction if the average price of the Company's Common Shares
exceeds certain threshold prices. During the second quarter and on July 7, 1999,
the average price of the Company's Common Shares exceeded all of the threshold
prices set forth in the Purchase Agreement. Accordingly, the Company requested
Sonera to surrender for cancellation an aggregate of 634,216 shares of AOC
common stock. Sonera refused to surrender any AOC shares and, in connection with
its allegations, as discussed above, objected to the application of the share
reduction provisions in the Purchase Agreement.
In connection with an Agreement and Plan of Reorganization (see "VoiceStream
Merger" below), Sonera, TDS, Aerial and AOC executed a Settlement Agreement and
Release as of September 17, 1999. Under the Settlement Agreement and Release,
Sonera surrendered for cancellation 317,108 AOC shares, representing one-half of
the 634,216 disputed shares, on November 1, 1999, without releasing its claims
with respect to such surrendered shares, in connection with the closing of the
transactions under the TDS Debt Replacement Agreement described below. Upon
satisfaction of all of the conditions to the closing of the transactions
contemplated by the Agreement and Plan of Reorganization, the remaining 317,108
AOC shares will be surrendered for cancellation immediately prior to the closing
of such transactions. At this closing, each of Sonera and Sonera U.S., on the
one hand, and TDS, Aerial, AOC, and VoiceStream, on the other hand, will release
each other from all claims relating to actions occurring through the date of the
Settlement Agreement and Release, including all claims by Sonera to all of the
disputed shares and, subject to certain exceptions, will extend such release to
actions occurring through the date of such closing. Also at that closing, the
Purchase Agreement and the other agreements entered into in connection with
Sonera's original investment in AOC will be terminated.
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VOICESTREAM MERGER
On September 17, 1999, the VoiceStream and Aerial Boards of Directors
approved a definitive Agreement and Plan of Reorganization to merge the two
companies. The merger is expected to close in the second quarter of 2000.
Pursuant to the Agreement and Plan of Reorganization, VoiceStream will exchange
0.455 shares of VoiceStream common stock for each of the Company's Common and
Series A Common Shares, subject to adjustment under certain circumstances.
Aerial public shareholders will have the right to elect to receive $18 in
cash in lieu of shares of VoiceStream. Sonera will convert its shares in AOC
into shares of Aerial (at a conversion ratio of 6.72919) immediately prior to
the merger becoming effective. The parties anticipate that the merger will be
tax-free to Aerial shareholders that elect to receive VoiceStream stock. This
merger has received shareholder approval by both Aerial and VoiceStream.
Although all filing and time requirements under the antitrust laws have been
satisfied, the merger of Aerial and VoiceStream is subject to FCC approval. In
the event the merger with VoiceStream does not take place, under certain
circumstances, Aerial would be required to pay VoiceStream a $40 million
termination fee. If Aerial does not have sufficient funds at such time to pay
the termination fee, TDS will allow Aerial to finance the termination fee
through an increase in the Revolving Credit Agreement. The following is a
discussion of significant transactions executed in anticipation of but not
contingent upon the merger with VoiceStream, except as indicated below.
TDS Debt Replacement
On September 17, 1999, TDS, the Company, AOC, and VoiceStream entered into a
Debt/Equity Replacement Agreement (the "TDS Debt Replacement Agreement"). In
accordance with the TDS Debt Replacement Agreement, on November 1, 1999, TDS
assigned to Aerial as a contribution to capital $420 million of debt owed by AOC
to TDS under the TDS Revolving Credit Agreement in exchange for an aggregate
19.1 million shares of Aerial common stock, at a purchase price of $22.00 per
share. On September 17, 1999, the date of the TDS Debt Replacement Agreement,
the closing price of Aerial Common Shares was $20.00 per share. The shares of
Aerial common stock consisted of 6.2 million Aerial Common Shares and
12.9 million Aerial Series A Common Shares. Thereafter, on November 1, 1999,
Aerial assigned to AOC as a contribution to capital the $420 million of debt
received from TDS, as well as $75 million received by Aerial from Sonera (see
"Sonera-Aerial Investment" below) in exchange for an aggregate of 3.3 million
common shares of AOC. As a result of the transactions under the TDS Debt
Replacement Agreement, $420 million of debt previously owed by AOC to TDS was
extinguished and the Maximum Amount under the Revolving Credit Agreement was
reduced from $775 million to $355 million. In addition, the interest rate under
the Revolving Credit Agreement was decreased to prime rate plus 2.35% and the
guarantee by Aerial of AOC's obligations thereunder was terminated.
Under certain circumstances, TDS is required to loan funds to AOC after the
merger closing up to a maximum of $315 million. In such event, effective at the
merger closing, TDS and AOC will amend the TDS Revolving Credit Agreement by
entering into an Amended and Restated Credit Agreement (the "Amended
Agreement"). Any amounts borrowed under the Amended Agreement will become due in
full one year after the effective date of the Amended Agreement. The interest
rate under the Amended Agreement will be LIBOR plus 3.5% and the obligations of
the Company under the Amended Agreement will be secured by substantially all the
Company's assets.
Sonera-Aerial Investment
On September 17, 1999, TDS, Aerial, AOC, VoiceStream, Sonera and Sonera
Corporation U.S. ("Sonera U.S.") entered into a Settlement Agreement and Release
providing for the Sonera-Aerial Investment. In accordance with the Sonera-Aerial
Investment, on November 1, 1999, Sonera invested an aggregate of $230 million in
Aerial and AOC at an equivalent purchase price of $22.00 per share of Aerial
common stock. Aerial issued 3.4 million Aerial Common Shares to Sonera in
consideration for $75 million, and AOC issued 1.0 million shares of AOC common
stock to Sonera in consideration for $155 million. The funds invested by Sonera
were used to repay outstanding debt under the TDS Revolving Credit Agreement.
Additionally, Sonera surrendered 317,108 shares of AOC stock on November 1,
1999, without releasing its claims with respect thereto, and will surrender an
additional 317,108 shares at the closing of the merger. At the merger closing,
TDS, Aerial, AOC and VoiceStream, on the one hand, and Sonera and Sonera U.S.,
on the other hand, will release each other from all claims relating to actions
occurring through September 17, 1999, including all claims by Sonera to the
634,216
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disputed shares, and, subject to certain exceptions, will extend such release
through the date of the merger closing.
WIRELESS TELECOMMUNICATIONS INDUSTRY
OVERVIEW. Wireless service is currently available using analog or digital
technology. Traditionally wireless services transmitted voice and data signals
over analog-based networks by varying the amplitude or frequency of one
continuous electronic signal transmitted over a single radio channel. Analog
technology currently has several limitations, including inconsistent service
quality, lack of privacy, limited capacity and less reliability in transferring
data without errors. The Company has chosen GSM, which utilizes a digital
technology, for use in the PCS Markets. Digital systems convert voice or data
signals into a stream of digits that is compressed before transmission, enabling
a single radio channel to carry multiple simultaneous signal transmissions. This
additional capacity, along with improvements in digital protocols, allows
digital-based wireless technologies to offer new and enhanced services, such as
greater call privacy and more robust data transmission features, such as "mobile
office" applications (including facsimile, electronic mail and wireless
connections to computer/data networks, including the Internet).
PCS spectrum differs from existing cellular and specialized mobile radio
("SMR") spectrum in three basic ways: frequency, spectrum and geographic
division. PCS networks will operate in a higher frequency range (1850-1990 MHz)
compared to the cellular and SMR frequency (800-900 MHz). PCS is comprised of 30
or 10 MHz spectrum versus 25 MHz spectrum for cellular networks. As a result of
the improved capacity of the infrastructure and large allocation of spectrum in
the A, B and C PCS frequency Blocks, PCS will have more capacity for new
wireless services such as data and video transmission. Finally, the geographic
areas for PCS licenses are divided differently than for cellular licenses. PCS
is segmented among 51 MTAs and 493 Basic Trading Areas ("BTAs") as opposed to
cellular's 306 Metropolitan Statistical Areas ("MSAs") and 428 Rural Service
Areas ("RSAs"). An MTA license generally covers a much larger geographic area
than a BTA, MSA or RSA license.
OPERATION OF WIRELESS NETWORKS. Wireless service areas are divided into
smaller geographic areas called "cells", each of which contains an antenna and a
base transceiver station ("BTS") consisting of a low-power transmitter, a
receiver and signaling equipment. The cells are typically configured on a grid
in a honeycomb-like pattern, although terrain factors (including natural and
man-made obstructions) and signal coverage patterns may result in irregularly
shaped cells and overlaps or gaps in coverage. The BTS in each cell is connected
by microwave, fiber optic cable or telephone wires to a switching office
("mobile switching center" or "MSC"). The MSC controls the operation of the
wireless phone network for its entire service area, performing inter-BTS
hand-offs, managing call delivery to phones, allocating calls among the cells
within the network and connecting calls to local landline telephone systems or
to long-distance telephone carriers. Wireless service providers have
interconnection agreements with various local exchange carriers and
interexchange carriers, thereby integrating the wireless phone network with
landline telecommunications systems. Because two-way wireless networks are fully
interconnected with landline telephone networks and long-distance networks,
customers can receive and originate both local and long-distance calls from
their wireless phones.
The signal strength of a transmission between a phone and a BTS antenna
declines as the phone moves away from the BTS antenna. The MSC and the BTSs
monitor the signal strength of calls in process. When the signal strength of a
call declines to a predetermined level, the MSC may "hand off" the call to
another BTS that can establish a stronger signal with the phone. If a phone
leaves the service area of the wireless service provider, the call is
disconnected unless an appropriate technical interface is established to hand
off the call to an adjacent service provider's system.
Operators of wireless networks frequently agree to provide service to
customers from other compatible networks who are temporarily located or
traveling through the operator's service area. Such customers are called
"roamers." Agreements among network operators allocate revenues received from
roamers. With automatic roaming, wireless customers are preregistered in certain
networks outside their home service area and receive service automatically while
they are roaming. Other roaming features permit calls to a customer to follow
the customer into different networks, so that the customer will continue to
receive calls in a different network just as if the customer were within his or
her service area.
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Wireless customers generally are charged separately for monthly access, air
time, long-distance calls and custom-calling features (although custom-calling
features may be included in monthly access charges in certain pricing plans).
Wireless network operators pay fees to local exchange and long-distance
telephone companies for access to their networks and toll charges based on
standard or negotiated rates. When wireless operators provide service to roamers
from other networks, they generally charge roamer air-time usage rates, which
usually are higher than standard air-time usage rates for their own customers,
and additionally may charge daily access fees. Special, discounted rate roaming
arrangements, often between neighboring operators who wish to stimulate usage in
their respective territories, provide for reduced roaming fees and no daily
access fees.
TECHNOLOGY
With GSM technology, the Company offers easy-to-use, interactive menu-driven
phones, and advanced features such as caller identification and a smart card, as
well as more complex features such as text messaging, which allows the GSM phone
to function as a two-way messaging device. GSM is not compatible with other PCS
or cellular technologies. However, compatibility can be achieved through the use
of phones that support multiple technologies. Aerial launched its dual-mode
service in April 1999 that enables roaming between GSM and the existing analog
cellular systems through the use of dual-mode phones.
In addition, Aerial has established roaming arrangements with over 75
international operators in more than 40 countries. This enables Aerial
customers, using their own phone numbers, to place calls anywhere within the
country they are visiting as well as return calls to the U.S.
To date, seventeen North American PCS companies are providing commercial GSM
service. GSM systems are currently in commercial operation in approximately
4,000 North American cities with approximately 6 million customers. The
Company's customers are able to roam substantially throughout the United States,
either on other GSM-based PCS networks or by using dual-mode phones that can
also be used on existing cellular networks.
The Company is a member of the North American GSM Alliance LLC ("GSM
Alliance"), an all-digital wireless PCS network of U.S. and Canadian carriers.
The GSM Alliance was established to create a national network and develop
seamless wireless communications for customers, whether at home, away or abroad.
The GSM Alliance's collaborative efforts focus on serving the wireless customer
efficiently by addressing the areas of roaming, customer care, national
distribution and data communications. The Company is also a limited partner of
the GSM Capital Limited Partnership. The partnership was formed to make
investments in companies mainly engaged in the wireless communications industry
using the GSM platform, that are in a development or expansion stage, or whose
securities trade in an organized market. The Company is also a part of GSM North
America, which is the North American interest group for the GSM Association.
Formed in 1995, GSM North America brings together service providers and
equipment manufacturers to identify and resolve issues related to making GSM the
premier PCS digital technology.
SOURCES OF EQUIPMENT
The Company does not manufacture any of the GSM network equipment, phones or
accessories ("equipment") used or anticipated to be used in its operations. The
equipment the Company uses or anticipates to use is available from multiple
sources, and the Company anticipates such equipment will continue to be
available to the Company in the foreseeable future, consistent with normal
manufacturing and delivery lead times. As GSM uses an open system architecture,
and due to the fact that GSM has well-developed features, software systems and
equipment that are available "off the shelf", the Company is able to design its
GSM networks and systems without being dependent upon any single manufacturing
source. Nokia Telecommunications Inc. has been the Company's sole supplier of
digital radio channel and switching infrastructure equipment to date. The
Company's current phone vendors are Nokia Mobile Phones, Inc., Ericsson Inc.,
Motorola Inc., and Mitsubishi Wireless Communications, Inc.
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PRODUCTS AND SERVICES
The Company offers coverage in those areas of the PCS Markets where most of
the population lives and works. Continuing construction of its PCS networks will
provide coverage which, in combination with roaming services as described above,
is competitive with that of current cellular operators. The Company provides
roaming capabilities through agreements with other GSM and cellular operators.
The Company's two primary sources of revenues are similar to those available
to other cellular system providers. Service revenue primarily consists of
charges for access, airtime and value-added services provided to the Company's
retail customers who use the network operated by the Company, and charges for
long-distance calls made on the Company's systems. Service revenue also consists
of charges to customers of other wireless carriers who use the Company's PCS
network when roaming (outcollect roaming revenue). Equipment sales revenue
consists of the sale of phones and related accessories to retailers, independent
agents and end user customers. At December 31, 1999, the Company had 422,900
customers. Service revenues and equipment sales revenues totaled $195.1 million
and $30.4 million, respectively, for the year ended December 31, 1999.
The Company provides the following services and features:
THE SMART CARD. GSM technology employs a Smart Card which contains a
microchip containing detailed information about a customer's service profile.
The Smart Card allows the Company to initiate services or change a customer's
service package from a remote location. The Smart Card also allows customers to
roam onto other participating GSM-based networks by using their cards in phones
compatible with the local network.
FEATURE-RICH PHONES. As part of its basic service package, the Company
provides easy-to-use, interactive menu-driven phones that enable customers to
utilize the features available in a GSM network. These phones primarily use
words and easy-to-use menus rather than numeric codes to operate phone functions
such as call-forwarding, call-waiting and text messaging.
SHORT TEXT MESSAGING. GSM technology allows for the capability to send and
receive short text messages, similar to two-way radio paging services. This
service allows the Company to offer a quicker and less expensive form of
wireless communication when a full conversation is not necessary.
ENHANCED SECURITY. The Company's service provides greater security from
eavesdropping and cloning than analog wireless service. Greater conversation
security is provided by the encryption code of the digital GSM signal. Greater
fraud protection is provided because GSM phones require the use of a Smart Card
with a sophisticated authentication scheme, the replication of which is
virtually impossible.
MARKETING AND DISTRIBUTION
The Company's marketing objective is to create demand for its PCS service by
clearly differentiating its service offerings. The Company believes the strength
of its marketing efforts are a key contributor to its success. The Company's
mass marketing efforts emphasize the value of the Company's services and its
"fairness" to customers and are supported by heavily promoting the Aerial brand
name. This is supported by a substantial advertising program.
The Company offers its services and products through traditional cellular
sales channels as well as through new, lower cost channels which increase the
quality of the typical sale. The Company utilizes traditional sales channels
which include mass merchandisers and retail outlets, company retail stores,
sales agents and a direct sales force. National distributors include Best Buy,
Circuit City, Office Depot, and Staples. The Company currently also distributes
its services and products through over 100 company retail locations (mall
stores, strip mall stores and kiosks).
COMPETITION
The wireless telecommunications industry is experiencing significant
technological change, as evidenced by the increasing pace of digital upgrades to
existing analog cellular networks, evolving industry standards, ongoing
improvements in the capacity and quality of digital technology, shorter
development cycles for new products and enhancements, and changes in end-user
requirements and preferences. Accordingly, the Company believes competition in
the wireless telecommunications
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business is dynamic and intense as a result of the entrance of new competitors
and the development of new technologies, products and services.
The Company competes directly with up to five other PCS providers in each of
its PCS Markets. The other successful bidders in the FCC's broadband Block A and
Block B PCS auction in each of the six PCS Markets were PCS PrimeCo (Houston and
Tampa-St. Petersburg-Orlando), Sprint PCS (Minneapolis, Pittsburgh and Kansas
City) and AT&T Wireless Services, Inc. (Columbus). The existing cellular
providers in the PCS Markets, most of which have an infrastructure in place and
have been operational for a number of years, have in most cases, upgraded their
networks to provide comparable services in competition with the Company.
Principal cellular providers in the PCS Markets are AT&T Wireless
Services, Inc., BellSouth Mobility, Inc., GTE Mobile Communications Corporation,
AirTouch Communications, Inc., SBC Wireless, Bell Atlantic-NYNEX Mobile and
Ameritech Cellular. Additionally, the Company competes with SMR provider Nextel
Communications, Inc. in each of its six PCS Markets.
The Company also competes with other communications technologies that now
exist, such as paging and global satellite networks. In the future, cellular
service and PCS will also compete more directly with traditional landline
telephone service providers and with cable operators who expand into the
offering of traditional communications services over their cable systems.
All of such competition is intense. There can be no assurance that the
Company will be able to compete successfully in this environment or that new
technologies and products that are more commercially effective than the
Company's technologies and products will not be developed. In addition, many of
the Company's competitors have substantially greater financial, technical,
marketing, sales and distribution resources than those of the Company and have
significantly greater experience than the Company in testing new or improved
telecommunications products and services and obtaining regulatory approvals.
Some competitors are expected to market other services, such as cable television
access, with their wireless telecommunications service offerings. Several of the
Company's competitors are operating, or planning to operate, through joint
ventures and affiliation arrangements, wireless telecommunications networks that
cover most of the United States.
The Company anticipates that market prices for two-way wireless services
generally will continue to decline in the future based on increased competition.
The Company will compete to attract and retain customers principally on the
basis of services and enhancements, its customer service, the size and location
of its service areas and pricing. The Company's ability to compete successfully
will also depend, in part, on its ability to anticipate and respond to various
competitive factors affecting the industry, including new services that may be
introduced, changes in consumer preferences, demographic trends, economic
conditions and discount pricing strategies by competitors, which could adversely
affect the Company's operating margins.
REGULATION
REGULATORY ENVIRONMENT. The FCC regulates the licensing, construction,
operation and acquisition of wireless telecommunications systems in the United
States pursuant to the Communications Act of 1934, as amended, and the rules,
regulations and policies promulgated by the FCC thereunder. Under the
Communications Act, the FCC is authorized to allocate, grant and deny licenses
for PCS frequencies, establish regulations governing the interconnection of
Commercial Mobile Radio Service ("CMRS") networks with wireline and other
wireless carriers, grant or deny license renewals and applications for transfer
of control or assignment of CMRS licenses, and impose fines and forfeitures for
any violations of FCC regulations.
In addition, the Telecommunications Act, which amended the Communications
Act, mandates significant changes in existing telecommunications rules and
policies to promote competition, ensure the availability of telecommunications
services to all parts of the nation and to streamline regulation of the
telecommunications industry to remove regulatory burdens, as competition
develops, and makes regulation less necessary. The FCC promulgated and continues
to promulgate regulations governing construction and operation of wireless
carriers, licensing (including renewal of licenses) and technical standards for
the provision of PCS services under the Communications Act, and is implementing
the legislative objectives of the Telecommunications Act, as discussed below.
9
<PAGE>
PCS LICENSING. The FCC established PCS service areas in the United States
and its possessions and territories based upon Rand McNally's market definition
of 51 MTAs comprised of 493 smaller BTAs. Each MTA consists of at least two
BTAs.
The FCC has allocated 120 MHz of radio spectrum in the 2 GHz band for
licensed broadband PCS services. The FCC divided the 120 MHz of spectrum into
six individual blocks, each of which is allocated to serve either MTAs or BTAs.
The spectrum allocation includes two 30 MHz blocks ("A" and "B" Blocks) licensed
for each of the 51 MTAs, one 30 MHz block ("C" Block) licensed for each of the
493 BTAs, and three 10 MHz blocks ("D," "E" and "F" Blocks) licensed for each of
the 493 BTAs. A PCS license has been awarded for each MTA and substantially all
of the BTAs in every block, for a total of more than 1,500 licenses. This means
that in any PCS service area as many as six licensees could be operating
separate PCS networks. Under the FCC's rules, a broadband PCS licensee may own
combinations of licenses with total aggregate spectrum coverage of up to 45 MHz
in a single geographic area, except for rural areas where the limit is 55 MHz.
The FCC adopted comprehensive rules that outlined the bidding process, described
the bidding application and payment process, established penalties for certain
bid withdrawals, default or disqualification and established regulatory
safeguards.
The grants of licenses to Aerial are conditioned upon timely compliance with
the FCC's build-out requirements, I.E., coverage of one-third of the population
of a PCS market within five years of initial license grant and coverage of
two-thirds of that population within ten years. Aerial has exceeded the buildout
requirements for both the five year and ten year stages for each of its MTAs.
The FCC also imposes a requirement that all licensees register and obtain
FCC registration numbers for all of their antenna towers, which require prior
Federal Aviation Administration clearance. All Aerial transmitting facilities
also must comply with federal "radio frequency" radiation requirements. Aerial
has complied with and continues to comply with the antenna registration and
radio frequency radiation requirements.
The FCC enhanced 911 regulations require broadband PCS operators to be
capable of transmitting 911 calls from individuals with speech or hearing
disabilities through the use of "text telephone devices." Text telephone devices
currently, however, are not compatible with digital wireless systems such as
Aerial's. Consequently, on December 4, 1998, Aerial filed a petition with the
FCC requesting a waiver of the applicability of the text telephone devices
connectivity requirement to Aerial's digital system. On December 30, 1998, the
FCC granted Aerial, along with over 100 other wireless operators, a temporary
waiver of the regulation. Equipment manufacturers are developing hardware and
software that will make text telephone devices compatible with the digital
wireless technologies used by Aerial and other wireless service providers.
Aerial is working with manufacturers and other members of the wireless industry
in developing solutions for users of text telephone devices.
The enhanced 911 regulations also require broadband PCS operators to
determine the approximate location of persons making the emergency calls. On
February 5, 1999, Aerial filed a petition requesting a waiver to clarify that
wireless phone based location technology will meet the FCC's enhanced 911
location requirements. A waiver will enable Aerial to be compliant with the
location requirements by introducing new phones that have the capability of
being located rather than installing very expensive new network equipment.
Aerial's waiver request and dozens of other wireless operators' waiver requests
were dismissed as moot by the FCC's Third Report and Order in light of rules
changes which require PCS systems to improve their ability to locate wireless
911 callers during 2001 and 2002. On December 6, 1999, Aerial Filed a Petition
for Reconsideration of the FCC's Third Report and Order. The Petition for
Reconsideration is pending at the FCC.
The FCC licenses granted to Aerial are issued for a ten-year period expiring
June 23, 2005 and may be renewed. In the event challengers file competing
applications in response to any of Aerial's renewal filings, the FCC has rules
and policies providing that the application of the licensee seeking renewal will
be granted and the application of the challenger will not be considered in the
event that the broadband PCS licensee involved has (i) provided "substantial"
service, which is defined as "sound, favorable and substantially above a level
of mediocre service just minimally justifying renewal" and (ii) substantially
complied with FCC rules, policies and the Communications Act. Although Aerial is
unaware of any circumstances which would prevent the approval of any future
renewal applications, there can be no assurance that Aerial's licenses will be
renewed by the FCC in the future. Moreover, although revocation
10
<PAGE>
and involuntary modification of licenses are extraordinary regulatory measures,
the FCC has the authority to restrict the operation of licensed facilities or
revoke or modify licenses.
The FCC has proceedings in process which could lead to the re-auction of PCS
licenses previously granted to auction winners who filed for bankruptcy and
could open up other frequency bands for wireless telecommunications and PCS-like
services. Such proceedings could result in additional wireless competition.
In addition, there are citizenship requirements, assignment requirements and
other federal regulations and requirements which may affect the business of
Aerial.
RECENT EVENTS. There are certain regulatory proceedings currently pending
before the FCC which are of particular importance to the broadband PCS industry.
The FCC has adopted a limited expansion of the obligation of cellular
carriers to serve the subscribers of broadband PCS providers, among others, even
though neither the subscribers or the PCS providers involved have a pre-existing
service relationship with such cellular carrier. Under these new policies,
broadband PCS providers may offer their subscribers phones which are capable of
operating over broadband PCS and cellular networks so that when their
subscribers are out of range of broadband PCS networks, they will be able to
obtain non-automatic access to cellular networks. The FCC expects that
implementation of these roaming capabilities will promote competition between
broadband PCS and cellular service providers. The FCC is considering whether
cellular, broadband PCS and certain specialized mobile radio providers instead
should be required to provide "automatic" roaming service to other providers
(i.e., carrier-to-carrier roaming service).
The FCC has adopted requirements which will make it possible for subscribers
to retain, subject to certain geographic and other limitations, their existing
telephone numbers when they switch from one service provider to another. This
numbering portability will include switching between LEC and other wireline
providers, between wireless service providers and between LEC/wireline and
wireless providers. LECs, in the 100 largest MSAs, had implementation deadlines
by the end of 1998 at those switches which received specific requests for
numbering portability. The FCC has extended the compliance date for cellular,
broadband PCS, and certain other wireless providers to November 2002.
Also, in August 1999, the FCC added certain additional capabilities
necessary to meet requirements under the Communications Assistance for Law
Enforcement Act, which are to become applicable by September 2001. Also, issues
remain as to when carriers may obtain reimbursement from the federal government
for upgrades related to such requirements. Aerial will work diligently to comply
with all such related requirements in cooperation with industry groups and
standard setting bodies.
The FCC has recently taken action in proceedings:
- To ensure that the customers of wireless providers, among other carriers,
will receive complete, accurate, and understandable bills.
- To establish safeguards to protect against unauthorized access to customer
information (though these rules have been overturned, at least
temporarily, by court order).
- To increase to 55 megahertz ("MHz") in rural areas its 45 MHz "cap" on the
amount of spectrum which entities under common ownership and control may
hold in a single wireless market and to relax its related cellular cross
ownership restriction.
- To require improved access to telecommunications facilities by persons
with disabilities.
The FCC also has pending proceedings:
- To implement a wireless billing option under which wireline customers who
call wireless customers could be charged for the wireless "airtime" as
opposed to the wireless customer receiving the call, as is the case at
present ("calling party pays").
- To implement requirements for wireless providers to set interstate
interexchange rates in each state at levels no higher than the rates
charged to subscribers in any other state.
- To set national policy for the allocation by state public utilities
commissions of telephone numbers to wireline and wireless carriers.
11
<PAGE>
Aerial intends to monitor such proceedings and comply with new federal
requirements as they become applicable.
In January 2000, the FCC took an action which may have an impact on both
cellular and PCS licensees. Pursuant to a congressional directive, the FCC
adopted service rules for licensing the commercial use of 30 MHz of spectrum in
the 746-764 MHz and 776-794 MHz spectrum bands. The spectrum is to be auctioned,
beginning in June 2000, for six regional service areas, in 20 and 10 MHz blocks,
to provide a wide range of wireless services. There will be no eligibility
restrictions on participation in the auctions for this spectrum. Cellular and
PCS carriers and other entities will be eligible to bid in the auction. Use of
the spectrum by licensees selected in the auction may be affected by the
presence of incumbent broadcast licensees on some of the auctioned frequencies
through at least December 31, 2006.
The FCC is also continuing to implement the Telecommunications Act. The
Telecommunications Act provides that implementing its legislative objectives
will be the task of the FCC, the state public utilities commissions and a
Federal-State Joint Board. Much of this implementation has and continues to be
proceeding in numerous, concurrent proceedings with aggressive deadlines. Aerial
cannot predict the full extent and nature of developments of the
Telecommunications Act, which will depend, in part, upon interrelationships
among state and federal regulators.
The primary purpose and effect of the Telecommunications Act is to open all
telecommunications markets to competition, including local telephone service.
The Telecommunications Act makes most direct or indirect state and local
barriers to competition unlawful. It directs the FCC to preempt all inconsistent
state and local laws and regulations, after notice and comment proceedings. It
also enables electric and other utilities to engage in telecommunications
service through qualifying subsidiaries.
Only narrow powers over competitive entry are left to state and local
authorities. Each state retains the power to impose competitively neutral
requirements that are consistent with the Telecommunications Act's universal
service provision and necessary for universal services, public safety and
welfare, continued service quality and consumer rights.
The Telecommunications Act establishes principles and a process for
implementing a modified "universal service" policy. This policy seeks
nationwide, affordable service and access to advanced telecommunications and
information services. It calls for reasonably comparable urban and rural rates
and services. The Telecommunications Act also requires universal service to
schools, libraries and rural health facilities at discounted rates. In a series
of orders adopted in 1997, the FCC established universal service support
mechanisms which require telecommunications providers, including all wireless
carriers, to contribute. Aerial has made the required universal service
worksheet filings and makes the required periodic payments.
Since enactment, the FCC has adopted orders implementing the local
competition provisions of the Telecommunications Act. The FCC found that
broadband PCS and certain other wireless providers that are entitled to
reciprocal compensation, may not be charged for LEC-originated traffic or for
code opening/per-number fees, and may obtain LEC interconnection subject to the
terms of the Telecommunications Act. Appeals were taken to the United States
Supreme Court from these FCC orders by numerous parties alleging that the FCC
has exceeded its statutory mandate, among other matters. On January 25, 1999,
the U.S. Supreme Court upheld the FCC's general jurisdiction to implement the
local competition provisions of the Telecommunications Act.
STATE AND LOCAL REGULATION The scope of state and local regulatory
authority covers such matters as the terms and conditions of interconnection
between LECs and wireless carriers with respect to intrastate services, customer
billing information and practices, billing disputes, other consumer protection
matters, facilities construction issues and transfers of control, among other
matters. In these areas, particularly the terms and conditions of
interconnection between LECs and wireless providers, the FCC and state
regulatory authorities share regulatory responsibilities with respect to
interstate and intrastate issues, respectively.
The FCC has pending numerous petitions for preemption of state and local
regulations which allege such regulations prohibit or impair the provision of
interstate or intrastate telecommunications services. It has also requested
public comment on a petition requesting preemption of moratoria imposed by state
and local governments on siting of telecommunications facilities, the imposition
of state taxes on the
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<PAGE>
gross receipts of CMRS providers and other proposed state taxes based on the
asset value of CMRS licenses awarded by the FCC. The FCC has been actively
involved in educating state and local regulatory and zoning authorities as to
the prohibitions in the Telecommunications Act against the creation of
unreasonable and discriminatory zoning, taxation or other barriers to new
wireless providers.
The FCC is required to forbear from applying any statutory or regulatory
provision that is not necessary to keep telecommunications rates and terms
reasonable or to protect consumers. A state may not apply a statutory or
regulatory provision that the FCC decides to forbear from applying. In addition,
the FCC must review its telecommunications regulations every two years and
change any that are no longer necessary.
Aerial and its subsidiaries have been and intend to remain active
participants in proceedings before the FCC and before state regulatory and
zoning authorities. Proceedings with respect to the foregoing policy issues
before the FCC and state regulatory authorities could have significant impacts
on the competitive market structure among wireless providers and the
relationships between wireless providers and other carriers. Aerial is unable to
predict the scope, pace, or financial impact of policy changes which could be
adopted in these proceedings.
SEASONALITY
Management believes there exists within the wireless telecommunications
industry a seasonality in both revenues, which tend to be greater in the fourth
quarter due to customer growth, and operating expenses, which tend to be higher
in the fourth quarter due to increased marketing activities and customer growth,
which may cause operating income (loss) to vary from quarter to quarter.
EMPLOYEES
As of December 31, 1999, the Company had a total of 1,996 employees. None of
the Company's employees is represented by a labor union. The Company considers
its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company currently leases office and warehouse space in each of its PCS
Markets as well as office space for its corporate headquarters in Chicago,
customer service center in Kansas City and National Operations Center in Tampa.
The Company also has leases for its retail store locations and leases certain
cell sites for its digital radio channel (or "BTS") equipment on land, buildings
and other fixed structures at various rental rates for various terms. As of
December 31, 1999, the Company had 1,278 cell sites in service across all its
PCS markets. The leases provide for monthly rentals at market rates and expire,
subject to renewal options, on various dates through 2021. The Company owns all
five of its switch site buildings serving each of the PCS Markets (the
Pittsburgh switch also serves the Columbus market).
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in routine legal and regulatory
proceedings incidental to its business. The Company does not believe that such
routine legal and regulatory proceedings will have, individually or in the
aggregate, a material adverse effect on the Company. However, see the concerns
raised by Sonera Corporation about the December 18, 1998, spin-off announcement
made by TDS as well as the discussion of the Settlement Agreement and Release
under Item 1. Business--Company.
On September 21, 1999, a putative class action complaint was filed on behalf
of Aerial stockholders. The complaint names as defendants Aerial, TDS, certain
directors of Aerial and TDS, and VoiceStream in connection with the transactions
contemplated by the Agreement and Plan of Reorganization and the related
agreements, particularly the TDS Debt Replacement Agreement. The complaint
alleges a breach of fiduciary duties by the defendants, including in connection
with the exchange of $420 million of debt owed by Aerial to TDS for Aerial
common stock at $22.00 per share. The complaint alleges that this action
benefits TDS at the expense of Aerial's public stockholders and seeks to have
the transactions contemplated by the Agreement and Plan of Reorganization
enjoined or, if they are consummated, to have them rescinded and to recover
unspecified damages, fees and expenses. The defendants believe that this lawsuit
is without merit and intend to vigorously defend against this lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of securities holders during the fourth
quarter of fiscal year 1999.
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- --------------------------------------------------------------------------------
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Aerial Stock and Dividend Information
The Company's Common Shares are listed on the NASDAQ under the symbol "AERL"
and in the newspaper as "Aerial." As of February 29, 2000, the Company's Common
Shares were held by 430 registered holders and 6,560 beneficial holders. All of
the Series A Common Shares were held by TDS. No public trading market exists for
the Series A Common Shares, but the Series A Common Shares are convertible on a
share-for-share basis into Common Shares.
The trading price of the Common Shares on April 26, 1996, the date on which
the Common Shares were first offered for sale to the public, was $17.00 per
share.
The Company has never paid any cash dividends and currently intends to
retain any future earnings for use in the Company's business. In addition, the
Revolving Credit Agreement with TDS prohibits the payment of dividends on the
Company's Common Shares and Series A Common Shares, except to the extent of
one-half of the cumulative consolidated net income, if any, of the Company.
MARKET PRICE PER COMMON SHARE BY QUARTER
No public trading market exists for the Company's Series A Common Shares and
therefore, quotations are not available. The quarterly high and low sales prices
of the Common Shares on the NASDAQ as reported by the Dow Jones News Service are
as follows:
<TABLE>
<CAPTION>
1999 1ST 2ND 3RD 4TH
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
High....................................................... $7.86 $13.69 $29.31 $61.63
Low........................................................ $5.00 $ 7.00 $11.06 $25.38
</TABLE>
<TABLE>
<CAPTION>
1998 1ST 2ND 3RD 4TH
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
High....................................................... $9.25 $ 8.00 $ 6.94 $ 5.88
Low........................................................ $6.50 $ 5.75 $ 3.06 $ 1.63
</TABLE>
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED OR AT DECEMBER 31, 1999 1998 1997 1996 1995
- ----------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING FINANCIAL DATA
Operating Revenues................... $ 225,501 $ 155,154 $ 55,952 $ -- $ --
Operating (Loss)..................... (210,008) (279,985) (218,165) (43,950) (7,562)
Minority share of loss............... 15,782 23,620 -- -- --
Other (expense) income, net.......... (5,205) 1,196 (21) 5,342 49
Gain on sale of PCS licenses......... -- -- -- 2,582 --
Interest expense-affiliate........... 61,197 62,137 21,558 1,960 1,051
Interest expense-other............... 22,118 18,010 5,507 802 --
(Loss) Before Income Taxes........... (282,746) (335,316) (245,251) (38,788) (8,564)
Net (Loss)........................... (169,346) $(337,895) $(247,057) $(37,921) $ (6,468)
Weighted Average Common and Series A
Common Shares (000) (1)............ $ 75,734 $ 71,723 $ 71,512 $ 67,492 $ 59,086
(Loss) per Common and Series A Common
Share.............................. $ (2.24) $ (4.71) $ (3.45) $ (0.56) $ (0.11)
Dividends per Common and Series A
Common Share....................... $ -- $ -- $ -- $ -- $ --
BALANCE SHEET
Working capital...................... $ (93,912) $ (37,400) $ (51,566) $(80,347) $ 33,141
Property & Equipment (Net)........... 619,913 621,281 604,104 252,423 12,087
Investment in PCS licenses (Net)..... 281,934 289,488 297,043 304,354 305,818
Total Assets......................... 972,376 961,347 960,648 672,827 360,444
Revolving Credit Agreement-TDS....... 37,786 549,943 448,234 -- 60,238
Long-Term Debt....................... 250,846 278,010 196,439 103,743 --
Minority Interest.................... 94,364 5,835 -- -- --
Common Shareholders' Equity.......... 410,634 25,078 192,427 437,785 281,282
Capital expenditures (2)............. $ 83,641 $ 96,950 $ 387,718 $242,270 $297,551
</TABLE>
- ------------------------
(1) Weighted Average Common and Series A Common Shares outstanding give
retroactive effect to the recapitalization in conjunction with the Company's
April 1996 initial public offering, as if the transaction had occurred
January 1, 1995.
(2) Includes non-cash transactions.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Aerial Communications, Inc. ("Aerial" or the "Company"--NASDAQ symbol:
AERL), an 82.1%-owned subsidiary of Telephone and Data Systems, Inc. ("TDS"),
provides PCS service in the Minneapolis, Tampa-St. Petersburg-Orlando, Houston,
Pittsburgh, Kansas City and Columbus (Ohio) Major Trading Areas ("MTAs"). The
Columbus MTA launched service on March 27, 1997. The Company's five remaining
MTAs launched service during the second quarter of 1997.
On September 17, 1999, the VoiceStream Wireless Corporation ("VoiceStream")
and Aerial Boards of Directors approved a definitive agreement to merge the two
companies. See the "VoiceStream Merger" section of "Liquidity and Capital
Resources" below for further discussion of the transaction.
The following is a table of summarized operating data for the Company's
consolidated operations.
<TABLE>
<CAPTION>
DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31,
AS OF: 1999 1999 1999 1999 1998
- ------ -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Total MTA population (in millions).......... 27.9 27.5 27.5 27.7 27.7
Total customers............................. 422,900 363,100 346,600 331,600 311,900
Net customer additions (quarter)............ 59,800 16,500 15,000 19,700 81,200
Churn rate (year to date)................... 4.5% 4.7% 4.8% 4.7% 5.5%
Churn rate (quarter)........................ 3.9% 4.6% 4.8% 4.7% 5.1%
Average monthly revenue per customer (year
to date).................................. $ 47 $ 46 $ 46 $ 46 $ 51
Average monthly revenue per customer
(quarter)................................. $ 47 $ 46 $ 47 $ 46 $ 49
MTA penetration............................. 1.52% 1.32% 1.26% 1.20% 1.13%
Cell sites in service....................... 1,278 1,239 1,207 1,180 1,180
</TABLE>
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
OPERATING REVENUES
OPERATING REVENUES totaled $225.5 million for the year ended December 31,
1999, an increase of $70.3 million as compared to 1998. Operating revenues
totaled $155.2 million in 1998, an increase of $99.2 million as compared to 1997
when operating revenues totaled $56.0 million. Growth in the Company's customer
base was the primary reason for the year-over-year increases. The number of
customers increased 111,000 to 422,900 in 1999 and increased 186,900 to 311,900
in 1998. The Company launched service during the second quarter of 1997 and
ended the year with 125,000 customers.
SERVICE REVENUE totaled $195.1 million in 1999, an increase of
$71.5 million as compared to 1998. Service revenues totaled $123.6 million in
1998, an increase of $91.3 million as compared to 1997 when service revenues
totaled $32.3 million. Service revenue primarily consists of charges for access,
airtime and value-added services provided to the Company's retail customers who
use the network operated by the Company (local service revenue). Service revenue
also consists of charges to customers of other wireless carriers who use the
Company's PCS network when roaming (outcollect roaming revenue) and charges for
long-distance calls made on the Company's systems (long-distance revenue).
Growth in the Company's customer base was the primary reason for the
year-over-year increases, offset by a decline in average revenue per customer
per month ("ARPU"). ARPU was $47 in 1999 and $51 in 1998. ARPU in 1997 does not
provide a meaningful comparison as the initial users and usage patterns are not
comparable to the 1999 and 1998 usage patterns.
EQUIPMENT SALES REVENUE totaled $30.4 million in 1999, a decrease of
$1.1 million as compared to 1998. Equipment sales revenues totaled
$31.5 million in 1998, an increase of $7.9 million as compared to 1997 when
equipment sales revenue totaled $23.6 million. Equipment sales revenue
represents the sale of phones and related accessories to retailers, independent
agents and end user customers. In 1999, the decrease in equipment sales revenue
reflects a slight decrease in phone unit sales in 1999 as
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<PAGE>
compared to 1998. The increase in equipment sales revenue in 1998 as compared to
1997 was due primarily to increased sales volume (all markets were not launched
until the second quarter of 1997), partially offset by a decline in phone
prices.
OPERATING EXPENSES
OPERATING EXPENSES totaled $435.5 million for the year ended December 31,
1999, an increase of $0.4 million as compared to 1998. Operating expenses
totaled $435.1 million in 1998, an increase of $161.0 million as compared to
1997 when operating expenses totaled $274.1 million. In 1999 expenses increased
across most functional areas due to the Company's increased level of business
activity. However, these increases were partially offset by a decrease in
customer service expense and a significant decrease in cost of equipment sold.
Unless otherwise noted, the 1998 increase over 1997 for the below operating
expenses is due to the Company not being fully operational for all of 1997 as it
launched service during the second quarter of that year.
SYSTEM OPERATIONS EXPENSE totaled $78.3 million in 1999, an increase of
$9.2 million as compared to 1998. System maintenance expenses increased
$5.8 million, primarily for maintenance service performed on the Company's
network. The Company began incurring charges for these services during the
second quarter of 1998. Salaries and benefits for system operations employees
increased $3.3 million, utilities and customer usage expense each increased
$1.5 million and other systems operations expenses increased $1.0 million.
System operations expense also includes customer net incollect roamer
revenue (from Aerial customers roaming on other carriers' systems) which
increased $3.9 million in 1999, reflecting increased customer totals in 1999 as
compared to 1998.
MARKETING AND SELLING EXPENSE totaled $89.8 million in 1999, an increase of
$10.1 million as compared to 1998. Significant marketing and selling expenses
include sales commission expense which increased $6.7 million in 1999,
reflecting increased use of indirect sales channels and a new commission
structure designed to accelerate growth in customer additions. Promotional sales
expenses increased $2.2 million primarily due to phone rebate programs that were
in place throughout much of 1999. Salary and benefit expense for sales and
marketing personnel increased $1.5 million in 1999. Other marketing and selling
expenses decreased $0.3 million in aggregate, primarily driven by decreases in
consulting and temporary service expenses.
CUSTOMER SERVICE EXPENSE totaled $39.9 million in 1999, a decrease of
$13.6 million as compared to 1998. The decrease in customer service expense is
primarily due to a decrease in bad debt expense as the result of improved credit
management processes. Beginning in the second half of 1998 and through 1999, the
Company changed its employee mix to more full time customer service employees.
While this change did cause customer service salaries and benefits expense to
increase it was more than offset by the decrease in consulting and temporary
service expense.
COST OF EQUIPMENT SOLD totaled $61.3 million in 1999 a decrease of
$26.4 million as compared to 1998. Cost of equipment sold totaled $87.7 million
in 1998, an increase of $16.2 million as compared to 1997 when cost of equipment
sold totaled $71.5 million. In 1999, approximately $16.5 million of this
decrease was due to a decline in the average cost of phones combined with a
slight decline in phone unit sales. An additional $4.2 million of the decrease
was due to an inventory valuation adjustment in 1998, which did not occur during
1999. The remaining decrease is attributed to lower accessory sales volume,
lower freight costs and reduced expenses incurred related to services provided
by the Company's third party distribution center.
In 1997, cost of equipment sold reflects the launch of service and the
Company's efforts to fill its third-party distribution channels with phones.
GENERAL AND ADMINISTRATIVE EXPENSE totaled $74.2 million in 1999, an
increase of $12.5 million as compared to 1998. General and administrative
expenses include the costs of operating the Company's local business offices and
its corporate expenses other than the corporate engineering and marketing
departments. The 1999 increase in general and administrative expense was due
primarily to increased consulting expenses related to the Year 2000 Issue. In
1997, general and administrative expenses were $58.8 million, driven primarily
by a smaller employee base.
17
<PAGE>
DEPRECIATION EXPENSE was $84.3 million in 1999, an increase of $8.5 million
as compared to 1998. Depreciation expense was $75.8 million in 1998, an increase
of $39.8 million as compared to 1997 when depreciation expense totaled
$36.0 million. The year-over-year increases were due to rising fixed asset
balances as the Company continued to expand both the footprint and capacity of
its PCS network. As of December 31, 1999, the Company had $790.0 million in
property and equipment in service as compared to 1998 when the Company had
$696.5 million of property and equipment in service. In 1997, the Company had
$622.7 million of property and equipment in service, the PCS network portion of
which had only been in operation since the second quarter of 1997.
AMORTIZATION EXPENSE totaled $7.7 million in 1999, $7.6 million in 1998 and
$4.5 million in 1997. Upon the commencement of service in a particular market,
the Company began amortizing that market's related PCS license. Aerial launched
service across all its markets between March and June of 1997. As a result,
consolidated amortization expense in 1997 reflects less than a full year's
expense.
DEVELOPMENT COSTS totaled $5.8 million in 1997. Development costs primarily
represent pre-launch marketing, consulting and legal costs. Effective in the
second quarter of 1997, the Company was no longer a development stage enterprise
and prospectively began classifying expenses to reflect its operational status.
OPERATING (LOSS)
Operating (loss) totaled $(210.0) million in 1999, $(280.0) million in 1998
and $(218.2) million in 1997. The decrease in operating (loss) in 1999 as
compared to 1998 is largely the result of increased operating revenues
reflecting customer growth. Although service revenues are expected to continue
to grow during 2000 as the Company builds its customer base, the Company expects
to continue to have operating losses and to generate negative operating cash
flow during 2000 as it incurs costs associated with that growth.
OTHER INCOME (EXPENSE)
MINORITY SHARE OF LOSS totaled $15.8 million in 1999, a decrease of
$7.8 million as compared to 1998. Minority share of loss represents Sonera
Corporation's ("Sonera", formerly known as Sonera, Ltd.) share of the
consolidated net loss of Aerial Operating Company, Inc. ("AOC") (See
Note 4--Minority Interest).
OTHER (EXPENSE) INCOME, NET totaled ($5.2) million in 1999 and $1.2 million
in 1998. The increase in net expense in 1999 as compared to 1998 was due
primarily to professional fees the Company paid during 1999 related to the
proposed spin-off of the Company as well as the merger with VoiceStream.
INTEREST EXPENSE AND INCOME TAXES
INTEREST EXPENSE-AFFILIATE totaled $61.2 million in 1999, $62.1 million in
1998 and $21.6 million in 1997. Interest expense-affiliate in 1999 and 1998
represents primarily interest on amounts borrowed under the Revolving Credit
Agreement, the TDS 3% guarantee fees associated with both the Series A and
Series B Zero Coupon Notes and amounts financed under the Nokia 1998 Credit
Agreement. Interest expense-affiliate in 1997 represents interest on amounts
borrowed under the Revolving Credit Agreement and the TDS 3% guarantee fees
associated with the Series A Zero Coupon Notes and Nokia 1996 Credit Agreement,
less interest capitalized of $2.7 million. Interest expense-affiliate is greater
in 1999 and 1998 as compared to 1997, primarily due to the increasing average
outstanding balance of borrowings under the Revolving Credit Agreement with TDS.
INTEREST EXPENSE-OTHER totaled $22.1 million in 1999, $18.0 million in 1998
and $5.5 million in 1997. In 1999 and 1998, interest expense-other relates
primarily to interest expense accreted on the Series A and Series B Zero Coupon
Notes as well as interest expense associated with the Nokia 1998 Credit
Agreement. In 1998 the Company capitalized interest of $0.1 million. In 1997,
interest expense-other relates primarily to the Series A Zero Coupon Notes
issued in November 1996, less interest capitalized. The Company capitalized
interest expense of $3.3 million related to the Series A Zero Coupon Notes and
interim financing under the Nokia 1996 Credit Agreement in 1997. Interest
expense-other increased in
18
<PAGE>
1999 and 1998 primarily due to the increasing average outstanding balance in
long-term debt, including the current portion.
INCOME TAXES. The Company is included in a consolidated federal income tax
return with other members of the TDS consolidated group. For financial reporting
purposes, the Company computes its federal income taxes as if it were filing a
separate return as its own affiliated group and was not included in the TDS
group. TDS and the Company are parties to a tax allocation agreement, as well as
a March 12, 1999, tax settlement agreement which resulted in a payment of
$114.5 million from TDS to Aerial. The $114.5 million received by Aerial covered
the estimated tax losses incurred by the Company and used by TDS for the period
commencing from January 1, 1996 through August 31, 1999. The tax settlement
agreement requires a settlement of amounts to cover tax losses incurred by
Aerial and used by TDS through December 31, 1999.
In the first quarter of 1999, the Company determined that it was appropriate
to recognize the $114.5 million payment in current income tax expense as part of
a reduction in its deferred tax asset valuation allowance. The above
$114.5 million current income tax benefit, partially offset by an increase in
deferred income tax expense resulted in a net income tax benefit of
$113.4 million for 1999.
NET (LOSS) AND (LOSS) PER COMMON AND SERIES A COMMON SHARE
Net (loss) totaled $(169.3) million in 1999, $(337.9) million in 1998 and
$(247.1) million in 1997. Net (loss) per Common and Series A Common Share was
$(2.24) in 1999, $(4.71) in 1998 and $(3.45) in 1997. The decrease in the
Company's net (loss) and net (loss) per Common and Series A Common Share in 1999
is due to the Company's increased operating revenues reflecting its growing
customer base and the net income tax benefit of $113.4 million. The increase in
the Company's net (loss) and net (loss) per Common and Series A Common Share in
1998 reflects the Company's fully operational status during all of 1998 as
compared to 1997 when the Company was not fully operational until the end of the
second quarter.
The weighted average Common and Series A Common Shares increased to
75.7 million in 1999 as compared to 71.7 million in 1998 due primarily to
additional investments in the Company by TDS and Sonera on November 1, 1999, as
more fully discussed below in the section titled "VoiceStream Merger."
INFLATION
Management believes that inflation affects the Company's business to no
greater extent than the general economy.
LIQUIDITY AND CAPITAL RESOURCES
The costs of development, construction and post-launch activities of the
Company require substantial capital. From inception through December 31, 1999,
the Company had expended $304.4 million for its six licenses, including
capitalized interest, $822.7 million for all other capital expenditures and
incurred cumulative net losses of $800.2 million. The Company expects to
continue to incur significant operating losses and generate negative cash flow
from operating activities in 2000 as it continues to build its customer base.
Cash flows used by operating activities were $95.8 million in 1999,
$228.8 million in 1998 and $206.9 million in 1997. Operating cash outflow
(operating loss before depreciation and amortization expense) totaled
$118.0 million in 1999, $196.6 million in 1998 and $177.6 million in 1997. The
March 12, 1999, tax settlement agreement with TDS (see Note 3-Income Taxes for
further discussion) provided $114.5 million in 1999 and cash flows used by other
operating activities (investment and other income, interest expense, changes in
working capital and changes in other assets and liabilities) required cash
investments of $92.3 million in 1999, $32.2 million in 1998 and $29.3 million in
1997.
Cash flows from financing activities provided $147.1 million in 1999,
$302.7 million in 1998 and $449.9 million in 1997. Cash provided in 1999 was
primarily due to $242.6 million in borrowings under the Revolving Credit
Agreement with TDS and a $230 million investment by Sonera in the Company on
November 1, 1999, partially offset by repayments of $334.7 million under the
Revolving Credit Agreement. On March 15, 1999, the Company paid $114.5 million
to TDS to repay a portion of the outstanding
19
<PAGE>
balance under the Revolving Credit Agreement. On November 1, 1999,
$220.2 million of the proceeds received from Sonera were used to repay
borrowings under the Revolving Credit Agreement. Cash provided in 1998 was
primarily due to $301.7 million in borrowings under the Revolving Credit
Agreement. The Company also received $200 million from the sale to Sonera of a
19.4% equity interest in AOC (see Note 4--Minority Interest for further
discussion). The proceeds from the sale were remitted to TDS to pay down part of
the outstanding balance under the Revolving Credit Agreement. Cash provided in
1997 was due primarily to $448.2 million in borrowings under the Revolving
Credit Agreement.
Cash flows used in investing activities totaled $36.3 million in 1999,
$74.0 million in 1998, and $273.3 million in 1997. Cash used in 1999 was due
primarily to $34.2 million in additions to property and equipment for PCS
network and information system assets. Total 1999 additions to property and
equipment, including noncash transactions, were $83.6 million, including
$59.3 million for cell sites, $7.9 million for switching equipment,
$9.6 million for information system assets and $6.8 million for other
activities.
Additions to cell sites in 1999 were due to the need for additional sites to
fill in and improve the coverage of the Company's PCS network within its MTAs.
Additions to switching equipment in 1999 were primarily due to the need for
increased network capacity to handle greater call volume. Additions to
information system assets primarily reflected the costs associated with the
completion of the new point of sale system, improvements to the Company's
billing system and additions at the Company's customer service centers. Other
capital expenditures were primarily for leasehold improvements and office
furniture and equipment.
Cash used in 1998 was due primarily to $74.6 million in additions to
property and equipment for PCS network and information system assets. Total 1998
additions to property and equipment, including noncash transactions, were
$97.0 million, including $43.8 million for cell sites, $23.0 million for
switching equipment, $27.6 million for information system assets and
$2.6 million for other activities.
Cash used in 1997 resulted primarily from $274.7 million in additions to
property and equipment, primarily network and information system assets. Total
1997 additions to property and equipment, including noncash transactions, were
$387.7 million, including $291.9 million for cell sites, $38.4 million for
switching equipment, $55.6 million for information system assets and
$1.8 million for other activities.
The Company's fixed asset additions have been financed through a combination
of borrowings under the Revolving Credit Agreement with TDS, the proceeds from
the IPO, the Series A and Series B Zero Coupon Notes and the Nokia 1996 and 1998
Credit Agreements.
Through the expected second quarter 2000 merger close with VoiceStream, the
Company estimates that the aggregate funds required for capital expenditures for
the continuing development of its PCS networks and services will total $30 to
$50 million. The Company will be building additional cell sites to augment its
existing coverage area, primarily corridor coverage on interstates to suburbs.
The Company will continue to expand and upgrade its switching and other fixed
network equipment to support future customer growth. Capital expenditures
related to information systems will primarily relate to the expansion and
upgrade of production, data network and desktop hardware and software.
The Company estimates requiring $30 to $40 million for working capital
requirements to fund operations through the expected second quarter 2000 merger
close with VoiceStream.
NOKIA
Nokia Telecommunications Inc. ("Nokia") agreed to provide the Company with
up to $200 million in financing for digital radio channel and switching
infrastructure equipment through a Credit Agreement with the Company dated
June 19, 1996 ("1996 Credit Agreement"). In accordance with the provisions of
the 1996 Credit Agreement, the Company issued, in tranches, 10-year unsecured
zero coupon promissory notes, the proceeds of which were paid to Nokia in
satisfaction of borrowings by the Company under the 1996 Credit Agreement. On
November 4, 1996, the Company issued $226.2 million in aggregate principal
amount at maturity of Series A Zero Coupon Notes ("Series A Notes") due in 2006.
On February 5, 1998, the Company issued $220.0 million in aggregate principal
amount at maturity of Series B Zero Coupon Notes ("Series B Notes") due in 2008
(representing the final issuance of zero coupon notes under the 1996 Credit
Agreement). The aggregate issue price of the Series A and Series B
20
<PAGE>
Zero Coupon Notes was $200 million. The proceeds were paid to Nokia in
satisfaction of all obligations of the Company under the 1996 Credit Agreement.
As part of the "VoiceStream Merger" discussed below, VoiceStream is required to
repurchase, repay and/or amend the Series A Notes and the Series B Notes. In any
event, VoiceStream is required to cause TDS to be released from its guaranties
and all liabilities thereunder.
On June 30, 1998, the Company and Nokia entered into an agreement ("1998
Credit Agreement") in which Nokia will provide financing to the Company for the
purchase of network infrastructure equipment and services from Nokia. Loans
under the 1998 Credit Agreement are to be made available in two tranches. With
respect to Tranche A, the Company borrowed $68.5 million. A second tranche of
$75 million ("Tranche B") became available commencing on June 30, 1999. The
maturity date of both the Tranche A and Tranche B loans is June 30, 2000. The
obligations of the Company under the 1998 Credit Agreement are fully and
unconditionally guaranteed by TDS at an annual fee rate of 3% (see
Note 5--Long-Term Debt for further discussion). As of December 31, 1999, the
Company had $39.7 million available for borrowing under the 1998 Credit
Agreement with Nokia. As part of the "VoiceStream Merger" discussed below, at
the merger closing VoiceStream is required to repay all obligations under or
amend the Nokia 1998 Credit Agreement to permit the merger to occur. In either
case, VoiceStream is required to cause TDS to be released from its guaranties
and all liabilities thereunder.
SONERA
On September 8, 1998, pursuant to the terms of a Purchase Agreement dated
June 1, 1998 (the "Purchase Agreement"), Sonera made a $200 million investment
in AOC, a then wholly-owned subsidiary of the Company. Sonera purchased
approximately 2.4 million shares of common stock of AOC at a price of
approximately $83 per share representing a 19.4% equity interest in AOC. Sonera
has the right, subject to adjustment under certain circumstances, to exchange
each share of AOC common stock that it owns for 6.72919 Common Shares of Aerial.
Upon the exchange of all of the above AOC shares, Sonera would have owned (prior
to its additional investment in the Company, as described below under
"VoiceStream Merger") an 18.4% equity interest in Aerial, reflecting a purchase
price equivalent of $12.33 per Common Share of Aerial (the "Equivalent Purchase
Price"). Following the announcement by TDS on December 18, 1998, that it
intended to distribute to its shareholders all of the capital stock of Aerial
that it owns, and that Aerial would seek additional financing from sources other
than TDS in connection therewith, Sonera contacted TDS to express certain
concerns. Sonera asserted, among other things, that Aerial and TDS
misrepresented and failed to disclose certain material facts to Sonera, thereby
inducing Sonera to pay an excessive price for AOC common stock. Sonera requested
the renegotiation of certain matters related to Sonera's investment in AOC,
including an adjustment in the Equivalent Purchase Price, and raised the
possibility of litigation in connection therewith.
Under the Purchase Agreement, the number of AOC shares purchased by Sonera
is subject to reduction if the average price of the Company's Common Shares
exceeds certain threshold prices. During the second quarter and on July 7, 1999,
the average price of the Company's Common Shares exceeded all of the threshold
prices set forth in the Purchase Agreement. Accordingly, the Company requested
Sonera to surrender for cancellation an aggregate of 634,216 shares of AOC
common stock. Sonera refused to surrender any AOC shares and, in connection with
its allegations, as discussed above, objected to the application of the share
reduction provisions in the Purchase Agreement.
In connection with an Agreement and Plan of Reorganization, Sonera, TDS,
Aerial and AOC executed a Settlement Agreement and Release as of September 17,
1999. Under the Settlement Agreement and Release, Sonera surrendered for
cancellation 317,108 AOC shares, representing one-half of the 634,216 disputed
shares, on November 1, 1999, without releasing its claims with respect to such
surrendered shares, in connection with the closing of the transactions under the
TDS Debt Replacement Agreement discussed below. Upon satisfaction of all of the
conditions to the closing of the transactions contemplated by the Agreement and
Plan of Reorganization, the remaining 317,108 AOC shares will be surrendered for
cancellation immediately prior to the closing of such transactions. At this
closing, each of Sonera and Sonera U.S., on the one hand, and TDS, Aerial, AOC
and VoiceStream, on the other hand, will release each other from all claims
relating to actions occurring through the date of the Settlement Agreement and
Release, including all claims by Sonera to all of the disputed shares and,
subject to certain exceptions, will extend such release to actions occurring
through the date of such
21
<PAGE>
closing. Also at that closing, the Purchase Agreement and the other agreements
entered into in connection with Sonera's original investment in AOC will be
terminated.
TDS REVOLVING CREDIT AGREEMENT
The Revolving Credit Agreement, as amended, provides that the amount of any
proceeds raised by the Company or AOC in connection with the sale of equity (see
Note 4--Minority Interest) or debt will be used to reduce the borrowings under
the Revolving Credit Agreement as well as reduce the total amount AOC may borrow
under the Revolving Credit Agreement (the "Maximum Amount"). Additionally, any
borrowings under the Nokia 1998 Credit Agreement (see Note 5--Long-Term Debt)
concurrently reduces by the same amount the authorized total line of credit
available to AOC under the Revolving Credit Agreement. The interest rate under
the Revolving Credit Agreement is equal to the prime rate plus 2.35%. Interest
on the balance due under the amended Revolving Credit Agreement is payable
quarterly and no principal is payable until maturity.
The following table summarizes AOC's borrowing capacity under the Revolving
Credit Agreement as of December 31, 1999:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ----------------------
<S> <C>
Maximum Amount available.................................... $ 355,000
Reduced by:
Vendor financing under the Nokia 1998 Credit Agreement.... (103,765)
Amount outstanding under the Revolving Credit Agreement... (37,786)
---------
Net amount available for borrowing from TDS................. $ 213,449
=========
</TABLE>
On March 10, 2000, the TDS and Aerial Boards of Directors approved an
amendment to the Revolving Credit Agreement which increased the Maximum Amount
on a scheduled basis from $355 million to $460 million as of December 1, 2000
(provided that the net amount available for borrowing from TDS shall not exceed
$315 million), and changed the maturity date from April 2, 2000, to the earlier
of December 17, 2000, or the date of the merger closing with VoiceStream.
Under certain circumstances, TDS is required to loan funds to AOC after the
merger closing up to a maximum of $315 million. In such event, effective at the
merger closing, TDS and AOC will amend the TDS Revolving Credit Agreement by
entering into an Amended and Restated Credit Agreement (the "Amended
Agreement"). Any amounts borrowed under the Amended Agreement will become due in
full one year after the effective date of the Amended Agreement. The interest
rate under the Amended Agreement will be LIBOR plus 3.5% and the obligations of
the Company under the Amended Agreement will be secured by substantially all the
Company's assets.
TDS has not committed to any further financing of the Company's operations.
In the event the merger of Aerial with VoiceStream were not to occur, TDS is
committed to helping Aerial obtain the necessary level of financial support to
enable the Company to pay its debts as they become due and management at TDS and
Aerial believe the Company has the ability to obtain that financial support. If
the merger were not to occur and if sufficient future funding was not available
on terms and prices acceptable to the Company, Aerial would have to reduce its
construction and operating activities, which could have a material adverse
impact on the Company's financial condition and results of operations.
VOICESTREAM MERGER
On September 17, 1999, the VoiceStream and Aerial Boards of Directors
approved a definitive Agreement and Plan of Reorganization to merge the two
companies. The merger is expected to close in the second quarter of 2000.
Pursuant to the Agreement and Plan of Reorganization, VoiceStream will exchange
0.455 shares of VoiceStream common stock for each of the Company's Common and
Series A Common Shares, subject to adjustment under certain circumstances.
Aerial public shareholders will have the right to elect to receive $18 in
cash in lieu of shares of VoiceStream. Sonera will convert its shares in AOC
into shares of Aerial (at a conversion ratio of 6.72919) immediately prior to
the merger becoming effective. The parties anticipate that the merger will be
tax-free
22
<PAGE>
to Aerial shareholders that elect to receive VoiceStream stock. This merger has
received shareholder approval by both Aerial and VoiceStream. Although all
filing and time requirements under the antitrust laws have been satisfied, the
merger of Aerial and VoiceStream is subject to Federal Communications Commission
("FCC") approval. In the event the merger with VoiceStream does not take place,
under certain circumstances, Aerial would be required to pay VoiceStream a
$40 million termination fee. If Aerial does not have sufficient funds at such
time to pay the termination fee, TDS will allow Aerial to finance the
termination fee through an increase in the Revolving Credit Agreement. The
following is a discussion of significant transactions executed in anticipation
of but not contingent upon the merger with VoiceStream, except as indicated
below.
TDS DEBT REPLACEMENT
On September 17, 1999, TDS, the Company, AOC and VoiceStream entered into a
Debt/Equity Replacement Agreement (the "TDS Debt Replacement Agreement"). In
accordance with the TDS Debt Replacement Agreement, on November 1, 1999, TDS
assigned to Aerial as a contribution to capital $420 million of debt owed by AOC
to TDS under the TDS Revolving Credit Agreement in exchange for an aggregate
19.1 million shares of Aerial common stock, at a purchase price of $22.00 per
share. On September 17, 1999, the date of the TDS Debt Replacement Agreement,
the closing price of Aerial Common Shares was $20.00 per share. The shares of
Aerial common stock consisted of 6.2 million Aerial Common Shares and
12.9 million Aerial Series A Common Shares. Thereafter, on November 1, 1999,
Aerial assigned to AOC as a contribution to capital the $420 million of debt
received from TDS, as well as $75 million received by Aerial from Sonera (see
"Sonera-Aerial Investment" below) in exchange for an aggregate of 3.3 million
common shares of AOC. As a result of the transactions under the TDS Debt
Replacement Agreement, $420 million of debt previously owed by AOC to TDS was
extinguished and the Maximum Amount under the Revolving Credit Agreement was
reduced from $775 million to $355 million. In addition, the interest rate under
the Revolving Credit Agreement was decreased to prime rate plus 2.35% and the
guarantee by Aerial of AOC's obligations thereunder was terminated.
As discussed above, under certain circumstances, TDS is required to loan
funds to AOC after the merger closing up to a maximum of $315 million. See
Note 6--Revolving Credit Agreement for further discussion of the Revolving
Credit Agreement.
On September 21, 1999, a putative class action complaint was filed on behalf
of Aerial stockholders. The complaint names as defendants Aerial, TDS, certain
directors of Aerial and TDS, and VoiceStream in connection with the transactions
contemplated by the Agreement and Plan of Reorganization and the related
agreements, particularly the TDS Debt Replacement Agreement. The complaint
alleges a breach of fiduciary duties by the defendants, including in connection
with the exchange of $420 million of debt owed by Aerial to TDS for Aerial
common stock at $22.00 per share. The complaint alleges that this action
benefits TDS at the expense of Aerial's public stockholders and seeks to have
the transactions contemplated by the Agreement and Plan of Reorganization
enjoined or, if they are consummated, to have them rescinded and to recover
unspecified damages, fees and expenses. The defendants believe that this lawsuit
is without merit and intend to vigorously defend against this lawsuit.
SONERA-AERIAL INVESTMENT
On September 17, 1999, TDS, Aerial, AOC, VoiceStream, Sonera and Sonera
Corporation U.S. ("Sonera U.S.") entered into a Settlement Agreement and Release
providing for the Sonera-Aerial Investment. In accordance with the Sonera-Aerial
Investment, on November 1, 1999, Sonera invested an aggregate of $230 million in
Aerial and AOC at an equivalent purchase price of $22.00 per share of Aerial
common stock. Aerial issued 3.4 million Aerial Common Shares to Sonera in
consideration for $75 million, and AOC issued 1.0 million shares of AOC common
stock to Sonera in consideration for $155 million. The funds invested by Sonera
were used to repay outstanding debt under the TDS Revolving Credit Agreement.
Additionally, Sonera surrendered 317,108 shares of AOC stock on November 1,
1999, without releasing its claims with respect thereto, and will surrender an
additional 317,108 shares at the closing of the merger. At the merger closing,
TDS, Aerial, AOC and VoiceStream, on the one hand, and Sonera and Sonera U.S.,
on the other hand, will release each other from all claims relating to actions
occurring through September 17, 1999, including all claims by Sonera to the
634,216 disputed shares, and, subject to certain exceptions, will extend such
release through the date of the merger closing.
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<PAGE>
YEAR 2000 ISSUE
The Year 2000 Issue existed because certain computer systems and
applications abbreviate dates using only two digits rather than four digits,
e.g., "98" rather than "1998". Unless corrected, this shortcut could have caused
problems when the century date "2000" occurs. On that date, some computer
operating systems and applications and embedded technology may have recognized
the date as January 1, 1900 instead of January 1, 2000.
The Company's management established Year 2000 project teams in 1998 to
address Year 2000 issues. The project teams identified those mission critical
hardware, systems and applications that were not Year 2000 ready. These mission
critical hardware, systems and applications were then renovated, validated and
implemented prior to December 31, 1999. No significant problems were encountered
in January, 2000. The total costs associated with the Year 2000 Issue were
$16.8 million.
The Company expects to incur minimal expenditures for final wrap-up
activities. While the Company believes its mission critical hardware, systems
and applications are Year 2000 ready, it will continue to monitor information
systems, facilities, equipment and relationships with third parties. Contingency
plans have been developed to address any interruptions in essential services.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market rate risks due to fluctuations in interest
rates and equity markets. The majority of the Company's debt is in the form of
variable rate notes with original maturities ranging from one to ten years. The
Series A and Series B Zero Coupon Notes are fixed rate debt and therefore,
fluctuations in interest rates can lead to significant fluctuations in the fair
market value of these instruments. The Company has not entered into financial
derivatives to reduce its exposure to interest rate risks.
The table below provides the fair value (fair values were estimated using
discounted cash flow analyses) and weighted average interest rates of the
Company's outstanding debt at December 31, 1999.
<TABLE>
<CAPTION>
AMOUNT MATURING WTD. AVG.
EXPECTED MATURITY DATE (DOLLARS IN THOUSANDS) INTEREST RATE
- ---------------------- ---------------------- -------------
<S> <C> <C>
2000........................................................ $ 103,765 6.07%
2001........................................................ 37,786 10.87%
2002........................................................ -- --
2003........................................................ -- --
2004........................................................ -- --
Thereafter.................................................. 446,220 8.20%
----------------------
Total at 1999............................................... $ 587,771 7.99%
Fair Value at 12/31/99...................................... $ 384,524
Total at 1998............................................... $1,041,635 9.42%
Fair Value at 12/31/98...................................... $ 828,005
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS LOCATION
- -------------------- ---------
<S> <C>
Consolidated Statements of Operations....................... page 25
Consolidated Statements of Cash Flows....................... page 26
Consolidated Balance Sheets................................. page 27
Consolidated Statements of Changes in Shareholders'
Equity.................................................... page 29
Notes to Consolidated Financial Statements.................. page 30
Report of Independent Public Accountants.................... page 43
</TABLE>
24
<PAGE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUES
Service................................................. $ 195,140 $ 123,640 $ 32,307
Equipment sales......................................... 30,361 31,514 23,645
--------- --------- ---------
Total Operating Revenues................................ 225,501 155,154 55,952
--------- --------- ---------
OPERATING EXPENSES
System operations....................................... 78,303 69,066 30,655
Marketing and selling................................... 89,755 79,704 45,974
Customer service........................................ 39,934 53,516 20,882
Cost of equipment sold.................................. 61,298 87,715 71,454
General and administrative.............................. 74,212 61,737 58,825
Depreciation............................................ 84,347 75,846 36,045
Amortization of intangibles............................. 7,660 7,555 4,509
Development costs....................................... -- -- 5,773
--------- --------- ---------
Total Operating Expenses................................ 435,509 435,139 274,117
--------- --------- ---------
OPERATING (LOSS).......................................... (210,008) (279,985) (218,165)
OTHER INCOME (EXPENSE)
Minority share of loss.................................. 15,782 23,620 --
Other (expense) income, net............................. (5,205) 1,196 (21)
--------- --------- ---------
Other Income (Expense).................................. 10,577 24,816 (21)
--------- --------- ---------
(LOSS) BEFORE INTEREST AND INCOME TAXES................... (199,431) (255,169) (218,186)
INTEREST EXPENSE
Interest expense-affiliate.............................. 61,197 62,137 21,558
Interest expense-other.................................. 22,118 18,010 5,507
--------- --------- ---------
Total Interest Expense.................................. 83,315 80,147 27,065
--------- --------- ---------
(LOSS) BEFORE INCOME TAXES................................ (282,746) (335,316) (245,251)
Income tax (benefit) expense.............................. (113,400) 2,579 1,806
--------- --------- ---------
NET (LOSS)................................................ $(169,346) $(337,895) $(247,057)
========= ========= =========
WEIGHTED AVERAGE COMMON AND SERIES A COMMON SHARES
(000s).................................................. 75,734 71,723 71,512
(LOSS) PER COMMON AND SERIES A COMMON SHARE............... $ (2.24) $ (4.71) $ (3.45)
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements
25
<PAGE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss).............................................. $(169,346) $(337,895) $(247,057)
Add (Deduct) adjustments to reconcile net (loss) to net
cash (used) by operating activities:
Depreciation and amortization........................... 92,007 83,401 40,554
Noncash interest expense................................ 18,335 16,210 8,341
Change in deferred taxes................................ 1,415 2,579 1,806
Investment losses....................................... 314 128 2,518
Minority share of operating loss........................ (15,782) (23,620) --
Loss on sale of property and equipment.................. 489 3,242 --
Change in accounts receivable-customer.................. (4,338) (174) (24,030)
Change in inventory..................................... 3,042 14,571 (25,949)
Change in accounts payable-affiliates................... 184 (121) 284
Change in accounts payable-trade........................ (17,405) 6,680 30,606
Change in accrued interest-affiliate.................... (4,786) 1,274 3,665
Change in other assets and liabilities.................. 31 4,924 2,399
--------- --------- ---------
(95,840) (228,801) (206,863)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under the Revolving Credit Agreement-TDS..... 242,582 301,709 448,234
Repayments of borrowings under the Revolving Credit
Agreement--TDS........................................ (334,739) (200,000) --
Proceeds from minority investor......................... 230,000 200,000 --
Other issuance of common stock.......................... 9,214 1,002 1,699
--------- --------- ---------
147,057 302,711 449,933
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment..................... (34,248) (74,580) (274,709)
Change in note receivable............................... -- -- 1,925
Proceeds from sale of property and equipment............ 75 711 --
Change in temporary and other investments............... (2,100) (110) (558)
--------- --------- ---------
(36,273) (73,979) (273,342)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 14,944 (69) (30,272)
CASH AND CASH EQUIVALENTS--
Beginning of year....................................... 4,943 5,012 35,284
--------- --------- ---------
End of year............................................. $ 19,887 $ 4,943 $ 5,012
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
26
<PAGE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 19,887 $ 4,943
Temporary investments..................................... -- 35
Accounts receivable:
Customers, less allowance of $3,767 and $5,875,
respectively.......................................... 28,542 24,204
Roaming................................................. 3,079 2,252
Other................................................... 1,951 1,348
Inventory................................................. 8,336 11,378
Prepaid rent.............................................. 3,920 3,666
Other..................................................... 1,347 898
--------- ---------
67,062 48,724
--------- ---------
PROPERTY AND EQUIPMENT
In service and under construction......................... 816,757 733,958
Less accumulated depreciation............................. (196,844) (112,677)
--------- ---------
619,913 621,281
--------- ---------
INVESTMENTS
Investment in PCS licenses, net of accumulated
amortization of $19,597 and $12,044, respectively....... 281,934 289,488
Other..................................................... 3,263 1,444
--------- ---------
285,197 290,932
--------- ---------
DEFERRED COSTS.............................................. 204 410
--------- ---------
TOTAL ASSETS................................................ $ 972,376 $ 961,347
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
27
<PAGE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable:
Affiliates.............................................. $ -- $ 6,727
Trade................................................... 35,230 56,097
Current portion of long-term debt......................... 103,765 --
Accrued interest-affiliate................................ 153 4,939
Accrued compensation...................................... 9,732 5,169
Accrued taxes............................................. 7,419 7,015
Other..................................................... 4,675 6,177
---------- ---------
160,974 86,124
---------- ---------
REVOLVING CREDIT AGREEMENT-TDS.............................. 37,786 549,943
---------- ---------
LONG-TERM DEBT.............................................. 250,846 278,010
---------- ---------
DEFERRED TAX LIABILITY-NET.................................. 17,772 16,357
---------- ---------
MINORITY INTEREST........................................... 94,364 5,835
---------- ---------
COMMON SHAREHOLDERS' EQUITY
Common Shares, $1.00 par value; authorized 100,000,000
shares; issued and outstanding 42,289,028 and
31,788,982, respectively................................ 42,289 31,789
Series A Common Shares, $1.00 par value; authorized
60,000,000 shares; issued and outstanding 52,924,151 and
40,000,000, respectively................................ 52,924 40,000
Additional paid-in capital................................ 1,115,592 584,114
Retained deficit.......................................... (800,171) (630,825)
---------- ---------
410,634 25,078
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $ 972,376 $ 961,347
========== =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
28
<PAGE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
COMMON SHARES
Balance at beginning of year........................... $ 31,789 $ 31,611 $ 31,359
Add
TDS debt replacement................................. 6,167 -- --
Sonera-Aerial investment............................. 3,409 -- --
Employee benefit plans............................... 924 178 252
---------- --------- ---------
Balance at end of year................................. $ 42,289 $ 31,789 $ 31,611
========== ========= =========
SERIES A COMMON SHARES
Balance at beginning of year........................... $ 40,000 $ 40,000 $ 40,000
TDS debt replacement................................. 12,924 -- --
---------- --------- ---------
Balance at end of year................................. $ 52,924 $ 40,000 $ 40,000
========== ========= =========
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year........................... $ 584,114 $ 413,746 $ 412,299
Add
Gain on sale of subsidiary stock..................... 50,688 169,544 --
TDS debt replacement................................. 400,909 -- --
Sonera-Aerial investment............................. 71,591 -- --
Employee benefit plans............................... 8,290 824 1,447
---------- --------- ---------
Balance at the end of year............................. $1,115,592 $ 584,114 $ 413,746
========== ========= =========
RETAINED DEFICIT
Balance at beginning of year........................... $ (630,825) $(292,930) $ (45,873)
Net (Loss)............................................. (169,346) (337,895) (247,057)
---------- --------- ---------
Balance at end of year................................. $ (800,171) $(630,825) $(292,930)
========== ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
29
<PAGE>
1. VOICESTREAM MERGER
On September 17, 1999, the VoiceStream and Aerial Communications, Inc.
("Aerial" or the "Company") Boards of Directors approved a definitive Agreement
and Plan of Reorganization to merge the two companies. The merger is expected to
close in the second quarter of 2000. Pursuant to the Agreement and Plan of
Reorganization, VoiceStream will exchange 0.455 shares of VoiceStream common
stock for each of the Company's Common and Series A Common Shares, subject to
adjustment under certain circumstances.
Aerial public shareholders will have the right to elect to receive $18 in
cash in lieu of shares of VoiceStream. Sonera will convert its shares in Aerial
Operating Company, Inc. ("AOC"), an 81.0%-owned subsidiary of Aerial, into
shares of Aerial (at a conversion ratio of 6.72919) immediately prior to the
merger becoming effective. The parties anticipate that the merger will be
tax-free to Aerial shareholders that elect to receive VoiceStream stock. This
merger has received shareholder approval by both Aerial and VoiceStream.
Although all filing and time requirements under the antitrust laws have been
satisfied, the merger of Aerial and VoiceStream is subject to Federal
Communications Communication ("FCC") approval. In the event the merger with
VoiceStream does not take place, under certain circumstances, Aerial would be
required to pay VoiceStream a $40 million termination fee which would be charged
to "other income (expense)" on the consolidated statement of operations. If
Aerial does not have sufficient funds at such time to pay the termination fee,
TDS will allow Aerial to finance the termination fee through an increase in the
Revolving Credit Agreement. The following is a discussion of significant
transactions executed in anticipation of but not contingent upon the merger with
VoiceStream, except as indicated below.
TDS Debt Replacement
On September 17, 1999, TDS, the Company, AOC and VoiceStream entered into a
Debt/Equity Replacement Agreement (the "TDS Debt Replacement Agreement"). In
accordance with the TDS Debt Replacement Agreement, on November 1, 1999, TDS
assigned to Aerial as a contribution to capital $420 million of debt owed by AOC
to TDS under the TDS Revolving Credit Agreement in exchange for an aggregate
19.1 million shares of Aerial common stock, at a purchase price of $22.00 per
share. On September 17, 1999, the date of the TDS Debt Replacement Agreement,
the closing price of Aerial Common Shares was $20.00 per share. The shares of
Aerial common stock consisted of 6.2 million Aerial Common Shares and
12.9 million Aerial Series A Common Shares. Thereafter, on November 1,1999,
Aerial assigned to AOC as a contribution to capital the $420 million of debt
received from TDS, as well as $75 million received by Aerial from Sonera (see
"Sonera-Aerial Investment" below) in exchange for an aggregate of 3.3 million
common shares of AOC. As a result of the transactions under the TDS Debt
Replacement Agreement, $420 million of debt previously owed by AOC to TDS was
extinguished and the Maximum Amount under the Revolving Credit Agreement was
reduced from $775 million to $355 million. In addition, the interest rate under
the Revolving Credit Agreement was decreased to prime rate plus 2.35% and the
guarantee by Aerial of AOC's obligations thereunder was terminated.
Under certain circumstances, TDS is required to loan funds to AOC after the
merger close up to a maximum of $315 million. In such event, effective at the
merger closing, TDS and AOC will amend the TDS Revolving Credit Agreement by
entering into an Amended and Restated Credit Agreement (the "Amended
Agreement"). Any amounts borrowed under the Amended Agreement will become due in
full one year after the effective date of the Amended Agreement. The interest
rate under the Amended Agreement will be LIBOR plus 3.5% and the obligations of
the Company under the Amended Agreement will be secured by substantially all the
Company's assets. See Note 6--Revolving Credit Agreement for further discussion
of the Revolving Credit Agreement.
On September 21, 1999, a putative class action complaint was filed on behalf
of Aerial stockholders. The complaint names as defendants Aerial, TDS, certain
directors of Aerial and TDS, and VoiceStream in connection with the transactions
contemplated by the Agreement and Plan of Reorganization and the related
agreements, particularly the TDS Debt Replacement Agreement. The complaint
alleges a breach of fiduciary duties by the defendants, including in connection
with the exchange of $420 million of debt owed by Aerial to TDS for Aerial
common stock at $22.00 per share. The complaint alleges that this
30
<PAGE>
1. VOICESTREAM MERGER (CONTINUED)
action benefits TDS at the expense of Aerial's public stockholders and seeks to
have the transactions contemplated by the Agreement and Plan of Reorganization
enjoined or, if they are consummated, to have them rescinded and to recover
unspecified damages, fees and expenses. The defendants believe that this lawsuit
is without merit and intend to vigorously defend against this lawsuit.
Sonera-Aerial Investment
On September 17, 1999, TDS, Aerial, AOC, VoiceStream, Sonera Corporation
("Sonera", formerly known as Sonera Ltd.) and Sonera Corporation U.S. ("Sonera
U.S.") entered into a Settlement Agreement and Release providing for the
Sonera-Aerial Investment. In accordance with the Sonera-Aerial Investment, on
November 1, 1999, Sonera invested an aggregate of $230 million in Aerial and AOC
at an equivalent purchase price of $22.00 per share of Aerial common stock.
Aerial issued 3.4 million Aerial Common Shares to Sonera in consideration for
$75 million, and AOC issued 1.0 million shares of AOC common stock to Sonera in
consideration for $155 million. The funds invested by Sonera were used to repay
outstanding debt under the TDS Revolving Credit Agreement and are available to
be drawn down by AOC under the TDS Revolving Credit Agreement between
November 1, 1999, and the closing of the merger. Additionally, Sonera
surrendered 317,108 shares of AOC stock on November 1, 1999, without releasing
its claims with respect thereto, and will surrender an additional 317,108 shares
at the closing of the merger. At the merger closing, TDS, Aerial, AOC and
VoiceStream, on the one hand, and Sonera and Sonera U.S., on the other hand,
will release each other from all claims relating to actions occurring through
September 17, 1999, including all claims by Sonera to the 634,216 disputed
shares, and, subject to certain exceptions, will extend such release through the
date of the merger closing. See Note 4--Minority Interest for further discussion
of Sonera's concern's regarding the disputed AOC shares.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF OPERATIONS
Aerial is an 82.1%-owned subsidiary of TDS. The Company was incorporated in
Delaware on July 23, 1991, as American Portable Telecommunications, Inc. and
changed its name to American Portable Telecom, Inc. ("APTI") effective
January 18, 1996. On November 12, 1996, the Company changed its name to Aerial
Communications, Inc.
The Company was formed to acquire Personal Communications Services ("PCS")
licenses, construct PCS networks in its Major Trading Areas ("MTAs") and offer
wireless PCS communications services in these areas. The Company acquired its
licenses in the FCC broadband Block A and Block B PCS auction (the "PCS
auction") which concluded in March 1995. The Company acquired licenses in the
Columbus (Ohio), Houston (Texas), Kansas City (Missouri), Minneapolis
(Minnesota), Pittsburgh (Pennsylvania), and Tampa-St. Petersburg-Orlando
(Florida) MTAs covering approximately 27.9 million population equivalents
("POPs"). As of December 31, 1999, the Company had approximately 422,900
customers.
(B) DEVELOPMENT STAGE ENTERPRISE
Effective with the second quarter of 1997, the Company ceased to be a
development stage enterprise and presents its results of operations, cash flows
and financial position in a manner similar to other operating enterprises within
the industry.
(C) PRINCIPLES OF CONSOLIDATION
The accounting policies of the Company and its subsidiaries conform to
generally accepted accounting principles. The consolidated financial statements
include the accounts of Aerial Communications, Inc. and its 81.0%-owned
subsidiary, AOC. The MTAs are wholly owned subsidiaries of AOC. All material
intercompany balances and transactions have been eliminated. The preparation of
the consolidated 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 as well as the disclosure
of contingent assets and liabilities at the date of the financial
31
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain amounts reported in prior years have been reclassified to conform to
the current year presentation.
(D) REVENUE RECOGNITION AND INVENTORY
Revenues from operations consist of charges to customers for monthly access,
airtime, value-added services, outcollect roaming and long-distance charges.
Revenues are recognized as the services are rendered. Unbilled revenues,
resulting from PCS services provided from the billing cycle date to the end of
each month, are estimated and recorded.
Revenues from operations also consist of phone and accessory sales to
retailers, independent agents and end user customers. Revenues from such sales
are recognized upon the shipment of goods to retailers and independent agents or
upon sale through direct distribution channels to end user customers.
Phone inventory is stated at current replacement cost.
(E) ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising costs
totaled $26.6 million, $25.8 million and $21.1 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
(F) PENSION PLAN
Effective July 1, 1995, the Company began providing pension benefits for its
employees under a qualified, noncontributory, defined contribution pension plan.
Under this plan, pension benefits and costs are calculated separately for each
participant and are funded currently. Pension costs were $1.9 million,
$0.6 million and $0.3 million in 1999, 1998 and 1997, respectively. Effective
January 1, 2000, the pension plan was terminated in anticipation of the merger
with VoiceStream and all unvested account balances became fully vested.
(G) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consists of cash on hand and those short-term,
highly-liquid investments with original maturities of three months or less. The
carrying amount of cash and cash equivalents approximates fair value due to its
short-term nature.
(H) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided based on
the straight-line method over the estimated useful lives of the respective
assets, generally ten years for network assets and five years for information
system assets and office equipment. Leasehold improvements are amortized over
ten years or the lease term, whichever is shorter.
32
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and equipment (including work in process) consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cell sites and equipment.................................... $ 543,315 $ 484,638
Switching equipment......................................... 122,416 114,470
Information systems......................................... 117,767 108,279
Office equipment............................................ 22,383 18,247
Leasehold improvements and other............................ 10,876 8,324
--------- ---------
816,757 733,958
Accumulated depreciation.................................... (196,844) (112,677)
--------- ---------
Property and equipment-net................................ $ 619,913 $ 621,281
========= =========
</TABLE>
Gains and losses on the disposition of property and equipment are included
in operating expenses.
(I) WORK IN PROCESS
Work in process includes expenditures for the design, construction and
testing of the Company's PCS networks as well as the cost to relocate dedicated
private microwave links currently operating in the Company's spectrum in its
MTAs. Work in process also includes the costs associated with developing
information systems. The Company capitalizes interest on such expenditures where
appropriate. When the assets are placed in service, the Company transfers the
assets to the appropriate property and equipment category.
(J) INVESTMENT IN PCS LICENSES
Investment in PCS licenses is recorded at historical cost, which includes
the purchase price of the licenses acquired by the Company in the PCS auction
plus capitalized interest of $16.6 million. The Company began amortizing the
licenses straight-line over 40 years upon commencement of service in each
respective MTA. Accumulated amortization on the licenses at December 31, 1999
and 1998, totaled $19.6 million and $12.0 million, respectively.
(K) (LOSS) PER COMMON AND SERIES A COMMON SHARE
(Loss) per Common and Series A Common Share was computed based on the
weighted average of Common and Series A Common Shares outstanding during the
period. In 1999, 1998 and 1997, respectively, 0.8 million, 1.7 million and
1.4 million stock options were not included in computing diluted (loss) per
Common and Series A Common Share because their effects were antidilutive.
(L) SUPPLEMENTAL CASH FLOW DISCLOSURES
The following summarizes interest paid and certain noncash transactions.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest paid to non-affiliates............................. 3,786 1,911 428
Interest and guarantee fees paid to TDS..................... 61,044 57,219 24,297
</TABLE>
In 1999, $420 million of borrowings under the Revolving Credit Agreement
were extinguished by TDS in exchange for Aerial common stock. Also in 1999,
$58.3 million in additions to property and equipment (amounts in service and
work in process, collectively) were financed through an increase in long-term
debt. In 1998, $71.5 million in additions to property and equipment were
financed through long-term debt and accounts payable-affiliate. In 1997,
$113.0 million in additions to property and equipment were financed through a
combination of long-term debt, accounts payable-trade, microwave relocation
costs payable and prepaid network infrastructure costs.
33
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In 1999, the Company incurred interest charges totaling $83.3 million. In
1999, the interest charges were comprised of $52.0 million paid to TDS relating
to the Revolving Credit Agreement (See Note 6--Revolving Credit Agreement),
$8.9 million paid to TDS for guarantee fees on the Series A and Series B Zero
Coupon Notes and obligations under the Nokia 1998 Credit Agreement (See
Note 5--Long-Term Debt), $3.5 million paid to Nokia for interest charges
relating to the 1998 Credit Agreement, $18.3 million in accrued interest on the
Series A and Series B Zero Coupon Notes and $0.6 million in other interest
charges. All interest charges incurred were expensed in 1999.
In 1998, the Company incurred interest charges totaling $80.2 million. In
1998, the interest charges were comprised of $55.4 million paid to TDS relating
to the Revolving Credit Agreement, $6.7 million paid to TDS for guarantee fees
on the Series A and Series B Zero Coupon Notes and obligations under the Nokia
1998 and 1996 Credit Agreements, $1.0 million paid to Nokia for interest charges
relating to the 1998 Credit Agreement, $16.2 million in accrued interest on the
Series A and Series B Zero Coupon Notes and $0.9 million in other interest
charges. Of these amounts, the Company capitalized $0.1 million relating to its
work in process expenditures. The remaining $80.1 million was charged to
expense.
In 1997, the Company incurred interest charges totaling $33.1 million. In
1997, the interest charges were comprised of $21.0 million paid to TDS relating
to the Revolving Credit Agreement, $3.3 million paid to TDS for guarantee fees
on the Series A Zero Coupon Notes and obligations under the Nokia 1996 Credit
Agreement, $0.4 million paid to Nokia for interest charges relating to the 1996
Credit Agreement, $8.3 million in accrued interest on the Series A Zero Coupon
Notes and $0.1 million in other interest charges. Of these amounts, the Company
capitalized $6.0 million relating to its work in process expenditures. The
remaining $27.1 million was charged to expense.
(M) NEW ACCOUNTING PRONOUNCEMENTS
Securities and Exchange Commission Staff Accounting Bulletin ("SAB")
No. 101, "Revenue Recognition", is effective beginning in the first quarter of
2000. SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. Management believes this bulletin
will not have a material effect on results of operations and financial position
of the Company.
3. INCOME TAXES
The Company is included in a consolidated federal income tax return with
other members of the TDS consolidated group. The Company and TDS are parties to
a Tax Allocation Agreement (the "Agreement"). The Agreement provides that the
Company and its subsidiaries be included with the TDS affiliated group in a
consolidated federal income tax return and in state income or franchise tax
returns in certain situations. For financial reporting purposes, the Company
computes its federal income taxes as if it were filing a separate return as its
own affiliated group and was not included in the TDS group.
TDS and the Company are also parties to a March 12, 1999, tax settlement
agreement which resulted in a payment of $114.5 million from TDS to Aerial. The
$114.5 million received by Aerial covered the estimated tax losses incurred by
the Company and used by TDS in consolidated income tax returns for the period
commencing from January 1, 1996 through August 31, 1999. The tax settlement
agreement requires a settlement of amounts to cover tax losses incurred by
Aerial and used by TDS through December 31, 1999. In the first quarter of 1999,
the Company determined that it was appropriate to recognize the $114.5 million
payment in current income tax expense as part of a reduction in its deferred tax
asset valuation allowance.
34
<PAGE>
3. INCOME TAXES (CONTINUED)
The Company records all deferred tax liabilities or assets for the deferred
tax consequences of all temporary differences. Income tax provisions are
summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax (benefit) provision:
Current................................................... $(104,956) $ -- $ --
Deferred.................................................. 1,104 2,078 1,561
State income tax (benefit) provision:
Current................................................... (9,859) -- --
Deferred.................................................. 311 501 245
--------- ------ ------
Income tax (benefit) expense................................ $(113,400) $2,579 $1,806
========= ====== ======
</TABLE>
The temporary differences which gave rise to significant portions of the net
deferred tax liability were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards.......................... $175,009 $357,460
Less: valuation allowance................................. (66,012) (277,782)
-------- --------
Total deferred tax asset.................................... $108,997 $ 79,678
======== ========
Deferred tax liability:
Property and equipment.................................... $ 54,732 $ 39,364
Licenses.................................................. 28,795 24,060
Partnership investment.................................... 19,859 13,967
Minority share of loss.................................... 16,903 9,934
Deferred charges-interest................................. 3,430 5,273
Other..................................................... 3,050 3,437
-------- --------
Total deferred tax liability................................ $126,769 $ 96,035
======== ========
Net deferred tax liability.................................. $ 17,772 $ 16,357
======== ========
</TABLE>
The Company records a deferred tax asset associated with net operating loss
carryforwards and then assesses the need for any valuation allowance associated
with those carryforwards. At December 31, 1999, the federal net operating loss
carryforward available to offset future taxable income is $350.0 million
(generating a $122.5 million deferred tax asset) and expires between 2012 and
2019. The amount of state net operating loss carryforward available to offset
future taxable income, primarily of the individual MTAs which generated the
loss, is $761.2 million (generating a $52.5 million deferred tax asset) and
expires between 2000 and 2019.
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. During 1999, the
valuation allowance decreased $211.8 million primarily due to the tax settlement
described above.
35
<PAGE>
3. INCOME TAXES (CONTINUED)
The statutory federal income tax rate is reconciled to the Company's
effective income tax rate below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate........................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit.................. 3.2 (0.1) (0.1)
Effects of valuation allowance on deferred tax asset........ (0.2) (35.7) (35.6)
----- ----- -----
Effective income tax rate................................... 38.0% (0.8)% (0.7)%
===== ===== =====
</TABLE>
4. MINORITY INTEREST
On September 8, 1998, pursuant to the terms of a Purchase Agreement dated
June 1, 1998 ("Purchase Agreement"), Sonera made a $200 million investment in
AOC, a then wholly-owned subsidiary of the Company. Sonera purchased
approximately 2.4 million shares of common stock of AOC at a price of
approximately $83 per share representing a 19.4% equity interest in AOC. Sonera
has the right, subject to adjustment under certain circumstances, to exchange
each share of AOC common stock that it owns for 6.72919 Common Shares of Aerial.
Upon the exchange of all of the above AOC shares, Sonera would have owned (prior
to its additional investment in the Company, as described below) an 18.4% equity
interest in Aerial, reflecting a purchase price equivalent of $12.33 per Common
Share of Aerial (the "Equivalent Purchase Price"). The sale of the AOC common
stock was recorded at a fair market value, which was more than the Company's
book value investment in AOC. The Company adjusted its book value investment in
AOC as a result of this sale and increased additional paid-in capital
$169.5 million in 1998.
Following the announcement by TDS in December 1998 that it intended to
distribute to its shareholders all of the capital stock of Aerial that it owns,
and that Aerial would seek additional financing from sources other than TDS in
connection therewith, Sonera contacted TDS to express certain concerns. Sonera
asserted, among other things, that Aerial and TDS misrepresented and failed to
disclose certain material facts to Sonera, thereby inducing Sonera to pay an
excessive price for the AOC common stock. Sonera requested the renegotiation of
certain matters related to Sonera's investment in AOC, including an adjustment
in the Equivalent Purchase Price, and raised the possibility of litigation in
connection therewith.
Under the Purchase Agreement, the number of AOC shares purchased by Sonera
is subject to reduction if the average price of Aerial's Common Shares exceeds
certain threshold prices during the first three years after Sonera's investment.
During the second quarter and on July 7, 1999, the average price of Aerial's
Common Shares exceeded all of the threshold prices set forth in the Purchase
Agreement. Accordingly, Aerial requested Sonera to surrender for cancellation an
aggregate of 634,216 shares of AOC common stock. Sonera refused to surrender any
AOC shares and, in connection with its allegations, as discussed above, objected
to the application of the share reduction provisions in the Purchase Agreement.
In connection with an Agreement and Plan of Reorganization, Sonera, TDS,
Aerial and AOC executed a Settlement Agreement and Release as of September 17,
1999. Under the Settlement Agreement and Release, Sonera surrendered for
cancellation 317,108 AOC shares, representing one-half of the 634,216 disputed
shares, on November 1, 1999, without releasing its claims with respect to such
surrendered shares, in connection with the closing of transactions under the TDS
Debt Replacement Agreement. Upon satisfaction of all of the conditions to the
closing of the transactions contemplated by the Agreement and Plan of
Reorganization, the remaining 317,108 AOC shares will be surrendered for
cancellation immediately prior to the closing of such transactions. At this
closing, each of Sonera and Sonera U.S., on the one hand, and TDS, Aerial, AOC,
VoiceStream, on the other hand, will release each other from all claims relating
to actions occurring through the date of the Settlement Agreement and Release,
including all claims by Sonera to all of the disputed shares and, subject to
certain exceptions, will extend such release to actions occurring through the
date of such closing. Also at
36
<PAGE>
4. MINORITY INTEREST (CONTINUED)
that closing, the Purchase Agreement and the other agreements entered into in
connection with Sonera's original investment in AOC will be terminated.
On November 1, 1999, pursuant to the terms of the Sonera-Aerial Investment
dated September 17, 1999, Sonera made a $155 million investment in AOC. Sonera
purchased approximately 1.0 million shares of AOC. After completing all of the
foregoing transactions, including the November 1, 1999 cancellation of 317,108
AOC shares, Sonera's equity ownership in AOC was approximately 19.0%. The sale
of the AOC common stock was recorded at a fair market value, which was more than
the Company's book value investment in AOC. The Company adjusted its book value
investment in AOC as a result of this sale and increased additional paid-in
capital $50.7 million in 1999.
In 1999, minority share of loss of $15.8 million represents Sonera's share
of AOC's consolidated net loss for the year. In 1998, minority share of loss of
$23.6 million represents Sonera's share of AOC's consolidated net loss from
September 8, 1998 (the closing date) to December 31, 1998.
5. LONG-TERM DEBT
Nokia Telecommunications Inc. ("Nokia") agreed to provide the Company with
up to $200 million in financing for digital radio channel and switching
infrastructure equipment through a Credit Agreement with the Company dated
June 19, 1996 ("1996 Credit Agreement"). In accordance with the provisions of
the 1996 Credit Agreement, the Company issued, in tranches, 10-year unsecured
zero coupon promissory notes, the proceeds of which were paid to Nokia in
satisfaction of borrowings by the Company under the 1996 Credit Agreement. On
November 4, 1996, the Company issued $226.2 million in aggregate principal
amount at maturity of Series A Zero Coupon Notes ("Series A Notes") due in 2006.
The per annum yield to maturity on the Series A Notes is 8.34% (computed on a
semi-annual bond equivalent basis) and the effective rate is 8.09%. On
February 5, 1998, the Company issued $220.0 million in aggregate principal
amount at maturity of Series B Zero Coupon Notes ("Series B Notes") due in 2008
(representing the final issuance of zero coupon notes under the 1996 Credit
Agreement). The per annum yield to maturity on the Series B Notes is 8.05%
(computed on a semi-annual bond equivalent basis) and the effective rate is
7.61%. The aggregate issue price of the Series A and Series B Zero Coupon Notes
was $200 million. The proceeds were paid to Nokia in satisfaction of all then
outstanding and future obligations of the Company up to $200 million under the
1996 Credit Agreement.
On June 30, 1998, the Company and Nokia entered into an agreement ("1998
Credit Agreement") in which Nokia will provide financing to the Company for the
purchase of network infrastructure equipment and services from Nokia. Loans
under the 1998 Credit Agreement are to be made available in two tranches. With
respect to Tranche A, the Company borrowed $68.5 million. The per annum interest
rate on the Tranche A loans is equal to the 30-day LIBOR plus 0.35%. A second
tranche of $75 million ("Tranche B") became available commencing on June 30,
1999. The per annum interest rate on the Tranche B loans is equal to the 30-day
LIBOR plus 0.25%. The maturity date of both the Tranche A and Tranche B loans is
June 30, 2000. Interest under the 1998 Credit Agreement is payable monthly. As
of December 31, 1999, the Company had $39.7 million available for borrowing
under the 1998 Credit Agreement.
The Series A and Series B Notes are unsecured obligations of the Company and
rank in the same priority with all other unsecured and unsubordinated
indebtedness of the Company. The Series A and Series B Notes and obligations of
the Company under the 1998 Credit Agreement are fully and unconditionally
guaranteed by TDS at an annual fee rate of 3%. Guarantee fees owed TDS are
payable semiannually. The Series A and Series B Notes are subject to optional
redemption by the Company after five years from the date of issuance at
redemption prices which reflect the original issue discount accreted since
issuance. As part of the VoiceStream merger, VoiceStream is required to
repurchase, repay and/or amend the Series A Notes and Series B Notes. In any
event, VoiceStream is required to cause TDS to be released from its guarantees
and all liabilities thereunder. At the merger closing, VoiceStream is required
to repay all obligations under or amend the Nokia 1998 Credit Agreement to
permit the merger to occur. In either case, VoiceStream is required to cause TDS
to be released from its guaranties and all liabilities thereunder.
37
<PAGE>
5. LONG-TERM DEBT (CONTINUED)
At December 31, 1999, the $103.8 million of current portion of long-term
debt represented borrowings under the 1998 Credit Agreement. The $250.8 million
of long-term debt represented the Series A and Series B Zero Coupon Notes,
including accreted interest. Of the $278.0 million in long-term debt at
December 31, 1998, $45.5 million represented borrowings under the 1998 Credit
Agreement, with the balance representing the Series A and Series B Zero Coupon
Notes, including accreted interest.
The $131.1 million carrying value of the Company's Series A Notes is greater
than its fair value, estimated to be $130.3 million. The $119.7 million carrying
value of the Company's Series B Notes is greater than its fair value, estimated
to be $112.7 million. The fair values were estimated using discounted cash flow
analyses. The $103.8 million carrying value of the Company's obligations under
the 1998 Credit Agreement approximates the fair value of the obligations, as the
1998 Credit Agreement is variable rate debt based on the 30-day LIBOR.
6. REVOLVING CREDIT AGREEMENT
Under the TDS Revolving Credit Agreement, as amended, AOC may borrow up to a
maximum amount (the "Maximum Amount"), less the amount of certain financing
obtained by AOC or Aerial, including the amount of any borrowings under the
Nokia 1998 Credit Agreement. As of December 31, 1999, the Maximum Amount
available under the TDS Revolving Credit Agreement was $355 million and the
amount available for borrowing by AOC was approximately $213.4 million. The
interest rate under the Revolving Credit Agreement is equal to the prime rate
plus 2.35%. Interest on the balance due under the Revolving Credit Agreement is
payable quarterly and no principal is payable until maturity. See also
Note 1--VoiceStream Merger for a further discussion of the TDS Revolving Credit
Agreement.
In March, 2000, the TDS and Aerial Boards of Directors approved an amendment
to the Revolving Credit Agreement which increased the Maximum Amount on a
scheduled basis from $355 million to $460 million as of December 1, 2000
(provided that the net amount available for borrowing from TDS shall not exceed
$315 million), and changed the maturity date from April 2, 2000, to the earlier
of December 17, 2000, or the date of the merger closing with VoiceStream.
The $37.8 million carrying value of the Company's borrowings under the
Revolving Credit Agreement approximates the fair value of the borrowings, as the
Revolving Credit Agreement is variable rate debt with the interest rate based on
the prime lending rate.
7. RELATED PARTY TRANSACTIONS
The Company is billed for all services it receives from TDS and its
subsidiaries, consisting primarily of information processing and general
management services. Such billings are based on expenses specifically identified
to the Company and on allocations of common expenses. Such allocations are based
on the relationship of the Company's assets, employees, investment in property
and equipment and expenses to the total assets, employees, investment in
property and equipment and expenses of TDS. Management believes the method used
to allocate common expenses is reasonable and that all expenses and costs
applicable to the Company are reflected in the accompanying financial statements
on a basis which is representative of what they would have been if the Company
operated on a stand-alone basis. Billings to the Company from TDS totaled
$10.2 million, $8.6 million and $3.9 million during 1999, 1998 and 1997,
respectively.
In 1998, TDS developed a new payroll system for all of its subsidiaries,
including the Company. Also in 1998, the Company and TDS developed a new phone
and accessory inventory system for Aerial and its subsidiaries. The Company
recorded approximately $6.1 million related to these systems in property and
equipment.
Upon to the completion of the merger with VoiceStream, the intercompany
agreements between TDS and Aerial will be terminated.
8. COMMITMENTS
The costs of development, construction and post-launch activities of the
Company require substantial capital. From inception through December 31, 1999,
the Company had expended approximately
38
<PAGE>
8. COMMITMENTS (CONTINUED)
$304.4 million for its six licenses, including capitalized interest,
approximately $822.7 million for all other capital expenditures and incurred
cumulative net losses of $800.2 million. The Company expects to incur
significant operating losses and to generate negative cash flow from operating
activities during 2000 as it continues to build its PCS customer base. Through
the expected second quarter 2000 merger close with VoiceStream, the Company
estimates that its aggregate capital requirements will total approximately
$60-$90 million, with $30-$50 million needed for capital additions and
$30-$40 million needed to fund operations.
At December 31, 1999, the Company had orders totaling approximately
$2.7 million with Nokia for infrastructure equipment. Also at December 31, 1999,
the Company had orders totaling approximately $13.0 million with various vendors
for phones and accessories.
The Company and its subsidiaries have leases for certain office facilities,
warehouses, retail store locations and cell sites which are classified as
operating leases. For the years ended December 31, 1999, 1998 and 1997, rent
expense for non-cancelable operating leases was $23.2 million, $21.5 million and
$10.3 million, respectively, and for cancelable leases $0.2 million,
$0.3 million and $1.1 million, respectively. At December 31, 1999, the aggregate
minimum rental commitments under non-cancelable operating leases for the years
2000 through 2004 and 2005 and thereafter, are approximately $21.5 million,
$19.7 million, $12.8 million, $7.0 million, $5.3 million and $10.0 million,
respectively.
9. COMMON STOCK
See Note 1--VoiceStream Merger for a discussion of additional Common Shares
issued to TDS and Sonera.
TAX-DEFERRED SAVINGS PLAN
Effective July 1, 1995, the Company adopted the TDS Tax-Deferred Savings
Plan (the "TDS Savings Plan"), a qualified profit-sharing plan pursuant to
Sections 401(a) and 401(k) of the Internal Revenue Code. As amended on
August 15, 1996, participating employees had, prior to January 1, 2000, the
option of investing their contributions in Aerial Common Shares, TDS Common
Shares, United States Cellular Corporation (a subsidiary of TDS) Common Shares
or five non-affiliated funds. The Company has reserved 600,000 Common Shares for
issuance under the TDS Savings Plan. Employer matching contributions are made in
Aerial Common Shares. Aerial issued 105,498, 73,815 and 184,533 Common Shares in
1999, 1998 and 1997, respectively, in connection with the TDS Savings Plan.
In connection with the Company's anticipated merger with VoiceStream, TDS
and the Company entered into an agreement providing that, among other things,
the Company would establish is own Tax-Deferred Savings Plan and would cease to
participate in the TDS Savings Plan. Effective January 1, 2000, the Company
ended its participation in the TDS Savings Plan. The Company's operating
subsidiary, AOC, adopted the Aerial Operating Company, Inc., Tax Deferred
Savings Plan (the "Aerial Plan"). All interests in the TDS Savings Plan held by
eligible employees of the Company as of January 1, 2000 were transferred from
the TDS Savings Plan to the Aerial Plan. Under the Aerial Plan participating
employees have the option of investing their contributions in Aerial Common
Shares or five non-affiliated funds.
STOCK-BASED COMPENSATION PLANS
The Company accounts for stock options and its employee stock purchase plan
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"). No compensation costs have been recognized for the
employee stock purchase plan. Some options granted had exercise prices that were
less than the quoted market price of the Company's stock on the date they were
granted. In accordance with APB 25, compensation expense of $127,000, $20,000
and $26,000 was recorded related to these options in 1999, 1998 and 1997,
respectively.
39
<PAGE>
9. COMMON STOCK (CONTINUED)
Had compensation expense for all plans been determined consistent with SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's net (loss) and
(loss) per share would have been increased to the following pro forma amounts:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(DOLLARS IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net (loss)
As reported............................................. $(169,346) $(337,895) $(247,057)
Pro forma............................................... $(171,120) $(340,382) $(250,957)
Basic and diluted (loss) per share
As reported............................................. $ (2.24) $ (4.71) $ (3.45)
Pro forma............................................... $ (2.26) $ (4.75) $ (3.51)
</TABLE>
A summary of the status of the Company's stock option plan at December 31,
1999, 1998 and 1997, and changes during the years then ended is presented in the
table and narrative below:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF OPTION AVERAGE REMAINING
SHARES PRICES FAIR VALUES CONTRACTUAL LIFE
--------- -------- ----------- -----------------
<S> <C> <C> <C> <C>
Outstanding January 1, 1997................ 310,305 $17.00 9.33 Years
Granted.................................... 1,137,435 $ 9.46 $4.42
Exercised.................................. (2,553) $ 4.94
Forfeited.................................. (56,450) $14.44
---------
Outstanding December 31, 1997 (633,030
exercisable from $4.94 to $17.00)........ 1,388,737 $10.95 8.51 Years
Granted.................................... 678,861 $ 5.85 $3.46
Exercised.................................. (30,873) $ 4.94
Forfeited.................................. (316,764) $10.45
---------
Outstanding December 31, 1998 (1,019,192
exercisable from $3.71 to $17.00)........ 1,719,961 $ 9.13 7.69 Years
Granted.................................... 337,519 $ 7.60 $3.62
Exercised.................................. (915,858) $ 8.18
Forfeited.................................. (362,684) $ 9.99
---------
Outstanding December 31, 1999
(447,914 exercisable from $3.69 to
$17.00).................................. 778,938 $ 9.05 0.25 Years
</TABLE>
EMPLOYEE STOCK OPTIONS
Effective April 25, 1996, the Company began providing long-term incentive
benefits for its senior managers by adopting the Aerial Communications, Inc.
Long-Term Incentive Plan (the "Stock Option Plan"). The Company has reserved
3 million Common Shares for option grants. Aerial employees were issued 814,894
Common Shares in 1999, 6,450 Common Shares in 1998 and 767 Common Shares in 1997
in connection with the Stock Option Plan. The options are exercisable over a
specified period not in excess of ten years from the date they are granted. Most
options expire ten years after the grant date, or 30 days after the date of the
employee's termination of employment, if earlier. All options became vested with
the February 24, 2000, Aerial shareholder approval of the merger with
VoiceStream. Unexercised options to purchase shares of Aerial common stock will
be converted into options to acquire shares of VoiceStream common stock at an
exchange ratio of 0.455 upon the Company's merger with VoiceStream. The fair
value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1999, 1998 and 1997, respectively: risk free interest rates of
5.06%, 5.20% and 6.59%; dividend yield of 0%; expected lives of 2.5 years,
8.8 years and 9.4 years; and volatility of 66.63%, 58.17% and 51.32%.
40
<PAGE>
9. COMMON STOCK (CONTINUED)
RESTRICTED STOCK UNITS
Effective February 1, 1999 the Company adopted the Aerial
Communications, Inc. Retention Restricted Stock Unit Plan (the "Plan"). The Plan
provides for the grant of stock unit awards. Each stock unit is a right to
receive one Aerial Common Share or the fair market value in cash as of the date
the stock unit vests. A total of 456,000 Common Shares were initially made
available under the Plan. As of December 31, 1999, there were 431,000 stock
units outstanding. On February 1, 2000, 40 percent of the outstanding stock
units vested and the Company issued 172,400 Common Shares. All remaining stock
units became vested with the February 24, 2000, Aerial shareholder approval of
the merger with VoiceStream. In 1999 the Company recognized $1.9 million in
compensation expense related to the Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company adopted the 1996 APTI Employee Stock Purchase Plan (the "Stock
Purchase Plan") effective October 1, 1996. The Company has reserved 200,000
Common Shares for sale to the employees of the Company and its subsidiaries in
connection with the Stock Purchase Plan. Shares can be purchased twice a year
and the price per share is 85% of the stock's closing price on designated
purchase dates. The last purchase date under the Stock Purchase Plan was
September 30, 1998. Aerial employees were issued 93,996 Common Shares in 1998
and 59,822 Common Shares in 1997 in connection with the Stock Purchase Plan. The
fair value of the employees' purchase rights was estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions for 1998 and 1997, respectively: risk free interest rate of 4.99%
and 6.21%; dividend yield 0%; expected life of 1.8 and 0.8 years; and volatility
of 51.59% and 51.18%. The weighted average fair value of the employees purchase
rights were $1.94 in 1998 and $2.08 in 1997.
NON-EMPLOYEE DIRECTOR COMPENSATION
In April 1997, the Company established the Compensation Plan For
Non-Employee Directors (the "Compensation Plan"). Under the Compensation Plan,
the Company's independent directors are to be paid an annual fee of $20,000 that
is payable half in cash and half in Company stock. The number of Common Shares
to be delivered to each independent director is based upon the average market
value of the Company's stock for a certain period prior to the date of the
Annual Shareholder's Meeting. The Company has reserved 20,000 Common Shares for
issuance to the Company's independent directors under the Compensation Plan. The
Company issued 3,825, 4,116 and 6,003 shares to non-employee directors under
this plan in 1999, 1998 and 1997, respectively.
SERIES A COMMON SHARES
Series A Common Shares are convertible on a share-for-share basis into
Common Shares and are entitled to 15 votes per share. No Series A Common Shares
were converted during 1999, 1998 or 1997. As of December 31, 1999, all of the
Company's outstanding Series A Common Shares were held by TDS. See
Note 1--VoiceStream Merger for a discussion of additional Series A Common Shares
issued to TDS under the TDS Debt Replacement Agreement.
41
<PAGE>
10. CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1999
Operating Revenues................................ $ 50,541 $ 54,785 $ 56,777 $ 63,398
Operating (Loss).................................. (49,834) (47,347) (48,634) (64,193)
Net Income (Loss)................................. 33,377 (56,002) (76,181) (70,540)
Weighted Average Common and Series A
Common Shares (000)............................... 71,804 71,916 71,928 87,161
Income (Loss) per Common and Series A
Common Share.................................... $ 0.46 $ (0.78) $ (1.06) $ (0.81)
1998
Operating Revenues................................ $ 30,746 $ 36,688 $ 38,438 $ 49,382
Operating (Loss).................................. (69,313) (67,462) (60,607) (82,603)
Net (Loss)........................................ (86,921) (89,474) (79,137) (82,363)
Weighted Average Common and Series A Common Shares
(000)........................................... 71,636 71,730 71,735 71,789
(Loss) per Common and Series A Common Share....... $ (1.21) $ (1.25) $ (1.10) $ (1.15)
</TABLE>
42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Aerial Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Aerial
Communications, Inc. (a Delaware Corporation and an 82.1%-owned subsidiary of
Telephone and Data Systems, Inc.) and Subsidiaries (the "Company") as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Aerial
Communications, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 2000
43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- --------------------------------------------------------------------------------
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The business of the Company is managed under the direction of the Company's
Board of Directors. The Board of Directors is composed of twelve Directors and
is divided into three classes. Every year, one of the classes is elected to
serve for three years.
CLASS I DIRECTORS
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY SERVED AS
NAME AGE AND PRINCIPAL OCCUPATION DIRECTOR SINCE
- ------------------------ -------- ------------------------------------------------ --------------
<S> <C> <C> <C>
LeRoy T. Carlson, Jr.... 53 Chairman and Director of the Company and
President and Chief Executive Officer of TDS 1995
Rudolph E. Hornacek..... 72 Director of the Company and Vice President-
Engineering of TDS 1991
Donald W. Warkentin..... 44 Director and President and Chief Executive
Officer of the Company 1995
John D. Foster.......... 56 Director of the Company and President of Vedra
International Associates 1996
</TABLE>
LeRoy T. Carlson, Jr., Chairman of the Company, has been President and Chief
Executive Officer of TDS for more than five years. Mr. Carlson also serves on
the Board of Directors of TDS. He is also Chairman and a Director of United
States Cellular Corporation ("United States Cellular"), a majority owned
subsidiary of TDS which operates and invests in cellular telephone companies and
properties, and TDS Telecommunications Corporation ("TDS Telecom"), a subsidiary
of TDS which operates local telephone companies. He is the son of LeRoy T.
Carlson and the brother of Walter C.D. Carlson.
Rudolph E. Hornacek has been Vice President-Engineering of TDS for more than
five years. He is a Director Emeritus of TDS and a Director of TDS Telecom.
Donald W. Warkentin has been President and Chief Executive Officer of the
Company since June, 1995. From 1994 to 1995, Mr. Warkentin was Vice President of
Multimedia Marketing for US West Communications.
John D. Foster is President of Vedra International Associates, an
international consulting firm based in Florida. From 1968 to 1996, Mr. Foster
held a number of senior management positions, both domestic and international,
with AT&T Corp.
Messrs. Carlson, Hornacek and Warkentin were elected by the holder of
Series A Common Shares and Mr. Foster was elected by the holders of Common
Shares.
44
<PAGE>
CLASS II DIRECTORS
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY SERVED AS
NAME AGE AND PRINCIPAL OCCUPATION DIRECTOR SINCE
- ----------------------- -------- ------------------------------------------------ --------------
<S> <C> <C> <C>
Matti Makkonen......... 47 Director of the Company and Executive Vice 1998
President of Sonera
James Barr III......... 60 Director of the Company and President of TDS 1996
Telecom
Walter C. D. Carlson... 46 Director of the Company and Partner, Sidley & 1996
Austin, Chicago, Illinois
J. Clarke Smith........ 57 Director and Vice President-Finance and 1996
Administration, Chief Financial Officer and
Treasurer of the Company
</TABLE>
Mr. Makkonen has been an Executive Vice President of Sonera since 1996. From
1988 to 1996, Mr. Makkonen held the position of Director of Mobile Services for
Sonera. Matti Makkonen was appointed a Director of the Company in September,
1998, by the Board of Directors pursuant to the terms of the Investment
Agreement dated September 8, 1998, among TDS, the Company, AOC and Sonera (the
"Investment Agreement") to fill a vacancy created by the resignation of
Mr. James Barr III.
James Barr III has been President and Chief Executive Officer of TDS Telecom
for more than five years. He is also a Director of TDS. In connection with the
closing of the transactions with Sonera on September 8, 1998, Mr. Barr resigned
from the Board of Directors as a Class II Director elected by the holders of
Common Shares. Immediately following such resignation, the Board of Directors
increased the number of Directors on the Board of Directors from ten to twelve
Directors, resulting in two new directorship positions. Mr. Barr was then
elected as a Class II Director by TDS as the sole holder of Series A Common
Shares to fill one of the newly created directorships. As discussed above,
Mr. Matti Makkonen was appointed to the Board of Directors to fill the vacancy
created by the resignation of Mr. Barr.
Walter C.D. Carlson has been a partner of the law firm of Sidley & Austin
for more than five years. Sidley & Austin performs legal services for the
Company, TDS and their affiliates. He also serves on the Board of Directors of
TDS and United States Cellular. He is the son of LeRoy T. Carlson and the
brother of LeRoy T. Carlson, Jr.
J. Clarke Smith has been Vice President-Finance and Administration, Chief
Financial Officer, and Treasurer of the Company since November, 1995. He has
served as a Director of the Company since February 1996. Prior to that time, he
was President and Chief Executive Officer of Mortgage Edge Corporation from 1993
to 1995.
Mr. Makkonen was elected by the holders of Common Shares. Messrs. Barr,
Carlson and Smith were elected by the holder of Series A Common Shares.
45
<PAGE>
CLASS III DIRECTORS
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY SERVED AS
NAME AGE AND PRINCIPAL OCCUPATION DIRECTOR SINCE
- ------------------------ -------- ---------------------------------------------- --------------
<S> <C> <C> <C>
Thomas W. Wilson, Jr.... 68 Director of the Company and Chairman and Chief 1996
Executive Officer of Information Resources,
Inc.
LeRoy T. Carlson........ 83 Director of the Company and Chairman of TDS 1996
Sandra L. Helton........ 50 Director of the Company and Executive Vice 1998
President--Finance and Chief Financial Officer
of TDS
Pertti Miettunen........ 41 Director of the Company and Senior Vice 1999
President of Sonera Capital
</TABLE>
Thomas W. Wilson, Jr. has been Chairman and Chief Executive Officer of
Information Resources, Inc., a consumer research corporation based in Chicago,
since 1995. Prior to his retirement in 1990, he was a Director of McKinsey &
Company, where he spent 23 years. He also serves on the Board of Directors of
Information Resources, Inc. and Productivity Solutions, Inc.
In connection with the closing of the transactions with Sonera in
September 1998, Mr. Wilson resigned from the Board of Directors as a Class III
Director elected by the holders of Common Shares. Immediately following such
resignation, the Board of Directors increased the number of Directors on the
Board of Directors from ten to twelve Directors, resulting in two new
directorship positions. Mr. Wilson was then immediately reelected as a
Class III Director by TDS as the sole holder of Series A Common Shares to fill
one of the newly created directorships.
LeRoy T. Carlson has been Chairman of TDS for more than five years. He is
also a Director of TDS and United States Cellular. He is the father of LeRoy T.
Carlson, Jr. and Walter C.D. Carlson.
Sandra L. Helton was appointed Executive Vice President-Finance and Chief
Financial Officer of TDS in August, 1998. Prior to joining TDS, Ms. Helton was
Vice President and Corporate Controller of Compaq Computer Corporation between
1997 and 1998. Prior to that time, Ms. Helton was employed by Corning
Incorporated for more than five years. At Corning Incorporated, Ms. Helton was
Senior Vice President and Treasurer between 1994 and 1997, and was Vice
President and Treasurer between 1991 and 1994. Ms. Helton was elected as a
Class III Director of the Company in October 1998 by TDS as the sole holder of
Series A Common Shares to fill a vacancy created by the resignation from the
Board of Directors of Mr. Murray L. Swanson. Ms. Helton is also a member of the
Board of Directors of TDS, United States Cellular and TDS Telecom.
Mr. Miettunen has been employed by Sonera Capital, a division of Sonera, as
Senior Vice President since 1995. Prior to joining Sonera Capital,
Mr. Miettunen held the position of Counsel and Project Manager of Merger and
Acquisitions at A. Ahlstrom Corporation, a global paper, packaging and
technology group for over five years. Pertti Miettunen was appointed as a
Director in February 1999 by the Board of Directors of the Company to fill a
vacancy created by the resignation of Mr. Kaj-Erik Relander.
Messrs. Wilson and Carlson and Ms. Helton were elected by the holder of
Series A Common Shares. Mr. Miettunen holds a directorship which is elected by
the holders of Common Shares.
46
<PAGE>
COMMITTEES AND MEETINGS
The Board of Directors of the Company held twelve meetings during 1999. All
of the Directors attended at least 75 percent of the meetings of the Board of
Directors held in 1999.
The Board of Directors does not presently have a formal Director nominating
committee.
The Audit Committee of the Board of Directors, among other things,
determines audit policies, reviews external and internal audit reports and
reviews recommendations made by the Company's internal auditing staff and
independent public accountants. The Audit Committee is composed of
Messrs. Walter C.D. Carlson (Chairman), John D. Foster, Thomas W. Wilson, Jr.
and Pertti Miettunen. Mr. Miettunen was appointed to the Audit Committee
pursuant to the terms of the Investment Agreement. The Audit Committee held
seven meetings in 1999. All of the persons who were members of the Audit
Committee, with the exception of Pertti Miettunen, attended at least 75 percent
of the meetings held in 1999. Mr. Miettunen attended five of the seven meetings.
The Stock Option Compensation Committee of the Board of Directors consists
of Thomas W. Wilson, Jr. (Chairman) and John D. Foster. The principal functions
of the Stock Option Compensation Committee are to consider and approve long-term
compensation for Executive Officers and to consider and recommend new long-term
compensation plans or changes to long-term compensation plans to the Board of
Directors. All meetings and other actions of the Stock Option Compensation
Committee in 1999 were attended or taken by both members.
In February 1999, the Board of Directors appointed Messrs. LeRoy T. Carlson,
Jr., J. Clarke Smith, Rudolph E. Hornacek, Pertti Miettunen and Ms. Sandra L.
Helton to the Finance Committee of the Board of Directors to consider financing
alternatives for the Company in connection with the spin-off announcement. The
Finance Committee held eleven meetings in 1999. All of the persons who were
members of the Finance Committee attended at least 75 percent of the meetings
held in 1999.
In addition, in February, 1999, the Board of Directors appointed
Messrs. John D. Foster and Thomas W. Wilson, Jr., independent directors of the
Company, to a Special Committee to consider certain matters relating to the
financing alternatives of the Company and other arrangements in connection with
a spin-off of the Company. In connection with the Tax Settlement Agreement, the
Special Committee was also authorized to consider any proposal relating to
certain alternative transactions. The Special Committee held nineteen meetings
in 1999. All meetings and other actions of the Special Committee in 1999 were
attended or taken by both members.
On August 6, 1999, the Board of Directors established a Transaction
Committee consisting of all members of the Board of Directors with the exception
of Pertti Miettunen and Matti Makkonen for the purpose of considering and
approving matters with respect to a possible sale or merger transaction
involving the Company and with respect to the resolution of the dispute with
Sonera in connection therewith or otherwise. The Transaction Committee held
three meetings in 1999. All of the persons who were members of the Transaction
Special Committee attended all of the meetings held in 1999.
47
<PAGE>
EXECUTIVE OFFICERS
Set forth below is a Table identifying other Executive Officers of the
Company who are not identified in the Tables regarding the Directors of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ---------------------------------- -------- ----------------------------------
<S> <C> <C>
David B. Lowry.................... 53 Chief Technical Officer
Carol J. Ogren.................... 52 Vice President-Human Resources
Gary F. Ballard................... 54 Vice President-Sales
B. Scott Dailey................... 38 Vice President-Controller and
Assistant Secretary
Michael G. Hron................... 55 Secretary
</TABLE>
DAVID B. LOWRY. Mr. Lowry has been Chief Technical Officer for the Company
since May 26, 1998. From April 10, 1996 to May 26, 1998, Mr. Lowry was Vice
President-Engineering and Operations for the Company. Mr. Lowry joined the
Company from Go Communications Corporation where he was Senior Vice President
and Chief Technical Officer from 1994 to 1996.
CAROL J. OGREN. Ms. Ogren has been Vice President-Human Resources for the
Company since March 1, 1996. Prior to March 1, 1996, she served as the Director,
Human Resources of the Company, beginning August 8, 1995.
GARY F. BALLARD. Mr. Ballard has been Vice President-Sales for the Company
since March 1, 1999. From January 8, 1999 to March 1, 1999, Mr. Ballard was
Acting Vice President-Sales. From April 1, 1998 to January 8, 1999, Mr. Ballard
was Regional Vice President of the Company's Minneapolis and Kansas City markets
and, from November 11, 1996 to April 1, 1998, he held the position of Market
Director in the Company's Kansas City market. Prior to joining the Company,
Mr. Ballard held the position of Area Vice President/General Manager for NEXTEL
(formerly OneComm) from 1994 to 1996.
B. SCOTT DAILEY. Mr. Dailey has been the Vice President-Controller of the
Company since September 8, 1998. From December, 1995 to September 8, 1998,
Mr. Dailey was the Controller of the Company. He has been Assistant Secretary
since October 21, 1996, and was appointed the Principal Accounting Officer of
the Company in 1996. Mr. Dailey joined the Company from Mortgage Edge
Corporation where he was the Chief Financial Officer from 1994 to 1995.
MICHAEL G. HRON. Mr. Hron has been the Secretary of the Company since 1994.
He has been a partner at the law firm of Sidley & Austin for more than five
years.
All of the Company's Executive Officers devote all of their professional
time to the affairs of the Company, with the exception of LeRoy T. Carlson, Jr.
and Michael G. Hron. Mr. Carlson, who is employed by TDS as its President and
Chief Executive Officer, devotes a portion of his time in that capacity to the
affairs of the Company and Mr. Hron is a practicing attorney.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION
The following Table sets forth compensation information for the President
and Chief Executive Officer of the Company and the next four most highly
compensated Executive Officers of the Company for services rendered during the
years ended December 31, 1999, 1998, and 1997. Pursuant to the requirements of
the Securities and Exchange Commission ("SEC"), the Table also includes
information as to the amount of compensation charged to the Company by TDS with
respect to the Chairman of the Company.
48
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
---------------
ANNUAL SECURITIES
NAME & PRINCIPAL COMPENSATION(2) RESTRICTED STOCK UNDERLYING ALL OTHER
POSITION(1) YEAR SALARY(3) BONUS(4) AWARDS(5) OPTIONS/SARS(6) COMPENSATION(7)
---------------- -------- ---------------- --------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Donald W. Warkentin............. 1999 $339,653 $129,470 $298,125 26,428 $20,130
President and Chief 1998 300,586 101,165 -- 30,850 27,245
Executive Officer 1997 283,011 109,313 -- 255,112 24,817
J. Clarke Smith................. 1999 $233,448 $ 81,774 $178,875 9,913 $15,870
Vice President--Finance and 1998 209,570 50,134 -- 13,285 19,892
Administration 1997 186,674 57,174 -- 69,477 16,987
David B. Lowry.................. 1999 $231,540 $ 85,053 $178,875 12,827 $14,671
Chief Technical Officer 1998 206,464 53,764 -- 12,362 18,835
1997 178,518 52,445 -- 46,358 12,491
Gary F. Ballard................. 1999 $182,553 $ 43,583 $178,875 17,859 $13,034
Vice President--Sales 1998 170,647(8) 11,434 -- 20,764 9,653
1997 124,909(9) 18,800 -- 13,500 2,759
Carol J. Ogren.................. 1999 $154,874 $ 40,062 $ 99,375 6,902 $13,439
Vice President--Human 1998 146,118 32,829 -- 8,314 14,401
Resources 1997 152,725 59,713 -- 30,950 14,357
LeRoy T. Carlson, Jr............ 1999 $142,380 $ 78,354 N/A N/A N/A
Chairman--See Footnote (1) 1998 150,020 67,580 N/A N/A N/A
1997 113,990 28,694 N/A N/A N/A
</TABLE>
- ------------------------------
(1) Mr. LeRoy T. Carlson, Jr., Chairman of the Company, receives no compensation
directly from the Company. Mr. Carlson is compensated by TDS in connection
with his services for TDS and affiliated companies, including the Company. A
portion of Mr. Carlson's salary and bonus paid by TDS is charged to the
Company by TDS pursuant to the Intercompany Agreement discussed below under
"Intercompany Agreement". Accordingly, pursuant to the requirements of the
SEC, such amounts charged to the Company by TDS are reported in the above
table in addition to the information presented for the other named Executive
Officers. The amounts reported above represent the amounts of salary and
bonus that have been charged to the Company by TDS. Mr. Carlson does not
receive any long-term compensation awards or any other compensation directly
from the Company. Mr. Carlson receives long-term and other compensation from
TDS, but this is not charged to the Company.
(2) Does not include the discount amount of any employee stock purchase plan
since such plans generally are available to all eligible salaried employees.
Does not include the value of any perquisites and other personal benefits,
securities or property, since the aggregate amount of such compensation is
less than the lesser of either $50,000 or 10 percent of the total of annual
salary and bonus reported for the named Executive Officers.
(3) Represents the dollar value of base salary (cash and non-cash) earned by the
named Executive Officer during the fiscal year identified.
(4) Represents the dollar value of bonus (cash and non-cash) earned by the named
Executive Officer during the fiscal year identified.
49
<PAGE>
(5) In 1999, the Board of Directors and shareholders approved the Aerial
Communications, Inc. Retention Restricted Stock Unit Plan (the "Restricted
Stock Awards"). This plan was adopted to (i) further align the interests of
the Company and the recipients of awards, (ii) advance the interests of the
Company by retaining key employees and (iii) motivate such persons to act in
the long-term best interest of the shareholders of the Company. Pursuant to
such plan, on February 1, 2000, the Stock Option Compensation Committee made
awards of restricted stock to the persons named in the Summary Compensation
Table, as detailed below.
<TABLE>
<CAPTION>
DONALD W. WARKENTIN J. CLARKE SMITH DAVID B. LOWRY GARY F. BALLARD CAROL J. OGREN
------------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Restricted Stock Awards
Restricted Stock which
vested February 1, 2000
(40%) (a)................... 18,000 10,800 10,800 10,800 6,000
---------- ---------- ---------- ---------- ----------
Dollar Value (b)............ $ 119,250 $ 71,550 $ 71,550 $ 71,550 $ 39,750
---------- ---------- ---------- ---------- ----------
Restricted Stock which vests
February 1, 2001 (60%)
(c)......................... 27,000 16,200 16,200 16,200 9,000
---------- ---------- ---------- ---------- ----------
Dollar Value (b)............ $ 178,875 $ 107,325 $ 107,325 $ 107,325 $ 59,625
---------- ---------- ---------- ---------- ----------
Total Restricted Stock
Awards...................... 45,000 27,000 27,000 27,000 15,000
========== ========== ========== ========== ==========
Total Grant Date Dollar
Value (b)................... $ 298,125 $ 178,875 $ 178,875 $ 178,875 $ 99,375
========== ========== ========== ========== ==========
Total Year End Dollar
Value (d)................... $2,739,375 $1,643,625 $1,643,625 $1,643,625 $ 913,125
========== ========== ========== ========== ==========
</TABLE>
- ------------------------------
(a) Such award was paid in stock.
(b) The Dollar Value is calculated using the closing price of the AERL
Common Shares on the grant date.
(c) Vested on February 24, 2000, and paid in stock as a result of the
acceleration of vesting due to the triggering of the "change of control"
provision of such awards which occurred upon shareholder approval of the
VoiceStream transaction.
(d) The Dollar Value is calculated using the closing price of the AERL
Common Shares on December 31, 1999.
(6) Represents the number of shares of common stock of the Company subject to
stock options awarded during the fiscal year identified. No stock
appreciation rights ("SARs") were awarded, either on a stand-alone basis or
in tandem with options, during any of the identified fiscal years.
(7) Includes contributions for the benefit of the named Executive Officer under
the TDS Tax-Deferred Savings Plan ("TDSP"), the Wireless Companies' Pension
Plan ("Pension Plan"), the TDS Supplemental Executive Retirement Plan
("SERP"), and the taxable dollar value of any insurance premiums paid during
the covered fiscal year with respect to term life insurance for the benefit
of the named Executive Officer ("Life Insurance") as indicated below for
1999.
<TABLE>
<CAPTION>
DONALD W. WARKENTIN J. CLARKE SMITH DAVID B. LOWRY GARY F. BALLARD CAROL J. OGREN
------------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
TDSP........................ $ 4,800 $ 4,800 $ 4,800 $ 4,800 $ 4,800
Pension Plan................ 7,422 7,422 7,422 7,422 7,422
SERP........................ 7,452 2,364 1,682 265 771
Life Insurance.............. 456 1,284 767 547 446
------- ------- ------- ------- -------
Total....................... $20,130 $15,870 $14,671 $13,034 $13,439
======= ======= ======= ======= =======
</TABLE>
- ------------------------------
(8) Includes commission payments in the amount of $40,068, which Mr. Ballard
received as Regional Vice President of the Company's Minneapolis and Kansas
City markets.
(9) Includes commission payments in the amount of $15,407, which Mr. Ballard
received as Market Director of the Company's Kansas City market.
50
<PAGE>
GENERAL INFORMATION REGARDING OPTIONS AND SARS
The following Tables show, as to the Executive Officers who are named in the
Summary Compensation Table, information regarding Options and/or SARs.
INDIVIDUAL AND AGGREGATED OPTION/SAR GRANTS IN 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION
SECURITIES OPTIONS/SARS FOR OPTION TERMS(5)
UNDERLYING GRANTED TO EXERCISE MARKET EXPIRATION ---------------------
NAME(1) OPTIONS/SARS(2) EMPLOYEES(3) PRICE PRICE(4) DATE 5% 10%
- ------------------------------------- --------------- ------------- -------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald W. Warkentin
1998 Performance Options(6)........ 26,428 7.8% $7.77 $ 8.00 12/15/09 $150,640 $379,506
J. Clarke Smith
1998 Performance Options(6)........ 9,913 2.9% $7.77 $ 8.00 12/15/09 $ 56,504 $142,351
David B. Lowry
1998 Performance Options(6)........ 12,827 3.8% $7.77 $ 8.00 12/15/09 $ 73,114 $184,196
Gary F. Ballard
1998 Supplemental Options (7)...... 7,700 2.3% $6.65 $10.75 12/15/09 $ 69,284 $157,261
1998 Performance Options(6)........ 10,159 3.0% $7.77 $ 8.00 12/15/09 $ 43,890 $110,572
Carol J. Ogren
1998 Performance Options(6)........ 6,902 2.0% $7.77 $ 8.00 12/15/09 $ 39,341 $ 99,113
</TABLE>
- ------------------------------
(1) Mr. LeRoy T. Carlson, Jr. does not receive Options/SARs from the Company.
Mr. Carlson receives long-term compensation from TDS, but this is not
charged to the Company by TDS.
(2) Represents the number of Company shares underlying Options/SARs which were
awarded for the named Executive Officer during the fiscal year.
(3) Represents the percent of total Options/SARs awarded in 1999 to each
participant.
(4) Represents the fair market value of the Common Shares as of the award date.
(5) Represents the potential realizable value of each grant of Options, assuming
that the market price of the shares appreciates in value from the award date
to the end of the Option term at the indicated annualized rates.
(6) The 1998 Performance Options became exercisable on December 15, 1999, and
are exercisable until December 15, 2009, at an exercise price of $7.77 per
share.
(7) The 1998 Supplemental Options became exercisable with respect to
3,850 options on December 15, 1999, and with respect to 3,850 options on
February 24, 2000 due to the triggering of the "change in control" provision
of such option which occurred upon shareholder approval of the VoiceStream
transaction, and are exercisable until December 15, 2009, at an exercise
price of $6.575 per share.
51
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN 1999 AND
AGGREGATED DECEMBER 31, 1999 OPTION/SAR VALUE
<TABLE>
<CAPTION>
1999 AS OF DECEMBER 31, 1999
------------------------- --------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS(4) OPTIONS/SARS(5)
ON VALUE -------------------------------------- ---------------------------
NAME(1) EXERCISE(2) REALIZED(3) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------- ----------- ----------- ---------------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald W. Warkentin
1998 Performance
Options(6)............... 26,428 $1,124,734 -- -- -- --
1997 Performance
Options(7)............... 30,850 $1,013,498 -- -- -- --
1996 Performance
Options(8)............... 43,729 $1,294,794 -- -- -- --
1996 Supplemental
Options(9)............... 83,600 $3,793,037 -- 20,900 -- $1,068,722
1996 Automatic
Options(10).............. -- -- 85,506 21,377 $3,751,576 $ 937,916
------- ---------- ------ ------ ---------- ----------
TOTAL...................... 184,607 $7,226,063 85,506 42,277 $3,751,576 $2,006,638
======= ========== ====== ====== ========== ==========
J. Clarke Smith
1998 Performance
Options(6)............... -- -- 9,913 -- $ 526,430 --
1997 Performance
Options(7)............... 13,285 $ 646,182 -- -- -- --
1996 Performance
Options(8)............... 15,977 $ 562,811 -- -- -- --
1996 Supplemental
Options(9)............... 32,100 $1,189,927 10,700 10,700 $ 547,145 $ 547,145
1996 Automatic
Options(10).............. 32,841 $ 740,544 10,947 10,947 $ 480,300 $ 480,300
------- ---------- ------ ------ ---------- ----------
TOTAL...................... 94,203 $3,139,464 31,560 21,647 $1,553,875 $1,027,445
======= ========== ====== ====== ========== ==========
David B. Lowry
1998 Performance
Options(6)............... 12,827 $ 474,343 -- -- -- --
1997 Performance
Options(7)............... 12,362 $ 456,582 -- -- -- --
1996 Performance
Options(8)............... 13,958 $ 522,110 -- -- -- --
1996 Supplemental
Options(9)............... 25,920 $ 712,101 -- 6,480 -- $ 331,355
1996 Automatic
Options(10).............. 26,600 $ 537,666 -- 6,650 -- $ 291,769
------- ---------- ------ ------ ---------- ----------
TOTAL...................... 91,667 $2,702,802 -- 13,130 -- $ 623,124
======= ========== ====== ====== ========== ==========
Gary F. Ballard
1998 Performance
Options(6)............... -- -- 10,159 -- $ 539,494 --
1999 Supplemental
Options(11).............. -- -- 3,850 3,850 $ 208,766 $ 208,766
1998 Supplemental
Options(12).............. -- -- 11,050 5,525 $ 580,954 $ 290,477
1997 Performance
Options(7)............... 4,189 $ 186,997 -- -- -- --
1997 Automatic
Options(13).............. -- -- 10,125 3,375 $ 444,234 $ 148,078
------- ---------- ------ ------ ---------- ----------
TOTAL...................... 4,189 $ 186,997 35,184 12,750 $1,773,448 $ 647,321
======= ========== ====== ====== ========== ==========
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
1999 AS OF DECEMBER 31, 1999
------------------------- --------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS(4) OPTIONS/SARS(5)
ON VALUE -------------------------------------- ---------------------------
NAME(1) EXERCISE(2) REALIZED(3) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------- ----------- ----------- ---------------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Carol J. Ogren
1998 Performance
Options(6)............... -- -- 6,902 -- $ 366,531 --
1997 Performance
Options(7)............... -- -- 8,314 -- $ 444,924 --
1996 Performance
Options(8)............... -- -- 10,250 -- $ 573,334 --
1996 Supplemental
Options(9)............... 16,560 $ 661,482 -- 4,140 -- $ 211,699
1996 Automatic
Options(10).............. 16,800 $ 338,004 -- 4,200 -- $ 184,275
------- ---------- ------ ------ ---------- ----------
TOTAL...................... 33,360 $ 999,486 25,466 8,340 $1,384,789 $ 395,974
======= ========== ====== ====== ========== ==========
</TABLE>
- ------------------------------
(1) Mr. LeRoy T. Carlson, Jr., does not receive Options or SARs from the
Company. Mr. Carlson receives long-term compensation from TDS, but this is
not charged to the Company by TDS.
(2) Represents the number of AERL Common Shares with respect to which Options
or SARs were exercised.
(3) Represents the aggregate dollar value realized upon exercise based on the
difference between the fair market value of such shares on the date of
exercise and the aggregate exercise price.
(4) Represents number of shares subject to free-standing Options and/or
free-standing SARs, as indicated as of December 31, 1999. All listed
options are transferable to permitted transferees.
(5) Represents the aggregate dollar value of the in-the-money, unexercised
Options and/or SARs held at December 31, 1999, based on the difference
between the exercised price and $60.875, the closing price of the Common
Shares on December 31, 1999.
(6) The 1998 Performance Options became exercisable on December 15, 1999, and
are exercisable until December 15, 2009, at the exercise price of $7.77 per
share.
(7) The 1997 Performance Options became exercisable on December 15, 1998, and
are exercisable until December 15, 2008, at the exercise price of $7.36 per
share.
(8) The 1996 Performance Options became exercisable on December 15, 1997, and
are exercisable until December 15, 2007, at the exercise price of $4.94 per
share.
(9) The 1996 Supplemental Options became exercisable with respect to
20 percent of such options on January 23, 1997, December 15, 1997,
December 15, 1998, December 15, 1999, and with respect to 20 percent of
such options on February 24, 2000, due to the triggering of the "change in
control" provision of such options which occurred upon shareholder approval
of the VoiceStream transaction, at the exercise price of $9.74 per share
and expire on April 18, 2006.
(10) The 1996 Automatic Options became exercisable with respect to 20 percent of
such options on December 15, 1996, December 15, 1997, December 15, 1998,
December 15, 1999, and with respect to 20 percent of such options on
February 24, 2000, due to the triggering of the "change in control"
provision of such options which occurred upon shareholder approval of the
VoiceStream transaction, at the exercise price of $17.00 per share and
expire on April 18, 2006.
(11) The 1999 Supplemental Options became exercisable with respect to
50 percent of such options on December 15, 1999, and with respect to
50 percent of such options on February 24, 2000, due to the triggering of
the "change in control" provision of such options which occurred upon
shareholder approval of the VoiceStream transaction, at an exercise price
of $6.65 per share and expire on April 18, 2006. Mr. Ballard received such
grant based on his promotion to Vice President--Sales.
(12) The 1998 Supplemental Options became exercisable with respect to one third
of such options on December 15, 1998, December 15,1999, and on
February 24, 2000, due to the triggering of the "change in control"
provision of such options which occurred upon shareholder approval of the
VoiceStream transaction, at an exercise price of $8.30 per share and expire
on April 18, 2006. Mr. Ballard received such grant based on his promotion
to Regional Vice President.
(13) The 1997 Supplemental Options became exercisable with respect to
25 percent of such options on December 15, 1997, December 15, 1998,
December 15, 1999, and on February 24, 2000, due to the triggering of the
"change in control" provision of such options which occurred upon
shareholder approval of the VoiceStream transaction, at the exercise price
of $8.00 per share and expire on April 18, 2006.
None of the named Executive Officers exercised options in 1998, 1997 or
1996.
53
<PAGE>
EQUITY BASED AWARD AND EMPLOYMENT AND SEVERANCE AGREEMENTS
SUPPLEMENTAL BENEFIT AGREEMENT WITH DONALD W. WARKENTIN
In 1996, the Company entered into a nonqualified supplemental benefit
agreement with Donald W. Warkentin which requires the Company to pay a
supplemental retirement benefit to Mr. Warkentin. The agreement was entered into
when Mr. Warkentin left employment with TDS and took employment with the Company
at the completion of the initial public offering of the Company's Common Shares
in 1996 and, as a result, he was no longer eligible to participate in the TDS
Pension Plan. Under the supplemental benefit agreement, the Company is obligated
to pay Mr. Warkentin an amount equal to the difference between the retirement
benefit he will receive from the TDS Wireless Pension Plan and that which he
would have received had he continued to work for TDS, less any amounts which he
is entitled to receive under any other qualified defined benefit or money
purchase pension plan (such as the Wireless Pension Plan). The Company will pay
any such benefit at the same time as Mr. Warkentin receives payments from the
TDS Wireless Pension Plan. The actual benefits payable to Mr. Warkentin upon
retirement will be based upon the facts that exist at the time and will be
determined actuarially. Since the nature of this agreement is a defined benefit
arrangement, no amounts related thereto are included above in the Summary
Compensation Table.
1996 LONG-TERM INCENTIVE PLAN
Under the terms of Aerial's 1996 long-term incentive plan, all outstanding
options granted under this plan will become fully exercisable and vested upon a
"change in control" of Aerial. In addition, upon a "change in control" Aerial
may convert each outstanding option into a substitute option. The February 24,
2000, approval by Aerial stockholders of the Aerial reorganization constituted a
"change in control" under the 1996 long-term incentive plan. The Aerial
reorganization agreement provides that each outstanding Aerial option will be
converted into an option to purchase the number of shares of VoiceStream
Holdings common stock determined by multiplying the number of Aerial Common
Shares subject to the option by 0.455, at an exercise price equal to the
exercise price of the Aerial option divided by 0.455. However, if the exchange
ratio is revised pursuant to the Aerial reorganization agreement, this number
will also change.
RETENTION RESTRICTED STOCK UNIT PLAN
Under the terms of the Aerial retention restricted stock unit plan, all
outstanding stock unit awards granted under this plan will become fully vested
upon a "change in control" of Aerial. The Aerial retention restricted stock unit
plan provides that as of the date a participant's stock units become fully
vested, the participant is entitled to receive a payment, in the form of cash or
stock as determined by the chairman of Aerial, equal to (a) the closing price of
one Aerial Common Share on the Nasdaq Stock Market multiplied by (b) the number
of stock units awarded the participant. The February 24, 2000, approval by
Aerial stockholders of the Aerial reorganization constituted a "change in
control" under the retention restricted stock unit plan and caused all then
outstanding restricted stock units to become fully vested. The amount paid to
employees under the retention restricted stock unit plan was calculated based on
the fair market value of the Aerial Common Shares as of February 1, 2000, for
40% of the 431,000 restricted stock units granted, and as of February 24, 2000,
for the remaining 60% of the restricted stock units granted, in accordance with
the terms of the retention restricted stock unit plan. Based on those respective
market prices, the aggregate amount paid to employees under the retention
restricted stock unit plan was approximately $27.8 million and was paid entirely
in the form of Aerial Common Shares.
EXECUTIVE SEVERANCE AGREEMENTS
Aerial has entered into severance agreements with each of the executives
identified below which provide that in the event that the executive terminates
employment with Aerial within two years after a "change in control" other than
by reason of a "nonqualifying termination", the executive will be entitled to
receive a cash payment equal to the total of (1) the executive's salary through
the date of his or her termination, if not yet paid, (2) the executive's
prorated target bonus for the year in which the "change in control" occurs, if
not yet paid, and (3) an amount equal to the executive's highest annual base
salary
54
<PAGE>
during the 12-month period prior to his or her termination of employment plus
the executive's target bonus for the year in which the "change in control"
occurs, multiplied by the base/bonus multiple next to the executive's name
below. In addition to this cash payment, Aerial is required to continue all
medical, accident, disability and life insurance policies in effect for the
executive and his or her dependents under the same terms in effect immediately
prior to his or her date of termination for the extended benefit period
specified next to the executive's name below. Finally, the executive will be
entitled to outplacement services not to exceed $12,000 in total cost. The total
amount of payments to be paid to an executive under a severance agreement will
be reduced to the extent such payments, when added with other payments to the
executive, would exceed the maximum amount deductible by Aerial, as determined
under section 280G of the Code.
<TABLE>
<CAPTION>
BASE/BONUS 1999 BASE SALARY/ ESTIMATED EXTENDED
NAME MULTIPLE TARGET BONUS SEVERANCE PAYMENT BENEFIT PERIOD
- ---- ---------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
D. Warkentin........................ 2.25 $ 482,850 $1,086,413 27 months
C. Smith............................ 1.5 325,605 488,408 18 months
D. Lowry............................ 1.5 324,275 486,413 18 months
G. Ballard.......................... 1.5 259,000 388,500 18 months
C. Ogren............................ 1.25 201,630 252,038 15 months
All Other Executives as a group
(8 persons)........................ 1.0 1,604,525 1,604,525 12 months
----------
TOTAL............................... $4,306,297
==========
</TABLE>
As indicated above, the estimated cost of the executive severance agreements
is $4.3 million.
The Aerial reorganization will constitute a "change in control" under the
severance agreements. For purposes of the severance agreements, a "nonqualifying
termination" means a termination of employment:
- by Aerial for "cause";
- by the executive for a reason other than "good reason";
- by reason of the executive's death; or
- by reason of the executive's disability.
"Cause" is defined as (1) a material breach by the executive of his or her
duties which do not differ materially from the executive's duties during the
90-day period immediately before the "change in control" and which is willful,
committed in bad faith or without the reasonable belief that such breach is in
the best interest of Aerial and which is not remedied within a reasonable time,
(2) the commission by the executive of a felony involving moral turpitude,
(3) the commission by the executive of theft, fraud, breach of trust or any act
of dishonesty involving Aerial or an affiliate of Aerial, or (4) a significant
violation by the executive of a duty of loyalty to Aerial or an affiliate of
Aerial. "Good reason" is defined as (1) the assignment of the executive to a
materially lower level of responsibility or status, (2) the failure to reelect
the executive to any significant office or directorship with Aerial (3) a
reduction in the executive's base salary or bonus opportunity (as in effect
immediately before the "change in control"), (4) the requirement that the
executive be based more than 30 miles from the executive's office at the time of
the "change in control" or the requirement that the executive increase his or
her business travel by 20% or more than the executive's travel obligations
immediately prior to the "change in control", (5) the failure by Aerial to
continue the employee benefit plans or compensation plans in effect immediately
prior to the "change in control" or to establish substantially comparable plans
to such plans and the failure by Aerial to provide the executive with welfare
benefits substantially similar to those provided to the executive immediately
prior to the "change in control" or those provided to peers of the executive
employed by Aerial or it affiliates, or (6) the failure by Aerial to obtain
agreement from any successor to Aerial to assume to the severance agreement from
Aerial.
55
<PAGE>
COMPENSATION OF DIRECTORS
Prior to October 21, 1996, members of the Board of Directors of the Company
who were not employees of the Company or its subsidiaries or affiliates received
$1,000 for attendance at each meeting of the Board of Directors and $500 for
attendance at each Audit Committee meeting and an annual Director's fee
consisting of $10,000 in cash and $10,000 in Common Shares of the Company per
year. Directors who were employees of the Company or a subsidiary or affiliate
thereof did not receive any additional compensation for services rendered as
members of the Board of Directors. All Directors were reimbursed for out-of-
pocket travel expenses incurred in connection with attendance at meetings of the
Board of Directors and meetings of committees thereof.
On October 21, 1996, the Board of Directors of the Company approved a
compensation plan (the "Non-Employee Director Plan") for non-employee members of
the Board of Directors ("Non-Employee Directors"). A Non-Employee Director is a
member of the Board of Directors who is not an employee of the Company, TDS,
United States Cellular, or TDS Telecom or their subsidiaries or other corporate
affiliates. The purpose of the Non-Employee Director Plan is to provide
reasonable compensation to Non-Employee Directors in connection with their
services to the Company in order to induce qualified persons to become and serve
as Non-Employee Directors of the Company's Board of Directors.
The Non-Employee Director Plan provides that, effective for the 12 month
period ending at the time of the Company's Annual Meeting, each Non-Employee
Director will receive an annual Director's fee of $20,000 and that each Non-
Employee Director will continue to receive a fee of $1,000, plus reimbursement
of reasonable out-of-pocket travel expenses, for attendance at each regularly
scheduled or special meeting of the Board of Directors. The Non-Employee
Director Plan also provides that each Non-Employee Director will receive a fee
of $500, plus reimbursement of reasonable out-of-pocket travel expenses, for
attendance at each meeting of the Audit Committee, Stock Option Compensation
Committee, or other committee established by resolution of the Board of
Directors.
The Non-Employee Director Plan further provides that 50 percent of the
annual Director's fee shall be paid immediately prior to the Company's Annual
Meeting of Shareholders by the delivery of Common Shares of the Company having a
fair market value, as herein defined, as of the date of payment equal to such
percentage of the annual Director's fee. If, due to the VoiceStream Merger,
there will not be an Annual Meeting of Shareholders in 2000, the Non-Employee
Directors will receive such fee immediately prior to the VoiceStream Merger.
Under the Non-Employee Director Plan, for the purposes of determining the
number of Common Shares deliverable pursuant to the preceding paragraph, the
fair market value of a Common Share of the Company will be the average closing
price of Common Shares of the Company as reported on the NASDAQ National Market
for the twenty trading days ending on the third trading day before the Annual
Meeting of Shareholders. The Board of Directors has reserved 20,000 Common
Shares of the Company for issuance pursuant to the Non-Employee Director Plan.
The Board of Directors also approved a fee of $2,000 per day for service on
the Special Committee, plus reimbursement of out-of-pocket travel expenses.
56
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
On February 29, 2000, the Company had 42,729,834 outstanding Common Shares,
par value $1.00 per share, and 52,924,151 Series A Common Shares, par value
$1.00 per share. As of February 29, 2000, there were no outstanding Series B
Common Shares, par value $1.00 per share, or Preferred Shares, par value $1.00
per share, of the Company. Each holder of outstanding Common Shares, as of
February 29, 2000, is entitled to one vote for each Common Share held in such
holder's name with respect to all matters on which holders of Common Shares are
entitled to vote at an Annual Meeting. The holder of Series A Common Shares
elects 75% of the directors and the holders of Common Shares elect 25% of the
directors. In matters other than the election of directors, the holder of
Series A Common Shares is entitled to fifteen votes for each Series A Common
Share held in such holder's name with respect to all matters on which the holder
of Series A Common Shares is entitled to vote. Accordingly, the voting power of
the Series A Common Shares was 793,862,265 votes, and the total voting power of
all outstanding shares of capital stock was 836,592,099 votes at February 29,
2000.
SECURITY OWNERSHIP OF THE COMPANY BY CERTAIN BENEFICIAL OWNERS
The following Table sets forth certain information regarding the beneficial
ownership by TDS of the Common Shares and Series A Common Shares of the Company
as of February 29, 2000, or as of the most recent practicable date. TDS has sole
voting and investment power with respect to all shares indicated as beneficially
owned by TDS.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF
CLASS PERCENT OF PERCENT OF VOTING
NAME AND ADDRESS TITLE OF CLASS(1) OWNED CLASS COMMON STOCK POWER(2)
- -------------------------- ---------------------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Telephone and Data Systems
Inc.
30 N. LaSalle Street
Chicago, IL 60602....... Common Shares 25,252,758 59.1% 26.4% 3.0%
Series A Common Shares 52,924,151 100.0% 55.3% 95.0%
Sonera Corporation
Fin-00051--Tele
Sturenkatu 16, Helsinki
Finland................. Common Shares 3,409,091 8.0% 3.6% *
</TABLE>
- ------------------------
* Less than 1 percent
(1) Series A Common Shares are convertible on a share-for-shares basis at any
time into Common Shares.
(2) The Series A Common Shares have fifteen votes per share and the Common
Shares have one vote per share.
57
<PAGE>
SECURITY OWNERSHIP OF THE COMPANY BY MANAGEMENT
Several Executive Officers and Directors of the Company hold substantial
ownership interests indirectly in the Company by virtue of their ownership of
the capital stock of TDS. See "Security Ownership of TDS by Management of the
Company." In addition, the following members of the Board of Directors and
Executive Officers beneficially owned the following number of the Common Shares
of the Company as of February 29, 2000, or the most recent practicable date:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL PERCENT OF PERCENT OF VOTING
NAME TITLE OF CLASS OWNERSHIP(1) CLASS COMMON STOCK POWER
- ----------------------------- ---------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
LeRoy T. Carlson, Jr.,
C. Theodore Herbert,
Peter L. Sereda,
and Michael G. Hron(2)....... Common Shares 126,187 * * *
LeRoy T. Carlson............. Common Shares 1,000 * * *
LeRoy T. Carlson, Jr.(3)..... Common Shares 8,400 * * *
Donald W. Warkentin(4)....... Common Shares 147,398 * * *
Walter C. D. Carlson......... Common Shares 4,648 * * *
Sandra L. Helton............. -- -- -- -- --
James Barr III............... -- -- -- -- --
Rudolph E. Hornacek.......... -- -- -- -- --
Thomas W. Wilson, Jr......... Common Shares 4,648 * * *
John D. Foster(5)............ Common Shares 3,648 * * *
Matti Makkonen............... -- -- -- -- --
Pertti Miettunen............. -- -- -- -- --
J. Clarke Smith(6)........... Common Shares 30,812 * * *
Carol J. Ogren(7)............ Common Shares 23,705 * * *
Gary F. Ballard(8)........... Common Shares 71,114 * * *
David B. Lowry(9)............ Common Shares 33,992 * * *
All members of the Board of
Directors and Executive
Officers as a group
(17 persons)(10)........... Common Shares 456,435 1.1% * *
-------
</TABLE>
- ------------------------
* Less than 1 percent
(1) The nature of beneficial ownership is sole voting and investment power
unless otherwise specified.
(2) Voting and investment control with respect to Company-match shares is
shared by the persons named as members of the investment management
committee of the Telephone and Data Systems, Inc. Tax Deferred Savings
Trust. Does not include 289,944 Common Shares acquired by trust employee
contributions for which voting and investment control is passed-through to
plan participants. Such members disclaim beneficial ownership of such
shares, which are held for the benefit of plan participants. Information is
presented as of December 31, 1999.
(3) Mr. Carlson's wife owns such Common Shares. Mr. Carlson disclaims
beneficial ownership of such shares.
(4) Includes 127,783 Common Shares subject to Options or SARs that are
currently exercisable.
(5) Includes 1,000 Common Shares that are owned by Mr. Foster's wife.
(6) Includes 12,387 Common Shares subject to Options or SARs that are currently
exercisable.
(7) Includes 14,450 Common Shares subject to Options or SARs that are currently
exercisable.
(8) Includes 47,934 Common Shares subject to Options or SARs that are currently
exercisable.
(9) Includes 11,630 Common Shares subject to Options or SARs that are currently
exercisable.
(10) Includes 215,184 Common Shares subject to Options or SARs which are
currently exercisable.
58
<PAGE>
SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Exchange Act and the rules and regulations thereunder
require the Company's Executive Officers and members of its Board of Directors,
and persons who are deemed to own more than 1 percent of the Common Shares
(collectively, the "Reporting Persons"), to file certain reports ("Section 16
Reports") with the SEC with respect to their beneficial ownership of Common
Shares. The Reporting Persons also are required to furnish the Company with
copies of all Section 16 Reports they file.
Based on a review of copies of Section 16 Reports furnished to the Company
by the Reporting Persons and written representations by Directors and Executive
Officers of the Company, the Company believes that all Section 16 filing
requirements applicable to the Reporting Persons during and with respect to 1999
were complied with on a timely basis.
DESCRIPTION OF TDS SECURITIES
The authorized capital stock of TDS includes Common Shares, $0.01 par value
(the "TDS Common Shares"), Series A Common Shares, $0.01 par value, (the "TDS
Series A Common Shares") and Preferred Shares, $0.01 par value (the "TDS
Preferred Shares"). As of February 29, 2000, 54,197,342 TDS Common Shares
(excluding Common Shares held by TDS and a subsidiary of TDS), 6,958,391 TDS
Series A Common Shares and 88,057 TDS Preferred Shares were outstanding.
The TDS Series A Common Shares have ten votes per share, and TDS Common
Shares and TDS Preferred Shares have one vote per share. The holders of TDS
Series A Common Shares, TDS Common Shares and TDS Preferred Shares vote as a
single group, except with respect to matters as to which the Delaware General
Corporation Law or the TDS Restated Certificate of Incorporation grants class
voting rights. With respect to the election of Directors, the holders of TDS
Common Shares and the TDS Preferred Shares issued before October 31, 1981,
voting as a group, are entitled to elect 25 percent of the Board of Directors of
TDS, rounded up to the nearest whole number plus one Director, and the holders
of TDS Series A Common Shares and TDS Preferred Shares issued after October 31,
1981, voting as a group, are entitled to elect the remaining members of the
Board of Directors of TDS.
SECURITY OWNERSHIP OF TDS BY MANAGEMENT OF THE COMPANY
The following Table sets forth the number of TDS Common Shares and TDS
Series A Common Shares beneficially owned by each Director of the Company, by
each Executive Officer named in the Summary Compensation Table and by all
Executive Officers and all members of the Board of Directors
59
<PAGE>
and Executive Officers of the Company, as a group, as of February 29, 2000, or
as of the most recent practicable date.
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND SHARES OF PERCENT OF
NATURE OF TDS TDS
NAME OF INDIVIDUAL OR NUMBER BENEFICIAL PERCENT OF COMMON VOTING
OF PERSONS IN GROUP TITLE OF TDS CLASS OWNERSHIP(1) TDS CLASS STOCK POWER
- ---------------------------- -------------------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
LeRoy T. Carlson, Jr.,
Walter C. D. Carlson,
Letitia G. C. Carlson and
Donald C. Nebergall (2)......... TDS Series A Common Shares 6,359,808 91.4 % 10.4 % 51.2 %
LeRoy T. Carlson, Jr.,
Sandra L. Helton,
C. Theodore Herbert,
Peter L. Sereda,
and Michael G. Hron(3).......... TDS Common Shares 1,008 * * *
TDS Series A Common Shares 146,576
LeRoy T. Carlson, Jr.,
Sandra L. Helton,
C. Theodore Herbert,
Peter L. Sereda,
and Michael G. Hron(4).......... TDS Common Shares 99,072 * * *
LeRoy T. Carlson(5)(9).......... TDS Common Shares 131,581 * * *
TDS Series A Common Shares 52,001 * * *
LeRoy T. Carlson, Jr.(6)(9)..... TDS Common Shares 191,893 * * *
TDS Series A Common Shares 16,988 * * *
Walter C. D. Carlson(7)......... TDS Common Shares 105 * * *
TDS Series A Common Shares 833 * * *
Sandra L. Helton(9)............. TDS Common Shares 27,032 * * *
Rudolph E. Hornacek(8)(9)....... TDS Common Shares 45,792 * * *
TDS Series A Common Shares 1,669 * * *
James Barr III(9)............... TDS Common Shares 24,322 * * *
Thomas W. Wilson, Jr............ TDS Common Shares -- * * *
John D. Foster.................. TDS Common Shares -- * * *
Matti Makkonen.................. TDS Common Shares -- * * *
Pertti Miettunen................ TDS Common Shares -- * * *
Donald W. Warkentin(9).......... TDS Common Shares -- * * *
J. Clarke Smith................. TDS Common Shares -- * * *
Carol J. Ogren(9)............... TDS Common Shares -- * * *
David B. Lowry.................. TDS Common Shares -- * * *
Gary F. Ballard................. TDS Common Shares -- * * *
All members of the Board of
Directors and Executive
Officers as a Group (17
persons)(9)................... TDS Common Shares 520,805 * * *
TDS Series A Common Shares 6,577,875 94.5 % 10.8 % 53.1 %
</TABLE>
- --------------------------
* Less than 1 percent
(1) The nature of beneficial ownership for shares in this column is sole voting
and investment power, except as otherwise set forth in these footnotes.
(2) The shares listed are held by the persons named as trustees under a voting
trust which expires June 30, 2009, created to facilitate longstanding
relationships among the trust certificate holders. Under the terms of the
voting trust, the trustees hold and vote the Series A Common Shares held in
the trust. If the voting trust were terminated, the following persons would
each be deemed to own beneficially more than 5 percent of the outstanding
Series A Common Shares: Margaret D. Carlson (wife of LeRoy T. Carlson),
LeRoy T. Carlson, Jr., Walter C. D. Carlson, Prudence E. Carlson, Letitia
G. C. Carlson (children of LeRoy T. Carlson and Margaret D. Carlson) and
Donald C. Nebergall, as trustee under certain trusts for the benefit of the
heirs of LeRoy T. and Margaret D. Carlson and an educational institution.
60
<PAGE>
(3) Voting and investment control is shared by the persons named as members of
the investment management committee of the Telephone and Data
Systems, Inc. Employees' Pension Trust I and the Wireless Companies'
Pension Plan. Such members disclaim beneficial ownership of such shares,
which are held for the benefit of plan participants. Information is
presented as of December 31, 1999.
(4) Voting and investment control with respect to Company-match shares is
shared by the persons named as members of the investment management
committee of the Telephone and Data Systems, Inc. Tax-Deferred Savings
Trust. Does not include 166,503 shares acquired by trust employee
contributions for which voting and investment control is passed-through to
plan participants.
(5) Includes 52,001 Series A Common Shares held by LeRoy Carlson's wife.
Mr. Carlson disclaims beneficial ownership of such shares. Does not include
224,394 Series A Common Shares held for the benefit of LeRoy T. Carlson,
632,558 Series A Common Shares held for the benefit of Mr. Carlson's wife
or 51,046 Series A Common Shares held for the benefit of certain
grandchildren of Mr. Carlson (an aggregate of 907,998 shares, or
13 percent of class) in the voting trust described in footnote (2).
Beneficial ownership is disclaimed as to Series A Common Shares held for
the benefit of his wife and grandchildren in such voting trust.
(6) Does not include 1,077,533 Series A Common Shares (15.5 percent of class)
held in the voting trust described in footnote (2), of which
1,068,345 shares are held for the benefit of LeRoy T. Carlson, Jr.
Beneficial ownership is disclaimed with respect to an aggregate of
40,551 Series A Common Shares held for the benefit of his wife, his
children and others in such voting trust.
(7) Does not include 1,102,274 Series A Common Shares (15.8 percent of class)
held in the voting trust described in footnote (2), of which
1,068,345 shares are held for the benefit of Walter C. D. Carlson.
Beneficial ownership is disclaimed with respect to an aggregate of
13,323 Series A Common Shares held for the benefit of his wife and children
in such voting trust.
(8) Does not include Series A Common Shares held as custodian for his children,
for which beneficial ownership is disclaimed.
(9) Includes the following number of Common Shares that may be purchased
pursuant to stock options and/or stock appreciation rights which are
currently exercisable or exercisable within sixty days: LeRoy T. Carlson,
125,008 shares; LeRoy T. Carlson, Jr., 176,767 shares; Sandra L. Helton,
24,000 shares (plus 2,000 shares of restricted stock subject to future
vesting); James Barr III, 20,000 shares; Rudolph E. Hornacek,
36,615 shares; all other Executive Officers, 0 shares; and all directors
and officers as a group, 382,390 shares.
61
<PAGE>
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS
In addition to persons listed in the preceding table and the footnotes
thereto, the following table sets forth as of February 29, 2000, or the latest
practicable date, information regarding each person who is known to the Company
to beneficially own more than 5 percent of any class of voting securities of
TDS, based on publicly available information and the Company's stock records as
of such date. The nature of beneficial ownership in this table is sole voting
and investment power except as otherwise set forth in footnotes thereto.
<TABLE>
<CAPTION>
PERCENT OF
SHARES OF
SHARES OF PERCENT OF COMMON PERCENT OF
SHAREHOLDER'S NAME AND ADDRESS TITLE OF CLASS CLASS OWNED CLASS STOCK VOTING POWER
- -------------------------------- ----------------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Gabelli Funds, Inc.(1)
One Corporate Center
Rye, New York 10580........... TDS Common Shares 6,343,525 11.7% 10.4% 5.1%
Franklin Mutual Advisers, LLC(2)
51 John F. Kennedy Parkway
Short Hills, New Jersey
07078......................... TDS Common Shares 4,951,675 9.1% 8.1% 4.0%
AXA Financial, Inc.(3)
1290 Avenue of the Americas
New York, New York 10104...... TDS Common Shares 3,191,837 5.9% 5.2% 2.6%
Marlene Click
Dayton, Ohio 45458............ TDS Preferred 11,417 12.6% N/A *
Shares
Adelene M. Lewis
London, Kentucky 40741........ TDS Preferred 12,000 13.3% N/A *
Shares
Edward A. Mattingly
London, Kentucky 40744........ TDS Preferred 7,000 7.8% N/A *
Shares
Ronnie C. Stewart
Hyden, Kentucky 41749......... TDS Preferred 5,000 5.6% N/A *
Shares
</TABLE>
- ------------------------
* Less than 1%.
(1) Based upon a Schedule 13D (Amendment No. 8) filed with the SEC. Includes
shares held by the following affiliates: Gabelli
Funds, LLC--2,232,300 shares; ALCE Partners, L.P.--1,000 shares; GAMCO
Investors, Inc.--4,079,425 shares; Gemini Capital
Management Ltd.--16,000 shares; Gabelli Global
Partners L.P.--3,245 shares; Gabelli Global Partners Ltd.--1,755 shares;
Mario J. Gabelli--2,500 shares; and other--7,300 shares. In such
Schedule 13D filing, such group has reported sole voting power with respect
to 6,213,725 shares and sole dispositive power with respect to
6,343,525 shares.
(2) Based on the most recent Schedule 13G filed with the SEC (Amendment
No. 2). Such Schedule 13G reports that Franklin Mutual Advisers, Inc.
exercised sole voting and investment power with respect to all such shares.
Such Schedule 13G is also filed on behalf of Franklin Resources, Inc. the
parent holding company of Franklin Mutual Advisers, LLC and by Charles B.
Johnson and Rupert H. Johnson, Jr., principal shareholders of such parent
holding company.
(3) Based upon the most recent Schedule 13G (Amendment No. 14) filed with the
SEC. Includes shares held by the following affiliates: The Equitable Life
Assurance Society of the United States--820,700 shares; AXA Rosenburg
(US)--78,000 shares; Alliance Capital Management, L.P.--2,263,156 shares;
Wood, Struthers & Winthrop Management Corp.--27,400 shares; and Donaldson
Lufkin & Jenrette Securities Corporation--2,581 shares. In such
Schedule 13G, Equitable reported sole voting power with respect to
1,796,990 shares, shared voting power with respect to 1,320,900 shares,
sole dispositive power with respect to 3,113,256 shares and shared
dispositive power with respect to 78,581 shares. This Schedule 13G is also
filed on behalf of AXA Courtage
62
<PAGE>
Assurance Mutuelle, AXA Conseil Vie Assurance Mutuelle, AXA Assurances
I.A.R.D. Mutuelle and AXA, corporations organized under the laws of France
that are affiliates of AXA Financial, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, LeRoy T. Carlson, Jr., President and Chief Executive Officer
of TDS, makes annual executive compensation decisions for TDS, other than for
himself. The Stock Option Compensation Committee of TDS makes annual executive
compensation decisions for the President and Chief Executive Officer of TDS and
approves long-term compensation awards for the Executive Officers of TDS. The
TDS Stock Option Compensation Committee is composed of members of the TDS Board
of Directors who are not officers or employees of TDS or any of its subsidiaries
and who are not Directors of any TDS subsidiaries. LeRoy T. Carlson, Jr., is a
member of the Board of Directors of TDS and the Company. LeRoy T. Carlson, Jr.
is also the Chairman of the Company and, as such, approves the Executive Officer
compensation decisions for the Company. LeRoy T. Carlson, Jr. is compensated by
TDS for his services to TDS and all of its subsidiaries. TDS is reimbursed,
however, by the Company for a portion of LeRoy T. Carlson Jr.'s salary and bonus
paid by TDS pursuant to the Intercompany Agreement described below. See Footnote
(1) to the Summary Compensation Table, above.
Donald W. Warkentin, a Director and the President and Chief Executive
Officer of the Company, participates in Executive Officers compensation
decisions for the Company, other than for himself. Long-term compensation for
Executive Officers of the Company is approved by the Stock Option Compensation
Committee of the Company, which consists of Company Directors Thomas W. Wilson,
Jr. (Chairman) and John D. Foster. The Company's Stock Option Compensation
Committee is composed of members of the Board of Directors of the Company who
are not Executive Officers of the Company or its corporate affiliates.
LeRoy T. Carlson, Jr. and Walter C.D. Carlson, Directors of the Company, are
trustees and beneficiaries of the voting trust that controls TDS, which controls
the Company, and LeRoy T. Carlson, Jr., a Director of the Company, also is a
beneficiary of such voting trust. See "Security Ownership of Certain Beneficial
Owners and Management." LeRoy T. Carlson, LeRoy T. Carlson, Jr., Walter C.D.
Carlson, Sandra L. Helton and James Barr III, Directors of the Company, are also
Directors of TDS, and Rudolph E. Hornacek, a Director of the Company, is an
executive officer of TDS. See "Item 10. Directors and Executive Officers of the
Registrant."
ARRANGEMENTS AND TRANSACTIONS WITH TDS
The Company has entered into a number of arrangements and transactions with
TDS. Some of these arrangements were established prior to the Company's IPO when
TDS owned more than 90% of the Company's outstanding capital stock and were not
the result of arms-length negotiations. Following the Aerial reorganization,
Aerial will be a wholly-owned subsidiary of VoiceStream Holdings. TDS and Aerial
have entered into, or will enter into, additional arrangements to facilitate the
Aerial reorganization, as described below.
CONTINUATION, AMENDMENT OR TERMINATION OF EXISTING AGREEMENTS BETWEEN TDS AND
AERIAL
The following paragraphs describe significant agreements that currently
exist between Aerial and TDS, and indicate whether such agreements will be
amended or terminated in connection with the Aerial reorganization. The
amendment or termination of such agreements was negotiated among TDS, Aerial and
VoiceStream and was approved by the Aerial Special Committee.
Tax Allocation Agreement
On September 8, 1998, Aerial, AOC and TDS entered into an amended and
restated tax allocation agreement. Under the terms of this tax allocation
agreement, Aerial and its subsidiaries agreed to continue to join in filing
consolidated federal income tax returns with TDS and certain affiliates unless
TDS's equity interest in Aerial falls below 80%. For tax years ended prior to
January 1, 1996, TDS has
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reimbursed Aerial for the federal income tax savings reflected in the financial
statements of the TDS affiliated group resulting from the inclusion of Aerial
and its subsidiaries in that group. TDS has also reimbursed Aerial with respect
to certain post-December 31, 1995, obligations as described below.
For tax years beginning after December 31, 1995, the tax allocation
agreement provides that Aerial is required to pay to TDS an amount equal to the
greater of the federal income tax liability of Aerial and its subsidiaries,
calculated as if they were a separate affiliated group, or the tax obtained by
applying the average federal income tax rate of the TDS affiliated group to the
taxable income of Aerial and its subsidiaries, calculated as if they were a
separate affiliated group. Under the tax allocation agreement, Aerial is
compensated, by an offset to amounts Aerial would otherwise be required to pay
to TDS for federal income taxes, for TDS's use of tax benefits at such time as
Aerial and its subsidiaries could utilize such benefits as a separate affiliated
group.
The tax allocation agreement states that, if Aerial and its subsidiaries
cease to be members of the TDS affiliated group and, for a subsequent year,
Aerial and its subsidiaries are required to pay a greater amount of federal
income tax than they would have paid if they had not been members of the TDS
affiliated group after December 31, 1995, TDS will reimburse Aerial for the
excess amount of tax, without interest. In determining the amount of
reimbursement, the tax allocation agreement states that any profits or losses
from new business activities acquired by Aerial or its subsidiaries after Aerial
leaves the TDS affiliated group will be disregarded. In addition, the tax
allocation agreement states that reimbursement will not be required if at any
time in the future Aerial becomes a member of another affiliated group in which
Aerial is not the common parent or fewer than 500,000 Series A Common Shares are
outstanding. The tax allocation agreement also states that reimbursement will
not be required on account of the income of any subsidiary of Aerial if more
than 50% of the voting power or assets of such subsidiary is held by a person or
group other than a person or group owning more than 50% of the voting power of
TDS.
Under the tax allocation agreement, rules similar to those described above
apply to any state or local franchise or income tax liabilities to which TDS and
Aerial and its subsidiaries are subject and which are required to be determined
on a unitary, combined or consolidated basis.
On March 12, 1999, Aerial and TDS entered into a tax settlement agreement
pursuant to which TDS made a payment to Aerial of $114.5 million on March 15,
1999. The $114.5 million received by Aerial covered the estimated tax losses
incurred by the Company and used by TDS in consolidated income tax returns for
the period commencing from January 1, 1996 through August 31, 1999. The tax
settlement agreement requires a settlement of amounts to cover tax losses
incurred by Aerial and used by TDS through December 31, 1999. The March 15,
1999, tax settlement payment to Aerial was used to repay a portion of the
existing Aerial Operating Company indebtedness to TDS under the TDS revolving
credit agreement, which facilitates Aerial's interim financing plans (see
"Revolving Credit Agreement" below). Aerial has made a claim in the amount of
approximately $4.9 million dollars under the tax settlement agreement on the
grounds that the tax settlement agreement contains an error in the application
of the tax law. TDS disputes this claim. Under the Aerial reorganization
agreement, this claim will be withdrawn by Aerial at the closing of the Aerial
reorganization. It is currently anticipated that Aerial will continue to be
included in the TDS affiliated group filing consolidated federal income tax
returns of TDS through and including the date of the Aerial reorganization.
After the Aerial reorganization, Aerial will no longer be a member of the TDS
affiliated group.
In connection with the Aerial reorganization, the tax allocation agreement
will be terminated on the effective date of the Aerial reorganization. The tax
settlement agreement will continue in full force and effect in accordance with
its terms after the Aerial reorganization.
Intercompany Agreement
TDS and Aerial are parties to an intercompany agreement relating to certain
services, transactions and relationships between TDS and Aerial. The
intercompany agreement will be terminated in connection with the Aerial
reorganization. However, many of the services currently provided under the
existing intercompany agreement will continue on a transitional basis following
the Aerial reorganization pursuant to the transition services agreement.
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Cash Management Agreement
Aerial is a party to a cash management agreement with TDS pursuant to which
Aerial deposits its excess cash with TDS for investment under TDS's cash
management programs. The cash management agreement will be terminated in
connection with the Aerial reorganization.
Insurance Cost Sharing Agreement
Pursuant to an insurance cost sharing agreement between TDS and Aerial,
Aerial and its subsidiaries, and their officers, directors and employees, are
afforded coverage under certain insurance policies purchased by TDS. The
insurance cost sharing agreement will be terminated in connection with the
Aerial reorganization. Certain arrangements currently provided under the
existing insurance cost sharing agreement will continue following the Aerial
reorganization pursuant to the transition services agreement.
Employee Benefit Plans Agreement
TDS and Aerial are parties to an employee benefit plans agreement relating
to certain arrangements between TDS and Aerial with respect to employee
benefits. The employee benefit plans agreement will be terminated in connection
with the Aerial reorganization. To the extent necessary, the arrangements under
the existing employee benefit plans agreement have been addressed in the
employee benefit plans separation agreement. See "Employee Benefit Plans
Separation Agreement" below.
Exchange Agreement
Aerial and TDS are parties to an exchange agreement. The exchange agreement
grants TDS certain rights to subscribe to any issuance of Aerial Common Shares
or other securities of Aerial. The exchange agreement also restricts the
circumstances under which Aerial is entitled to claim that an opportunity,
transaction, agreement or other arrangement to which TDS or any person in which
TDS, or any person in which TDS has or acquires a financial interest, is or
shall become a party, should be the property of Aerial or its subsidiaries. In
addition, the exchange agreement provides that TDS or one of its affiliates,
other than Aerial, may acquire an FCC license to provide PCS services or acquire
control of any entity which has such a license, but that TDS is obligated to
offer to Aerial the opportunity to negotiate regarding the purchase by Aerial or
one of its subsidiaries of such license or business entity if the relevant FCC
license is for (1) an MTA or (2) a BTA which is located, in whole or in part, in
an MTA in which Aerial or one of its subsidiaries has a direct or indirect
interest. In addition, the exchange agreement gives Aerial a right of
negotiation with respect to any PCS interest which any other TDS entity desires
to sell.
In connection with the Aerial reorganization, the exchange agreement will be
terminated and cease to be of any effect.
Registration Rights Agreement
Under a registration rights agreement, Aerial has agreed, upon the request
of TDS, to file one or more registration statements in order to permit TDS to
offer and sell any debt or equity securities of Aerial that TDS may hold at any
time. This registration rights agreement will be terminated in connection with
the Aerial reorganization.
Revolving Credit Agreement
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--TDS Revolving Credit Agreement."
AGREEMENTS RELATING TO THE AERIAL REORGANIZATION
In contemplation of the Aerial reorganization, TDS and Aerial have entered
or will enter into new arrangements. The following agreements have been
negotiated among TDS, Aerial and VoiceStream.
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Employee Benefit Plans Separation Agreement
The employee benefit plans separation agreement provides that (1) effective
January 1, 2000, Aerial and its subsidiaries will establish, operate and
maintain separate employee benefit programs and procedures, (2) subject to
certain exceptions, TDS and Aerial will retain or assume any and all liabilities
under various employee benefit plans and arrangements with respect to any person
who, as of the time such liability was incurred, was an employee of TDS or
Aerial, respectively and (3) Aerial will establish certain employee benefit
plans corresponding to certain TDS employee benefit plans in which it
participates and procedures will be established, in accordance with applicable
fiduciary standards and laws, for the transfer of plan assets between the
resulting plans of TDS and Aerial. Neither TDS nor Aerial is required to
maintain any specific employee benefit plan and each such company may amend or
terminate any employee benefit plan in accordance with its terms or applicable
law.
Transition Services Agreement
After the Aerial reorganization, pursuant to a transition services agreement
between TDS and Aerial, TDS will provide to Aerial and VoiceStream certain
services and other benefits, including administrative and other services similar
to those that were provided to Aerial by TDS prior to the Aerial reorganization.
TDS will be compensated at rates negotiated between TDS and VoiceStream.
Debt Replacement Agreement
See "Item 1. Business--VoiceStream Merger--TDS Debt Replacement."
Amended and Restated Credit Agreement
Effective at the closing of the Aerial reorganization, except as set forth
below, TDS and AOC will be required to amend the TDS revolving credit agreement
by entering into the amended and restated credit agreement. The amended and
restated credit agreement will evidence any loans outstanding under the TDS
revolving credit agreement at that time and the maturity date of such loans will
be one year after the effective date of the amended and restated credit
agreement. TDS will have no commitment under the amended and restated credit
agreement to make any further loans to AOC. AOC will pay interest in arrears on
the unpaid principal amount of the loans at a per annum rate equal to
three-month LIBOR as reported in The Wall Street Journal ("LIBOR") plus 3.50%,
which interest will be due on the maturity date, or, if AOC becomes obligated to
make cash interest payments on other indebtedness prior to the maturity date, on
a quarterly basis. Overdue interest and principal will bear interest at LIBOR
plus 5.50%.
AOC may repay such loans under the amended and restated credit agreement
without premium or penalty from time to time, provided that amounts repaid
thereunder may not be reborrowed. In addition, the amended and restated credit
agreement provides for mandatory repayments from time to time upon certain
change of control events and to the extent of and concurrently with the receipt
by Aerial or AOC of net proceeds of asset sales or certain other permitted
dispositions to the extent such proceeds exceed $50,000,000 from and after the
effective date of the amended and restated credit agreement. Each subsidiary of
AOC will unconditionally and irrevocably guarantee all of AOC's obligations
under the amended and restated credit agreement. AOC's obligations under the
amended and restated credit agreement and each subsidiary's obligations under
its respective guarantee will be secured by a first-priority lien on and
security interest in substantially all of the personal property of AOC and its
subsidiaries. In addition, AOC may create one or more subsidiaries for the
limited purpose of holding a portion of the collateral in which TDS will receive
a security interest.
VoiceStream or VoiceStream Holdings is obligated to pay to TDS the amount of
the loans outstanding under the TDS revolving credit agreement or the amended
and restated credit agreement, as applicable, if (1) the Omnipoint
reorganization has been completed, (2) the anticipated $3.0 billion new credit
facility currently under negotiation by VoiceStream has been completed and
(3) VoiceStream is not obligated to purchase as a result of the Omnipoint
reorganization certain outstanding Omnipoint debt. If all three of these
conditions are satisfied prior to the completion of the Aerial reorganization,
then such loans will be repaid at the completion of the Aerial reorganization
and TDS and AOC will not be required to enter into the amended and restated
credit agreement. If all three of these conditions are satisfied within one year
after the completion of the Aerial reorganization, then such loans will be
repaid
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on the date on which such conditions are satisfied and the amended and restated
credit agreement will terminate prior to the scheduled one-year maturity date of
the loans thereunder. As of the date of this Annual Report, the first two
conditions have been satisfied. If the third condition is satisfied prior to the
Aerial reorganization TDS will not be required to provide any financing to AOC
after the closing of such transaction.
ARRANGEMENTS AND TRANSACTIONS WITH SONERA
Following the initial public offering by Aerial in 1996, TDS and Aerial
began to seek a strategic equity investor for Aerial to provide further equity
financing toward the development, construction and operation of Aerial's
business. In 1997, TDS and Aerial became aware that Sonera was seeking to make
an investment in wireless technology in the United States. Thereafter,
representatives of Sonera, Aerial and TDS met on numerous occasions with the
goal of negotiating an agreement pursuant to which Sonera would make an equity
investment in Aerial or its subsidiaries. Following extensive negotiations,
Aerial, AOC and Sonera entered into a Purchase Agreement (the "Purchase
Agreement") pursuant to which Sonera agreed to purchase from AOC 2,410,482
shares of common stock of AOC (the "Purchased Shares") for an aggregate purchase
price of $200 million, resulting in a purchase price of approximately $82.971
per common share of AOC ("AOC Common Shares") and representing a 19.423 percent
equity interest in AOC. This transaction was consummated on September 8, 1998
(the "Sonera Closing Date").
The number of Purchased Shares is subject to adjustment if the Aerial
Average (as defined herein) for any twenty consecutive trading day period during
the first three years after the Sonera Closing Date exceeds certain threshold
prices, as follows:
<TABLE>
<CAPTION>
PURCHASED EQUIVALENT
AERIAL SHARES RESULTING % RESULTING %
THRESHOLD EQUIVALENT SUBJECT TO EQUITY INTEREST EQUITY INTEREST
PRICE SHARE PRICE CANCELLATION IN AOC IN AERIAL
- --------------------- ----------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
$ 9.50 $13.78 256,375 17.723% 16.837%
10.50 15.23 207,082 16.297% 15.482%
11.50 16.68 170,759 15.083% 14.329%
</TABLE>
The Aerial Average refers to the daily means of the high and low sales
prices for Aerial Common Shares.
On the Sonera Closing Date, Aerial, AOC, TDS and Sonera entered into an
Investment Agreement. Under this agreement, Sonera will have the right under
certain circumstances (described below) to exchange each AOC Common Share which
it owns for 6.72919 Aerial Common Shares, subject to adjustment. Upon the
exchange of all of such AOC Common Shares, Sonera would own an 18.452 percent
equity interest in Aerial (reflecting a purchase price equivalent to $12.33 per
Aerial Common Share) (the "Equivalent Purchase Price").
The Investment Agreement also provides for the following:
(1) APPOINTMENT OF DIRECTORS. Aerial agreed to increase the number of
members of the Aerial Board to at least twelve and add two directors
designated by Sonera. In addition, Aerial agreed to add one of such
designees to the Audit Committee.
Pursuant to the Investment Agreement, two representatives of Sonera have
been appointed to the Board of Directors of Aerial and one of such
representatives was appointed to the Audit Committee of the Board of
Directors. See "Item 10. Directors and Executive Officers of the
Registrant."
(2) SUBSCRIPTION RIGHTS FOR AOC COMMON SHARES. Each of Aerial and Sonera
has subscription rights, exercisable upon the issuance by AOC of AOC Common
Shares or certain convertible securities, permitting each of Aerial and
Sonera to purchase that proportion of each such issuance equal to the
proportion of AOC Common Shares owned by Aerial or Sonera, respectively,
immediately prior to such issuance.
(3) OPTION TO ACQUIRE ADDITIONAL AOC COMMON SHARES. Prior to the tenth
anniversary of the Sonera Closing Date, Sonera has the option to purchase
additional AOC Common Shares to
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increase its percentage equity interest in AOC to 20 percent at various
prices (subject to certain minimum prices) implying a premium of at least
30 percent of the twenty-day Aerial Average at the time of exercise of such
option, except that there will be no premium to the extent that such
purchase either (a) is in lieu of the purchase by Sonera of New Issue
Securities (as defined below) or (b) results from the conversion by Sonera
of New Issue Securities purchased and so converted during the first three
years after the Sonera Closing Date.
(4) SUBSCRIPTION RIGHTS FOR AERIAL COMMON SHARES. Prior to the tenth
anniversary of the Sonera Closing Date, Sonera has subscription rights,
exercisable upon the issuance for cash by Aerial of Aerial Common Shares
(subject to certain exceptions) or certain convertible securities, to
purchase 100 percent of such Aerial Common Shares or convertible securities,
subject to the subscription rights of TDS with respect thereto, such
subscription rights being subject to an overall limitation on Sonera's
maximum percentage equity interest of approximately 33 percent.
(5) RESTRICTIONS ON TRANSFER OF AOC COMMON SHARES. Except with respect
to transfers to permitted affiliate transferees and in certain other limited
circumstances, Sonera is prohibited from transferring AOC Common Shares
(a) prior to the fifth anniversary of the Sonera Closing Date without the
consent of TDS and Aerial and (b) after the fifth anniversary of the Sonera
Closing Date without first engaging in good faith negotiations with Aerial
for the transfer of the AOC Common Shares to Aerial.
(6) EQUITY EXCHANGES.
(a) Prior to the fifth anniversary of the Sonera Closing Date, Sonera
does not have the right to exchange the AOC Common Shares owned by Sonera
except in the event of (i) a change of control of TDS, (ii) a going
private transaction involving TDS or (iii) a sale of all or substantially
all of the assets of AOC and its subsidiaries.
(b) At any time after the ninth anniversary of the Sonera Closing
Date, Sonera will have the right to require Aerial to purchase all of the
AOC Common Shares owned by Sonera in exchange for, at Aerial's option,
(i) Aerial Common Shares, (ii) TDS Common Shares, (iii) cash or (iv) any
combination of the foregoing. Sonera will have the right to exercise such
right in cumulative 20 percent increments during the thirty days
following each of the fifth, sixth, seventh and eighth anniversaries of
the Sonera Closing Date.
(c) At any time after the tenth anniversary of the Sonera Closing
Date, Sonera will have the right to exchange AOC Common Shares for Aerial
Common Shares.
(7) ISSUANCE OF DERIVATIVE SECURITY. After the fifth anniversary of the
Sonera Closing Date (or prior to such fifth anniversary in certain limited
circumstances) and prior to the tenth anniversary thereof, Sonera will have
the right to issue a derivative security which becomes exchangeable after
the tenth anniversary for AOC Common Shares owned by Sonera. At any time
after the tenth anniversary of the Sonera Closing Date, Aerial will have the
right to repurchase all of such AOC Common Shares in exchange for, at
Aerial's option, (a) Aerial Common Shares, (b) TDS Common Shares, (c) cash
or (d) any combination of the foregoing.
(8) RESTRICTIONS ON ACQUISITION OF AERIAL COMMON SHARES. Prior to the
tenth anniversary of the Sonera Closing Date, Sonera is prohibited from
acquiring any Aerial Common Shares except as set forth above.
(9) RESTRICTION ON CERTAIN DISPOSITION TRANSACTIONS. TDS and Aerial are
prohibited from entering into certain transactions (not including certain
spin-off or similar transactions) resulting in the disposition of Aerial or
AOC, respectively, without first engaging in exclusive good faith
negotiations with Sonera regarding such disposition transaction, subject to
certain "tag-along" rights of Sonera and certain "drag-along" rights of TDS
and Aerial.
(10) CERTAIN TRANSACTIONS INVOLVING SONERA. In the event that Sonera
enters into a transaction providing for a reorganization, merger,
consolidation or other combination, or for the disposition of all or
substantially all of the assets of Sonera, and such transaction involves a
material competitor of TDS or Aerial, then TDS and Aerial will have the
right to require Sonera to use its reasonable best efforts to negotiate a
transfer of all of the AOC Common Shares to a person reasonably acceptable
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to TDS and Aerial. If Sonera does not effect such a transfer of the AOC
Common Shares within six months after the closing of such transaction, then
Sonera must exchange such AOC Common Shares for, at Aerial's option,
(a) Aerial Common Shares, (b) TDS Common Shares, (c) cash or (d) any
combination of the foregoing.
Certain of the foregoing rights are subject to termination upon the
occurrence of certain events, such as the failure of Sonera to maintain a
specified percentage equity interest, the transfer by Sonera of AOC Common
Shares, the issuance by Sonera of a derivative security, the failure of Sonera
to exercise its subscription rights or the passage of time.
On the Sonera Closing Date, Aerial and Sonera entered into a Registration
Rights Agreement which provides Sonera with three demand registrations and five
piggyback registrations with respect to Aerial Common Shares during the period
commencing on the fifth anniversary of the Sonera Closing Date and terminating
on the twentieth anniversary of the Sonera Closing Date (subject to earlier
termination under certain circumstances).
On the Sonera Closing Date, Aerial, AOC, Sonera and Sonera Corporation U.S.,
a wholly-owned subsidiary of Sonera ("Sonera U.S."), also entered into a Joint
Venture Agreement which, subject to certain exceptions and limitations set forth
therein, will serve during the Exclusivity Period (as defined below) as the
exclusive vehicle through which the parties will (i) acquire licenses issued by
the FCC to provide broadband Personal Communication Services ("PCS") in the
United States and (ii) build and operate systems with respect to such licenses
utilizing Global Systems For Mobile Communications Technology ("GSM"), subject
to such changes resulting from the evolution of such technology or the
development of subsequent technologies based thereon or derived therefrom. It is
contemplated by the Joint Venture Agreement that AOC and Sonera U.S. will
form a separate limited liability company (each an "LLC"), which may include
additional investors, to operate each market in which a broadband PCS license is
acquired and that AOC (or an affiliate thereof) will manage the system with
respect to each such broadband PCS license so acquired. In consideration of
performance of such management services with respect to each LLC, AOC will
receive a 15 percent carried interest in such LLC, which carried interest will
be subject to partial divestiture under certain circumstances during the first
five years after the formation of such LLC. The Exclusivity Period will commence
on the Sonera Closing Date and terminate on the earlier to occur of (i) the
fifth anniversary of the Sonera Closing Date or (ii) the date upon which Sonera
U.S. has invested an aggregate of $400 million in the equity of one or more LLCs
formed pursuant to the Joint Venture Agreement.
On the Closing Date, TDS, Aerial and Sonera entered into a letter agreement
(the "Management Side Letter"), which sets forth various rights of Sonera in
connection with its participation in the operations and management of Aerial.
These rights are in addition to Sonera's right to representation on the Aerial
Board of Directors granted pursuant to the Investment Agreement. The Management
Side Letter entitles Sonera to participate in the following meetings and
activities: (i) TDS's monthly management reviews of Aerial's operations;
(ii) Aerial's budget development and TDS's management review of Aerial's budget;
(iii) Aerial's strategic planning sessions; and (iv) Aerial's product (new
service) planning and technology decisions.
In addition, the Management Side Letter grants Sonera the right to appoint,
subject to Aerial's reasonable disapproval, the Vice President Product
Management of Aerial, as well as other individuals with specific operational or
technical expertise who will be tasked by mutual agreement to assist Aerial for
up to 36 man-months per year (collectively, the "Sonera Designees"). Moreover,
Sonera will provide consulting services from time to time to assist Aerial with
technical or operational issues or projects as mutually agreed between the
parties, with payment based on the direct and indirect cost incurred by Sonera.
Also, Aerial and Sonera will negotiate separate agreements setting forth the
terms for any wireless products or other services to be provided by Sonera.
Finally, the parties generally will share information and expertise and may
request the establishment of a Strategy Committee to review periodically their
relationship or an annual meeting of TDS's Presidents Council and Sonera's
executive management.
Pursuant to the Management Side Letter, Aerial is required to pay
115 percent of the direct cost of the Sonera Designees at a rate (including
applicable taxes and benefits) corresponding to the actual total of the direct
expatriate employee cost to Sonera, including salary, housing, vehicle, travel
and other
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necessary costs incurred by Sonera consistent with the standard Sonera
expatriate employment policies. Aerial incurred $0.7 million in such expenses
for 1999.
See "Item 1. Business-Company--Minority Investor" regarding a dispute with
respect to the above agreements and the settlement of such dispute and the
termination of such agreements in connection with the VoiceStream Merger.
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- --------------------------------------------------------------------------------
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as a part of this report:
(a) (1) Financial Statements
<TABLE>
<S> <C>
LOCATION
-------
Consolidated Statements of Operations*.................. page 25
Consolidated Statements of Cash Flows*.................. page 26
Consolidated Balance Sheets*............................ page 27
Consolidated Statements of Changes in Shareholders'
Equity*................................................. page 29
Notes to Consolidated Financial Statements*............. page 30
Report of Independent Public Accountants*............... page 43
</TABLE>
* See Item 8.
(2) Schedules
<TABLE>
<S> <C> <C>
LOCATION
-------
Report of Independent Public Accountants on
Financial Statement Schedule................................ page 73
II. Valuation and Qualifying Accounts for each of the Three
Years in the Period Ended December 31, 1999................. page 74
</TABLE>
All other schedules have been omitted because they are not applicable or not
required or because the required information is shown in the financial
statements or notes thereto.
(3) Exhibits
The exhibits set forth in the accompanying Index to Exhibits are filed as a part
of this Report. The following is a list of each management contract or
compensatory plan or arrangement required to be filed as an exhibit to this form
pursuant to Item 14 (c) of this Report.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.8 Aerial Communications, Inc. 1996 Long-Term Incentive Plan,
as amended, is hereby incorporated by reference to Exhibit
99.1 to the Company's registration statement on Form S-8
(Registration No 333-06471).
10.9 Description of Terms of Signing Letter with Donald W.
Warkentin dated June 7, 1995, is hereby incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
10.10 Aerial Communications, Inc. Compensation Plan for
Non-Employee Directors is hereby incorporated by reference
to Exhibit 99.1 to the Company's Form S-8 dated May 2, 1997
(Registration No. 333-26429).
10.11 Description of Supplemental Benefit Agreement with Donald W.
Warkentin dated August 2, 1996, is hereby incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
10.12 Amendment to the Aerial Communications, Inc. 1996 Long-Term
Incentive Plan is hereby incorporated by reference to
Exhibit 99.2 of the Company's Form S-8 dated April 30, 1998
(Registration No. 333-51561).
10.22 Aerial Communications, Inc. Retention Restricted Stock Unit
Plan is hereby incorporated by reference to Exhibit 99.1 to
the Company's Form S-8 dated April 16, 1999 (Registration
No. 333-76459).
10.29 Severance Agreement with Donald W. Warkentin dated February
14, 2000.
10.30 Severance Agreement with J. Clarke Smith dated September 21,
1999.
</TABLE>
71
<PAGE>
<TABLE>
<C> <S>
10.31 Severance Agreement with Gary F. Ballard dated October 29,
1999.
10.32 Severance Agreement with David B. Lowry dated September 21,
1999.
10.33 Severance Agreement with Carol J. Ogren dated October 25,
1999.
</TABLE>
(b) Reports on Form 8-K filed during the quarter ended December 31, 1999.
None.
72
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors of AERIAL COMMUNICATIONS, INC.:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Aerial
Communications, Inc. and Subsidiaries included in this Form 10-K, and have
issued our report thereon dated January 27, 2000. Our audits were made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The financial statement schedule listed in Item 14 (a) (2) is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This financial statement schedule
has been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 2000
73
<PAGE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1999
Valuation Allowance for Deferred Tax Assets... $277,782 $ -- $211,770 $ 66,012
Allowance for Doubtful Accounts deducted from
Accounts Receivable......................... 5,875 8,807 10,915 3,767
FOR THE YEAR ENDED DECEMBER 31, 1998
Valuation Allowance for Deferred Tax Assets... $129,412 $148,370 $ -- $277,782
Allowance for Doubtful Accounts deducted from
Accounts Receivable......................... 7,252 23,239 24,616 5,875
FOR THE YEAR ENDED DECEMBER 31, 1997
Valuation Allowance for Deferred Tax Assets... $ 15,029 $114,383 -- $129,412
Allowance for Doubtful Accounts deducted from
Accounts Receivable......................... -- 7,252 -- 7,252
</TABLE>
74
<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.
<TABLE>
<S> <C> <C>
AERIAL COMMUNICATIONS, INC.
BY: /S/ DONALD W. WARKENTIN
-----------------------------------------
Donald W. Warkentin
PRESIDENT (CHIEF EXECUTIVE OFFICER)
By: /s/ J. CLARKE SMITH
-----------------------------------------
J. Clarke Smith
VICE PRESIDENT-FINANCE AND
ADMINISTRATION AND TREASURER
(CHIEF FINANCIAL OFFICER)
By: /s/ B. SCOTT DAILEY
-----------------------------------------
B. Scott Dailey
CONTROLLER (PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
Dated: March 22, 2000
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ DONALD W. WARKENTIN Director
------------------------------------------- March 22, 2000
Donald W. Warkentin
/s/ J. CLARKE SMITH Director
------------------------------------------- March 22, 2000
J. Clarke Smith
/s/ LEROY T. CARLSON, JR. Chairman and Director
------------------------------------------- March 22, 2000
Leroy T. Carlson, Jr.
/s/ LEROY T. CARLSON Director
------------------------------------------- March 22, 2000
Leroy T. Carlson
/s/ SANDRA L. HELTON Director
------------------------------------------- March 22, 2000
Sandra L. Helton
/s/ RUDOLPH E. HORNACEK Director
------------------------------------------- March 22, 2000
Rudolph E. Hornacek
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ JAMES BARR III Director
------------------------------------------- March 22, 2000
James Barr III
/s/ WALTER C.D. CARLSON Director
------------------------------------------- March 22, 2000
Walter C.D. Carlson
/s/ JOHN D. FOSTER Director
------------------------------------------- March 22, 2000
John D. Foster
/s/ THOMAS W. WILSON, JR. Director
------------------------------------------- March 22, 2000
Thomas W. Wilson, Jr.
/s/ MATTI MAKKONEN Director
------------------------------------------- March 22, 2000
Matti Makkonen
/s/ PERTTI MIETTUNEN Director
------------------------------------------- March 22, 2000
Pertti Miettunen
</TABLE>
76
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company, is
hereby incorporated by reference to Exhibit 3.1 of the
Company's Form 10-Q dated June 30, 1997.
3.2 Restated Bylaws of the Company is hereby incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
4.1 Trust Indenture Agreement dated as of November 4, 1996,
between the Company as issuer, TDS as guarantor, and The
First National Bank of Chicago, as trustee for the Company's
Series A Zero Coupon Notes, due 2006, is hereby incorporated
by reference to Exhibit 4.1 to the Company's Form 8-K dated
November 4, 1996.
4.2 Trust Indenture Agreement dated as of February 5, 1998,
between the Company as issuer, TDS as guarantor, and The
First National Bank of Chicago, as trustee for the Company's
Series B Zero Coupon Notes, due 2008, is hereby incorporated
by reference to Exhibit 4.1 to the Company's Form 8-K dated
February 5, 1998.
9.1(a) Voting Trust Agreement, dated as of June 30, 1989, is hereby
incorporated by reference to an exhibit to Post-Effective
Amendment No. 3 to the TDS Registration Statement on Form
S-1, No. 33-12943.
9.1(b) Amendment dated as of May 9, 1991, to the Voting Trust
Agreement dated as of June 30, 1989, is hereby incorporated
by reference to Exhibit 9.2 to TDS's Annual Report on Form
10-K for the year ended December 31, 1991.
9.1(c) Amendment dated as of November 20, 1992, to the Voting Trust
Agreement dated as of June 30, 1989, as amended, is hereby
incorporated by reference to Exhibit 9.1(c) to TDS's Annual
Report on Form 10-K for the year ended December 31, 1992.
9.1(d) Amendment dated as of May 22, 1998, to the Voting Trust
Agreement dated as of June 30, 1989, as amended, is hereby
incorporated by reference to Exhibit 99.3 to TDS's Current
Report on Form 8-K filed on June 5, 1998.
10.1 Form of Exchange Agreement between the Company and TDS, is
hereby incorporated by reference to Exhibit 10.1 to the
Company's Amendment No. 1 to Form S-1 (Registration No.
333-1514).
10.2 Form of Cash Management Agreement between the Company and
TDS, is hereby incorporated by reference to Exhibit 10.5 to
the Company's Amendment No. 1 to Form S-1 (Registration No.
333-1514).
10.3 Form of Intercompany Agreement between the Company and TDS,
is hereby incorporated by reference to Exhibit 10.6 to the
Company's Amendment No. 1 to Form S-1 (Registration No.
333-1514).
10.4 Form of Registration Rights Agreement between the Company
and TDS, is hereby incorporated by reference to Exhibit 10.7
to the Company's Amendment No. 1 to Form S-1 (Registration
No. 333-1514).
10.5 Form of Insurance Cost Sharing Agreement between the Company
and TDS, is hereby incorporated by reference to Exhibit 10.8
to the Company's Amendment No. 1 to Form S-1 (Registration
No. 333-1514).
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10.6 Form of Employee Benefit Plans Agreement between the Company
and TDS, is hereby incorporated by reference to Exhibit 10.9
to the Company's Amendment No. 1 to Form S-1 (Registration
No. 333-1514).
10.7* PCS Infrastructure Supply Contract dated as of March 1,
1996, between the Company and Nokia Telecommunications Inc.,
is hereby incorporated by reference to Exhibit 10.13 to the
Company's Amendment No. 1 to Form S-1 (Registration No.
333-1514).
10.8 Aerial Communications, Inc. 1996 Long-Term Incentive Plan,
as amended, is hereby incorporated by reference to Exhibit
99.1 to the Company's registration statement on Form S-8
(Registration No 333-06471).
10.9 Description of Terms of Signing Letter with Donald W.
Warkentin dated June 7, 1995, is hereby incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended December 31,1996.
10.10 Aerial Communications, Inc. Compensation Plan for
Non-Employee Directors is hereby incorporated by reference
to Exhibit 99.1 to the Company's Form S-8 dated May 2, 1997
(Registration No. 333-26429).
10.11 Description of Supplemental Benefit Agreement with Donald W.
Warkentin dated August 2, 1996, is hereby incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
10.12 Amendment to the Aerial Communications, Inc. 1996 Long-Term
Incentive Plan is hereby incorporated by reference to
Exhibit 99.2 of the Company's Form S-8 filed on April 30,
1998 (Registration No. 333-51561).
10.13 Investment Agreement by and between the Company, Telephone &
Data Systems, Inc., Aerial Operating Company, Inc. and
Sonera Ltd. is hereby incorporated by reference to Exhibit
99.2 of the Company's Form 8-K dated September 8, 1998 and
filed on September 17, 1998.
10.14 Registration Rights Agreement by and between the Company and
Sonera Ltd. is hereby incorporated by reference to Exhibit
99.3 of the Company's Form 8-K dated September 8, 1998 and
filed on September 17, 1998.
10.15 Joint Venture Agreement by and between the Company, Aerial
Operating Company, Inc. and Sonera Corporation U.S., is
hereby incorporated by reference to Exhibit 99.4 of the
Company's Form 8-K dated September 8, 1998 and filed on
September 17, 1998.
10.16 Supplemental Agreement by and between the Company, Aerial
Operating Company, Inc. and Sonera Ltd. is hereby
incorporated by reference to Exhibit 99.5 of the Company's
Form 8-K dated September 8, 1998 and filed September 17,
1998.
10.17 Restated and amended Tax Allocation Agreement by and between
the Company, Aerial Operating Company, Inc. and Telephone
and Data Systems, Inc., is hereby incorporated by reference
to Exhibit 99.6 of the Company's Form 8-K dated September 8,
1998 and filed September 17, 1998.
10.18 Guaranty Agreement by and between the Company and Telephone
and Data Systems, Inc., dated August 31, 1998, is hereby
incorporated by reference to Exhibit 99.7 of the Company's
Form 8-K dated September 8, 1998 and filed on September 17,
1998.
10.19 Purchase Agreement between the Company, Aerial Operating
Company, Inc., Telephone and Data Systems, Inc. and Sonera
Ltd., dated June 1, 1998, is hereby incorporated by
reference to Exhibit 99.9 of the Company's Form 8-K dated
September 8, 1998 and filed on September 17, 1998.
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10.20(a) Revolving Credit Agreement dated August 31, 1998, by and
between Telephone and Data Systems, Inc. and Aerial
Operating Company, Inc. is hereby incorporated by reference
to Exhibit 99.8 of the Company's Form 8-K dated September 8,
1998 and filed on September 17, 1998.
10.20(b) First Amendment dated November 3, 1998, to the Revolving
Credit Agreement between Telephone and Data Systems, Inc.
and Aerial Operating Company, Inc., is hereby incorporated
by reference to Exhibit 10.20(b) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
10.20(c) Second Amendment dated February 15, 1999, to the Revolving
Credit Agreement between Telephone and Data Systems, Inc.
and Aerial Operating Company, Inc., is hereby incorporated
by reference to Exhibit 10.20(c) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
10.20(d) Third Amendment dated July 22, 1999, to the Revolving Credit
Agreement between Telephone and Data Systems, Inc. and
Aerial Operating Company, Inc.
10.20(e) Fourth Amendment dated November 1, 1999, to the Revolving
Credit Agreement between Telephone and Data Systems, Inc.
and Aerial Operating Company, Inc.
10.20(f) Fifth Amendment dated November 1, 1999, to the Revolving
Credit Agreement between Telephone and Data Systems, Inc.
and Aerial Operating Company, Inc.
10.20(g) Sixth Amendment dated March 10, 2000, to the Revolving
Credit Agreement between Telephone and Data Systems, Inc.
and Aerial Operating Company, Inc.
10.21* Credit Agreement dated June 30, 1998, by and between Nokia
Telecommunications Inc. and the Company, is hereby
incorporated by reference to Exhibit 99.1 of the Company's
Form 8-K dated June 30, 1998 and filed on November 9, 1998.
10.22 Aerial Communications, Inc. Retention Restricted Stock Unit
Plan is hereby incorporated by reference to Exhibit 99.1 to
the Company's Form S-8 dated April 16, 1999 (Registration
No. 333-76459).
10.23 Agreement and Plan of Reorganization dated September 17,
1999 among VoiceStream Wireless Corporation, VoiceStream
Wireless Holding Corporation, VoiceStream Subsidiary III
Corporation, Aerial Communications, Inc. and Telephone and
Data Systems, Inc. is incorporated herein by reference to
Exhibit 99.2 of the Company's Form 8-K dated September 17,
1999 and filed on September 28, 1999.
10.24 Stockholder Agreement dated as of September 17, 1999 by and
between Telephone an Data Systems, Inc. and stockholder of
Aerial Communications, Inc., and VoiceStream Wireless
Corporation, and VoiceStream Wireless Holding Corporation is
incorporated herein by reference to Exhibit 99.3 to the
Company's Form 8-K dated September 17, 1999 and filed on
September 28, 1999.
10.25 Indemnity Agreement dated as of September 17, 1999, among
VoiceStream Wireless Corporation, VoiceStream Wireless
Holding Corporation, Aerial Communications, Inc., Aerial
Operating Company, Inc., and Telephone and Data Systems,
Inc. is incorporated herein by reference to Exhibit 99.4 of
the Company's Form 8-K dated September 17, 1999 and filed
September 28, 1999.
10.26 Debt/Equity Replacement Agreement dated as of September 17,
1999 made by and among Telephone and Data Systems, Inc.,
Aerial Communications, Inc., Aerial Operating Company, Inc.,
VoiceStream Wireless Corporation, and VoiceStream Wireless
Holding Corporation is incorporated herein by reference to
Exhibit 99.5 of the Company's Form 8-K dated September 17,
1999 and filed on September 28, 1999.
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10.27 Parent Stockholder Agreement dated as of September 17, 1999
by and among Aerial Communications, Inc., Telephone and Data
Systems, Inc., VoiceStream Wireless Corporation, VoiceStream
Wireless Holding Corporation and the individuals and
entities set forth on Schedule I is incorporated herein by
reference to Exhibit 99.6 of the Company's Form 8-K dated
September 17, 1999 and filed on September 28, 1999.
10.28 Settlement Agreement and Release is entered into as of the
17th day of September 1999 by and among Sonera Ltd., Sonera
Corporation U.S., Telephone and Data Systems, Inc., Aerial
Communications, Inc., and Aerial Operating Company, Inc. is
incorporated herein by reference to Exhibit 99.7 of the
Company's Form 8-K dated September 17, 1999 and filed on
September 28, 1999. This agreement is joined by VoiceStream
Wireless Corporation and VoiceStream Wireless Holding
Corporation.
10.29 Severance Agreement with Donald W. Warkentin dated February
14, 2000.
10.30 Severance Agreement with J. Clarke Smith dated September 21,
1999.
10.31 Severance Agreement with Gary F. Ballard dated October 29,
1999.
10.32 Severance Agreement with David B. Lowry dated September 21,
1999.
10.33 Severance Agreement with Carol J. Ogren dated October 25,
1999.
11 Computation of earnings per common share
21 List of Subsidiaries of the Registrant
23 Consent of Independent Public Accountants
27 Financial Data Schedule
</TABLE>
- ------------------------
* Confidential material appearing in this exhibit was omitted and filed
separately with the Securities and Exchange Commission in accordance with
Rule 406 promulgated under the Securities Act of 1933.
80
<PAGE>
EXHIBIT 10.20(d)
THIRD AMENDMENT
TO THE
REVOLVING CREDIT AGREEMENT
BY AND BETWEEN
TELEPHONE AND DATA SYSTEMS, INC. AND AERIAL OPERATING COMPANY, INC.
This Third Amendment (the "THIRD AMENDMENT") to the Revolving Credit Agreement
dated as of August 31, 1998, as amended by the First Amendment thereto dated as
of November 3, 1998 and by the Second Amendment thereto dated as of February 15,
1999 (the "REVOLVING CREDIT AGREEMENT") by and between Telephone and Data
Systems, Inc. ("TDS"), a Delaware corporation, and Aerial Operating Company,
Inc. (the "COMPANY"), a Delaware corporation, is effective as of this 22nd day
of July, 1999. Undefined, capitalized terms shall have the meanings assigned to
such terms in the Revolving Credit Agreement.
WHEREAS, TDS and the Company are parties to the Revolving
Credit Agreement and have agreed to enter into this Third Amendment on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises set forth
above, and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound, TDS and the
Company agree to amend the Revolving Credit Agreement as follows:
1. AMENDMENTS TO THE REVOLVING CREDIT AGREEMENT. Effective as of the date
first above written and subject to the execution of this Third
Amendment by the parties hereto, the Revolving Credit Agreement shall
be and hereby is amended as follows:
1.1 SCHEDULE I to the Revolving Credit Agreement shall be replaced
by the new Schedule I to the Revolving Credit Agreement
attached to this Third Amendment.
1.2 The second sentence of SECTION 2 shall be amended in its
entirety to read as follows:
"Notwithstanding the foregoing, the aggregate outstanding
principal balance of the loans shall be prepaid by the Company
concurrently with:
(a) the Company's or Aerial's receipt of any
proceeds of debt or equity securities issued by any
such entity to, or loans or advances made to or for
the benefit of any such entity by, any person or
entity other than TDS or any affiliate of TDS, which
prepayments shall be made by the Company in amounts
equal to the gross proceeds of such securities, loans
<PAGE>
or advances net of all reasonable expenses and fees
paid by the Company or Aerial in connection with the
closing of such transaction, or
(b) any of the following events:
(i) any merger, sale or spin-off as a result
of which the Company is no longer part of
the TDS consolidated group for financial
accounting purposes,
(ii) any sale, transfer or other disposition
of all or substantially all of the assets of
the Company, or
(iii) any other event as a result of which
TDS shall cease to own, directly or
indirectly, issued and outstanding
securities of the Company or Aerial (A)
having voting power to elect a majority of
the directors of either such company, or (B)
having majority voting power in all matters
other than the election of directors."
1.3 Section 6(e) is amended in its entirety to read as follows:
Except for proceedings threatened by Sonera, Ltd. and
disclosed to TDS prior to July 22, 1999, there are no
proceedings or investigations pending or threatened
before any court or arbitrator or before or by any
governmental authority in which there is a reasonable
possibility of an adverse decision which would
materially adversely affect the business or financial
conditions of the Company and its Subsidiaries taken
as a whole or materially impair the ability of the
Company to perform its obligations under this
Revolving Credit Agreement or the Notes.
1.4 The paragraph immediately following SECTION 9(h) shall be
amended to delete the reference to "with presentment" in the
second sentence thereof and to substitute therefor the words
"without presentment".
1.5 SECTION 10(b) shall be amended to delete the word "cellular"
in the definition of the term "SYSTEM" and to substitute the
word "wireless" therefor.
1.6 SECTION 11(b) shall be amended to add the following sentence
immediately after the last sentence thereof:
"A copy of each notice delivered hereunder shall also
be delivered to:
2
<PAGE>
Sidley & Austin at: One First National Plaza
Chicago, Illinois 60603
Attention of Michael G. Hron, Esq."
2. CONDITIONS PRECEDENT. This Third Amendment shall become effective as of
the date above written, if, and only if, TDS has received duly executed
originals of this Third Amendment from the Company, Aerial and TDS.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants as follows:
3.1 This Third Amendment and the Revolving Credit Agreement, as
amended hereby, constitute legal, valid and binding
obligations of the Company and are enforceable against the
Company in accordance with their terms.
3.2 Upon the effectiveness of this Third Amendment, the Company
hereby reaffirms all representations and warranties made in
the Revolving Credit Agreement, and to the extent the same are
not amended hereby, agrees that all such representations and
warranties shall be deemed to have been remade as of the date
of delivery of this Third Amendment, unless and to the extent
that any such representation and warranty is stated to relate
solely to an earlier date, in which case such representation
and warranty shall be true and correct as of such earlier
date.
4. REFERENCE TO AND EFFECT ON THE REVOLVING CREDIT AGREEMENT.
4.1 Upon the effectiveness of SECTION 1 hereof, on and after the
date hereof, each reference in the Revolving Credit Agreement
to "this Agreement," "hereunder," "hereof," "herein" or words
of like import shall mean and be a reference to the Revolving
Credit Agreement as amended hereby, and each reference to the
Revolving Credit Agreement in any other document, instrument
or agreement shall mean and be a reference to the Revolving
Credit Agreement as modified hereby.
4.2 The Revolving Credit Agreement, as amended hereby, and all
other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force
and effect, and are hereby ratified and confirmed.
4.3 Except as expressly provided herein, the execution, delivery
and effectiveness of this Third Amendment shall not operate as
a waiver of any right, power or remedy of TDS, nor constitute
a waiver of any provision of the Revolving Credit Agreement or
any other documents, instruments and agreements executed
and/or delivered in connection therewith.
3
<PAGE>
5. GOVERNING LAW. This Third Amendment shall be governed by and construed
in accordance with the other remaining terms of the Revolving Credit
Agreement and the internal laws (as opposed to conflict of law
provisions) of the State of Illinois.
6. PARAGRAPH HEADINGS. The paragraph headings contained in this Third
Amendment are and shall be without substance, meaning or content of any
kind whatsoever and are not a part of the agreement among the parties
hereto.
7. COUNTERPARTS. This Third Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their duly
authorized representatives, have executed this Third Amendment to the Revolving
Credit Agreement, effective as of the date first written above.
TELEPHONE AND DATA SYSTEMS, INC. AERIAL OPERATING COMPANY, INC.
By: /s/ SANDRA L. HELTON By: /s/ DONALD W. WARKENTIN
---------------------------------- -----------------------
Name: Sandra L. Helton Name: Donald W. Warkentin
Title: Executive Vice President - Finance Title: President
Date: July 22, 1999 Date: July 22, 1999
----------------- ----------------
The Guarantor, without in any way establishing a course of dealing, as evidenced
by its signature below, hereby (i) consents to the execution and delivery of
this Third Amendment by the parties hereto, (ii) agrees that this Third
Amendment shall not limit or diminish the obligations of the Guarantor under the
Guarantor's unconditional and irrevocable guarantee of the Company's obligations
of the Notes and the Revolving Credit Agreement, (iii) reaffirms its obligations
under such guarantee, and (iv) agrees that its guarantee of such obligations
remains in full force and effect and is hereby ratified and confirmed.
AERIAL COMMUNICATIONS, INC.
By: /s/ DONALD W. WARKENTIN
-----------------------
Name: Donald W. Warkentin
Title: President
Date: July 22, 1999
-------------
<PAGE>
SCHEDULE I
TO
REVOLVING CREDIT AGREEMENT
(revised July 22, 1999)
<TABLE>
<CAPTION>
PERIOD APPLICABLE MAXIMUM AMOUNT
- ------ -------------------------
<S> <C>
November 30, 1998 through December 30, 1998 $585,000,000
December 31, 1998 through January 30, 1999 $615,000,000
January 31, 1999 through February 14, 1999 $625,000,000
February 15, 1999 through July 22, 1999 $650,000,000
July 22, 1999 through April 2, 2000 $775,000,000
</TABLE>
<PAGE>
EXHIBIT 10.20(e)
FOURTH AMENDMENT
TO THE
REVOLVING CREDIT AGREEMENT
BY AND BETWEEN
TELEPHONE AND DATA SYSTEMS, INC. AND AERIAL OPERATING COMPANY, INC.
This Fourth Amendment (the "FOURTH AMENDMENT") to the Revolving Credit Agreement
dated as of August 31, 1998, as amended by the First Amendment thereto dated as
of November 3, 1998, by the Second Amendment thereto dated as of February 15,
1999 and by the Third Amendment thereto dated as of July 22, 1999 (the
"REVOLVING CREDIT AGREEMENT") by and between Telephone and Data Systems, Inc.
("TDS"), a Delaware corporation, and Aerial Operating Company, Inc. (the
"COMPANY"), a Delaware corporation, is dated and effective as of this 1st day of
November, 1999. Undefined, capitalized terms shall have the meanings assigned to
such terms in the Revolving Credit Agreement.
WHEREAS, TDS and the Company are parties to the Revolving
Credit Agreement and have agreed to enter into this Fourth Amendment on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises set forth
above, and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound, TDS and the
Company agree to amend the Revolving Credit Agreement as follows:
1. AMENDMENTS TO THE REVOLVING CREDIT AGREEMENT. Effective as of the date
first above written and subject to the execution of this Fourth
Amendment by the parties hereto, the Revolving Credit Agreement shall
be and hereby is amended as follows:
1.1 The second sentence of SECTION 2 shall be amended in its
entirety to read as follows:
"Notwithstanding the foregoing:
(a) the Company shall prepay the outstanding
principal balance of the loans governed hereby, from
time to time, to the extent of and concurrently with
the Company's or Aerial's receipt of any proceeds of
debt or equity securities issued by any such entity
to, or loans or advances made to or for the benefit
of any such entity by, any person or entity other
than TDS, Sonera Corporation (formerly known as
Sonera Ltd.) or any affiliate of TDS or Sonera
Corporation, which prepayments shall be made by the
Company in amounts equal to (i) the gross proceeds of
such securities, loans or advances net of all
reasonable expenses and fees paid by the Company or
Aerial in connection with the closing of such
transaction multiplied by (ii) a fraction, the
numerator of which is the aggregate amount of
outstanding principal of and interest on the loans
<PAGE>
hereunder and the denominator of which is the sum of
such aggregate amount and the aggregate amount of
principal of and interest on the loan outstanding
under the New Credit Agreement (as defined in Section
10(b) hereof), and
(b) the Company shall pay the aggregate
outstanding principal balance of the loan governed
hereby in full concurrently with any of the following
events:
(i) any merger, sale or spin-off as a result
of which the Company is no longer part of
the TDS consolidated group for financial
accounting purposes,
(ii) any sale, transfer or other disposition
of all or substantially all of the assets of
the Company, or
(iii) any other event as a result of which
TDS shall cease to own, directly or
indirectly, issued and outstanding
securities of the Company or Aerial (A)
having voting power to elect a majority of
the directors of either such company, or (B)
having majority voting power in all matters
other than the election of directors."
1.2 SECTION 3 shall be amended to delete the words "of which
payable" immediately before the period in the last sentence
thereof and to substitute the words "for which such interest
is payable" therefor.
1.3 SECTION 4 shall be amended to delete the first sentence
thereof in its entirety and to substitute the following
language therefor:
"The Company may from time to time and without premium prepay
any borrowing in whole or in part, in an amount equal to (i)
the total amount of the funds to be applied to prepay the
loans under this agreement and under the New Credit Agreement
at such time, multiplied by (ii) a fraction, the numerator of
which is the aggregate amount of outstanding principal of and
interest on the loans hereunder and the denominator of which
is the sum of such aggregate amount and the aggregate amount
of principal of and interest on the loan outstanding under the
New Credit Agreement."
1.4 SECTION 7(b)(2) shall be amended to delete the words "or (ii)"
and to substitute the words "(ii) borrowings under the New
Credit Agreement or (iii)" therefor.
1.5 SECTION 9(f) shall be amended to delete the words "any
indebtedness" in the second line thereof and to substitute the
words "the New Credit Agreement or any other indebtedness"
therefor, and to delete the phrase "10% of the Company's
consolidated equity as reflected on the most recent
consolidated balance sheet of the Company and its
Subsidiaries" and to substitute "$2,000,000" therefor.
2
<PAGE>
1.6 SECTION 9(g) shall be amended to delete the words "any
indebtedness" in the second line thereof and to substitute the
words "amounts owing under the New Credit Agreement or any
other indebtedness" therefor, and to delete the phrase "10% of
the Company's consolidated equity as reflected on the most
recent consolidated balance sheet of the Company and its
Subsidiaries" and to substitute "$2,000,000" therefor.
1.7 The definition of "Prime Lending Rate" in SECTION 10(b) is
amended in its entirety to read as follows:
"'PRIME LENDING RATE' shall mean the rate of interest
announced by LaSalle Bank N.A. ("LaSalle") from time to time
as its prime rate, or if no such rate of interest is
announced by LaSalle, the rate of interest announced by
BankBoston, N.A. from time to time as its `base rate.'"
1.8 SECTION 10(b) shall be amended to add the following definition
in the appropriate alphabetical location:
"`NEW CREDIT AGREEMENT' shall mean that certain Credit
Agreement dated as of November 1, 1999 between Aerial and the
Company, as amended, restated, supplemented or otherwise
modified from time to time."
1.9 SCHEDULE I to the Revolving Credit Agreement shall be replaced
by the new Schedule I to the Revolving Credit Agreement
attached to this Fourth Amendment.
2. CONDITIONS PRECEDENT. This Fourth Amendment shall become effective as
of the date above written, if, and only if, TDS has received duly
executed originals of this Fourth Amendment from the Company, Aerial
and TDS.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants as follows:
3.1 This Fourth Amendment and the Revolving Credit Agreement, as
amended hereby, constitute legal, valid and binding
obligations of the Company and are enforceable against the
Company in accordance with their terms.
3.2 Upon the effectiveness of this Fourth Amendment, the Company
hereby reaffirms all representations and warranties made in
the Revolving Credit Agreement, and to the extent the same are
not amended hereby, agrees that all such representations and
warranties shall be deemed to have been remade as of the date
of delivery of this Fourth Amendment, unless and to the extent
that any such representation and warranty is stated to relate
solely to an earlier date, in which case such representation
and warranty shall be true and correct as of such earlier
date.
3
<PAGE>
4. REFERENCE TO AND EFFECT ON THE REVOLVING CREDIT AGREEMENT.
4.1 Upon the effectiveness of SECTION 1 hereof, on and after the
date hereof, each reference in the Revolving Credit Agreement
to "this Agreement," "hereunder," "hereof," "herein" or words
of like import shall mean and be a reference to the Revolving
Credit Agreement as amended hereby, and each reference to the
Revolving Credit Agreement in any other document, instrument
or agreement shall mean and be a reference to the Revolving
Credit Agreement as modified hereby.
4.2 The Revolving Credit Agreement, as amended hereby, and all
other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force
and effect, and are hereby ratified and confirmed.
4.3 Except as expressly provided herein, the execution, delivery
and effectiveness of this Fourth Amendment shall not operate
as a waiver of any right, power or remedy of TDS, nor
constitute a waiver of any provision of the Revolving Credit
Agreement or any other documents, instruments and agreements
executed and/or delivered in connection therewith.
5. GOVERNING LAW. This Fourth Amendment shall be governed by and construed
in accordance with the other remaining terms of the Revolving Credit
Agreement and the internal laws (as opposed to conflict of law
provisions) of the State of Illinois.
6. PARAGRAPH HEADINGS. The paragraph headings contained in this Fourth
Amendment are and shall be without substance, meaning or content of any
kind whatsoever and are not a part of the agreement among the parties
hereto.
7. COUNTERPARTS. This Fourth Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their duly
authorized representatives, have executed this Fourth Amendment to the Revolving
Credit Agreement, effective as of the date first written above.
TELEPHONE AND DATA SYSTEMS, INC. AERIAL OPERATING COMPANY, INC.
By: /s/ SANDRA L. HELTON By: /s/ DONALD W. WARKENTIN
---------------------------------- -----------------------
Name: Sandra L. Helton Name: Donald W. Warkentin
Title: Executive Vice President - Finance Title: President
The Guarantor, without in any way establishing a course of dealing, as evidenced
by its signature below, hereby (i) consents to the execution and delivery of
this Fourth Amendment by the parties hereto, (ii) agrees that this Fourth
Amendment shall not limit or diminish the obligations of the Guarantor under the
Guarantor's unconditional and irrevocable guarantee of the Company's obligations
of the Notes and the Revolving Credit Agreement, (iii) reaffirms its obligations
under such guarantee, and (iv) agrees that its guarantee of such obligations
remains in full force and effect and is hereby ratified and confirmed.
AERIAL COMMUNICATIONS, INC.
By: /s/ DONALD W. WARKENTIN
-----------------------
Name: Donald W. Warkentin
Title: President
<PAGE>
SCHEDULE I
TO
REVOLVING CREDIT AGREEMENT
(revised November 1, 1999)
<TABLE>
<CAPTION>
PERIOD APPLICABLE MAXIMUM AMOUNT
- ------ -------------------------
<S> <C>
November 30, 1998 through December 30, 1998 $585,000,000
December 31, 1998 through January 30, 1999 $615,000,000
January 31, 1999 through February 14, 1999 $625,000,000
February 15, 1999 through July 21, 1999 $650,000,000
July 22, 1999 through October 31, 1999 $775,000,000
November 1, 1999 through April 2, 2000 $355,000,000
</TABLE>
<PAGE>
EXHIBIT 10.20(f)
AMENDMENT
TO THE
REVOLVING CREDIT AGREEMENT
BY AND BETWEEN
TELEPHONE AND DATA SYSTEMS, INC. AND AERIAL OPERATING COMPANY, INC.
This Fifth Amendment (the "FIFTH AMENDMENT") to the Revolving Credit Agreement
dated as of August 31, 1998, as amended by the First Amendment thereto dated as
of November 3, 1998, by the Second Amendment thereto dated as of February 15,
1999, by the Third Amendment thereto dated as of July 22, 1999 and by the Fourth
Amendment thereto dated as of November 1, 1999 (the "REVOLVING CREDIT
AGREEMENT") by and between Telephone and Data Systems, Inc. ("TDS"), a Delaware
corporation, and Aerial Operating Company, Inc. (the "COMPANY"), a Delaware
corporation, is dated and effective as of this 1st day of November, 1999.
Undefined, capitalized terms shall have the meanings assigned to such terms in
the Revolving Credit Agreement.
WHEREAS, TDS and the Company are parties to the Revolving
Credit Agreement and have agreed to enter into this Fifth Amendment on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises set forth
above, and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound, TDS and the
Company agree to amend the Revolving Credit Agreement as follows:
1. AMENDMENTS TO THE REVOLVING CREDIT AGREEMENT. Effective as of the date
first above written and subject to the execution of this Fifth
Amendment by the parties hereto, the Revolving Credit Agreement shall
be and hereby is amended as follows:
1.1 The first sentence of SECTION 3 shall be amended (a) to delete
the reference to "3%" and to substitute "2.35%" therefor; and
(b) to delete the reference to
"3-1/2%" and to substitute "2.85%" therefor.
2. TERMINATION OF REVOLVING CREDIT AGREEMENT GUARANTY. Concurrently with
the execution of this Fifth Amendment, the unconditional and
irrevocable guarantee by Aerial Communications, Inc., a Delaware
corporation ("Guarantor"), of the Company's obligations under the
Revolving Credit Agreement and the Notes issued thereunder shall be
terminated and of no further force or effect. TDS, the Company and
Guarantor shall execute and deliver any additional instruments as may
be necessary to further evidence the termination of such guarantee.
<PAGE>
3. CONDITIONS PRECEDENT. This Fifth Amendment shall become effective as of
the date above written, if, and only if, TDS has received duly executed
originals of this Fifth Amendment from the Company, Aerial and TDS.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants as follows:
4.1 This Fifth Amendment and the Revolving Credit Agreement, as
amended hereby, constitute legal, valid and binding
obligations of the Company and are enforceable against the
Company in accordance with their terms.
4.2 Upon the effectiveness of this Fifth Amendment, the Company
hereby reaffirms all representations and warranties made in
the Revolving Credit Agreement, and to the extent the same are
not amended hereby, agrees that all such representations and
warranties shall be deemed to have been remade as of the date
of delivery of this Fifth Amendment, unless and to the extent
that any such representation and warranty is stated to relate
solely to an earlier date, in which case such representation
and warranty shall be true and correct as of such earlier
date.
5. REFERENCE TO AND EFFECT ON THE REVOLVING CREDIT AGREEMENT.
5.1 Upon the effectiveness of SECTION 1 hereof, on and after the
date hereof, each reference in the Revolving Credit Agreement
to "this Agreement," "hereunder," "hereof," "herein" or words
of like import shall mean and be a reference to the Revolving
Credit Agreement as amended hereby, and each reference to the
Revolving Credit Agreement in any other document, instrument
or agreement shall mean and be a reference to the Revolving
Credit Agreement as modified hereby.
5.2 The Revolving Credit Agreement, as amended hereby, and all
other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force
and effect, and are hereby ratified and confirmed.
5.3 Except as expressly provided herein, the execution, delivery
and effectiveness of this Fifth Amendment shall not operate as
a waiver of any right, power or remedy of TDS, nor constitute
a waiver of any provision of the Revolving Credit Agreement or
any other documents, instruments and agreements executed
and/or delivered in connection therewith.
6. GOVERNING LAW. This Fifth Amendment shall be governed by and construed
in accordance with the other remaining terms of the Revolving Credit
Agreement and the internal laws (as opposed to conflict of law
provisions) of the State of Illinois.
7. PARAGRAPH HEADINGS. The paragraph headings contained in this Fifth
Amendment are and shall be without substance, meaning or content of any
kind whatsoever and are not a part of the agreement among the parties
hereto.
2
<PAGE>
8. COUNTERPARTS. This Fifth Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their duly
authorized representatives, have executed this Fifth Amendment to the Revolving
Credit Agreement, effective as of the date first written above.
TELEPHONE AND DATA SYSTEMS, INC. AERIAL OPERATING COMPANY, INC.
By: /S/ SANDRA L. HELTON By: /S/ DONALD W. WARKENTIN
---------------------------------- -----------------------
Name: Sandra L. Helton Name: Donald W. Warkentin
Title: Executive Vice President - Finance Title: President
The Guarantor hereby consents to the termination of Guarantor's unconditional
and irrevocable guarantee of the Company's obligations under the Revolving
Credit Agreement and the Notes issued thereunder, as set forth in Section 2 of
this Fifth Amendment.
AERIAL COMMUNICATIONS, INC.
By: /S/ DONALD W. WARKENTIN
-----------------------
Name: Donald W. Warkentin
Title: President
<PAGE>
Exhibit 10.20(g)
SIXTH AMENDMENT
TO THE
REVOLVING CREDIT AGREEMENT
BY AND BETWEEN
TELEPHONE AND DATA SYSTEMS, INC. AND AERIAL OPERATING COMPANY, INC.
This Sixth Amendment (the "SIXTH AMENDMENT") to the Revolving
Credit Agreement dated as of August 31, 1998, as amended by the First Amendment
thereto dated as of November 3, 1998, the Second Amendment thereto dated as of
February 15, 1999, the Third Amendment thereto dated as of July 22, 1999, the
Fourth Amendment thereto dated as of November 1, 1999 and the Fifth Amendment
thereto dated as of November 1, 1999 (the "REVOLVING CREDIT AGREEMENT") by and
between Telephone and Data Systems, Inc. ("TDS"), a Delaware corporation, and
Aerial Operating Company, Inc. (the "COMPANY"), a Delaware corporation, is dated
and effective as of this 10th day of March, 2000. Undefined, capitalized terms
shall have the meanings assigned to such terms in the Revolving Credit
Agreement.
WHEREAS, TDS and the Company are parties to the Revolving
Credit Agreement and have agreed to enter into this Sixth Amendment on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises set forth
above, and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound, TDS and the
Company agree to amend the Revolving Credit Agreement as follows:
1. AMENDMENTS TO THE REVOLVING CREDIT AGREEMENT. Effective as of the date
first above written and subject to the execution of this Sixth
Amendment by the parties hereto, the Revolving Credit Agreement shall
be and hereby is amended as follows:
1.1 Schedule I to the Revolving Credit Agreement shall be replaced
by the new Schedule I to the Revolving Credit Agreement
attached to this Sixth Amendment.
1.2 Section 5 of the Credit Agreement is hereby amended by
striking the first sentence thereof and replacing it with the
following sentence.
"Unless sooner terminated as elsewhere provided herein, this
Revolving Credit Agreement and TDS's obligation to furnish the
Credit shall terminate upon the earlier to occur of the
closing (the "Closing") of the transactions contemplated by
the Agreement and Plan of Reorganization dated as of September
17, 1999 among VoiceStream Wireless Corporation , VoiceStream
Wireless Holding Corporation, VoiceStream Subsidiary III
Corporation, the Company and TDS or December 17, 2000."
<PAGE>
1.3 The definition of "Applicable Maximum Amount" set forth in
Section 10(b) of the Revolving Credit Agreement is hereby
amended and restated to read in its entirety as follows:
"APPLICABLE MAXIMUM AMOUNT" shall mean, as
of any date of determination, the dollar amount set
forth in Schedule I hereto and pertaining to the
period during which such date occurs, MINUS (i) the
aggregate principal amount of all prepayments
required to be paid pursuant to the last sentence of
Section 2 after November 3, 1998, other than amounts
borrowed by Aerial Communications, Inc. from time to
time under that certain Credit Agreement dated as of
June 30, 1998, as it may be amended from time to time
(the "Nokia Credit Agreement"), by and among the
Guarantor, the "Lenders" and Nokia
Telecommunications, Inc., as "Agent" for said
Lenders, and (ii) the outstanding balance at any such
date of determination under the Nokia Credit
Agreement, provided that the maximum amount available
for borrowing by the Company and to be funded in cash
by TDS under this Revolving Credit Agreement shall in
no event exceed $315,000,000, whether or not the
Nokia Credit Agreement continues to be in effect and
whether or not amounts thereunder continue to be
outstanding or available to be borrowed thereunder.
2. CONDITIONS PRECEDENT. This Sixth Amendment shall become effective as of
the date above written, if, and only if, TDS has received duly executed
originals of this Sixth Amendment from the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants as follows:
3.1 This Sixth Amendment and the Revolving Credit Agreement, as
amended hereby, constitute legal, valid and binding
obligations of the Company and are enforceable against the
Company in accordance with their terms.
3.2 Upon the effectiveness of this Sixth Amendment, the Company
hereby reaffirms all representations and warranties made in
the Revolving Credit Agreement, and to the extent the same are
not amended hereby, agrees that all such representations and
warranties shall be deemed to have been remade as of the date
of delivery of this Sixth Amendment, unless and to the extent
that any such representation and warranty is stated to relate
solely to an earlier date, in which case such representation
and warranty shall be true and correct as of such earlier
date.
4. REFERENCE TO AND EFFECT ON THE REVOLVING CREDIT AGREEMENT.
4.1 Upon the effectiveness of SECTION 1 hereof, on and after the
date hereof, each reference in the Revolving Credit Agreement
to "this Agreement," "hereunder," "hereof," "herein" or words
of like import shall mean and be a reference to the Revolving
Credit Agreement as amended hereby, and each reference to the
Revolving Credit Agreement in any other document, instrument
or agreement
2
<PAGE>
shall mean and be a reference to the Revolving Credit
Agreement as modified hereby.
4.2 The Revolving Credit Agreement, as amended hereby, and all
other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force
and effect, and are hereby ratified and confirmed.
4.3 Except as expressly provided herein, the execution, delivery
and effectiveness of this Sixth Amendment shall not operate as
a waiver of any right, power or remedy of TDS, nor constitute
a waiver of any provision of the Revolving Credit Agreement or
any other documents, instruments and agreements executed
and/or delivered in connection therewith.
5. GOVERNING LAW. This Sixth Amendment shall be governed by and construed
in accordance with the other remaining terms of the Revolving Credit
Agreement and the internal laws (as opposed to conflict of law
provisions) of the State of Illinois.
6. PARAGRAPH HEADINGS. The paragraph headings contained in this Sixth
Amendment are and shall be without substance, meaning or content of any
kind whatsoever and are not a part of the agreement among the parties
hereto.
7. COUNTERPARTS. This Sixth Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their duly
authorized representatives, have executed this Sixth Amendment to the Revolving
Credit Agreement, effective as of the date first written above.
TELEPHONE AND DATA SYSTEMS, INC. AERIAL OPERATING COMPANY, INC.
By: /S/ SANDRA L. HELTON By: /S/ DONALD W. WARKENTIN
---------------------------------- ------------------------
Name: Sandra L. Helton Name: Donald W. Warkentin
Title: Executive Vice President - Finance Title: President
SIGNATURE PAGE TO SIXTH AMENDMENT TO
REVOLVING CREDIT AGREEMENT BETWEEN
TDS AND AERIAL OPERATING COMPANY
4
<PAGE>
SCHEDULE I
TO
REVOLVING CREDIT AGREEMENT
<TABLE>
<CAPTION>
PERIOD APPLICABLE MAXIMUM AMOUNT*
- ------ --------------------------
<S> <C>
November 30, 1998 through December 30, 1998 $585,000,000
December 31, 1998 through January 30, 1999 $615,000,000
January 31, 1999 through February 14, 1999 $625,000,000
February 15, 1999 through July 21, 1999 $650,000,000
July 22, 1999 through October 31, 1999 $775,000,000
November 1, 1999 through the earlier of the
Closing or August 31, 2000 $355,000,000
September 1, 2000 through the earlier of the
Closing or September 30, 2000 $375,000,000
October 1, 2000 through the earlier of the
Closing or October 31, 2000 $400,000,000
November 1, 2000 through the earlier of the
Closing or November 30, 2000 $425,000,000
December 1, 2000 through the earlier of the
Closing or December 17, 2000 $460,000,000
</TABLE>
- --------
* In no event will the amount funded by TDS exceed $315,000,000.
<PAGE>
EXHIBIT 10.29
SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of February 14, 2000 by and
between Aerial Communications, Inc., a Delaware corporation, and Don Warkentin
(the "Executive").
WHEREAS, the Executive currently serves as a key employee of
the Company (as defined in Section 1) or one of its subsidiaries and the
Executives' services and knowledge are valuable to the Company in connection
with the management of one or more of the Company's principal operating
facilities, divisions, departments or subsidiaries;
WHEREAS, the Board (as defined in Section 1) has determined
that it is in the best interests of the Company and its stockholders to secure
the Executive's continued services and to ensure the Executive's continued
dedication and objectivity in the event of any threat or occurrence of, or
negotiation or other action that could lead to, or create the possibility of, a
Change in Control (as defined in Section 1) of the Company, so that the
Executive need not be hindered or distracted by personal uncertainties and risks
created by any such possible Change in Control, and to encourage the Executive's
full attention and dedication to the Company, the Board has authorized the
Company to enter into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and agreements herein contained, the Company and the
Executive hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following
terms shall have the respective meanings set forth below:
(a) "Affiliate" means a corporation which owns directly or
indirectly at least 50% of the outstanding stock of the Company or the combined
voting power of such outstanding stock, or a corporation at least 50% of whose
outstanding stock or the combined voting power of such outstanding stock is
owned directly or indirectly by the Company.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means (1) a material breach by the Executive of
those duties and responsibilities of the Executive which do not, in the
aggregate, differ materially from the duties and responsibilities of the
Executive during the 90-day period immediately prior to a Change in Control
(other than as a result of incapacity due to physical or mental illness) which
is willful, which is committed in bad faith or without reasonable belief that
such breach is in the best interests of the Company and which is not remedied in
a reasonable period of time after receipt of written notice from the Company
specifying such
<PAGE>
breach, (2) the commission by the Executive of a felony involving moral
turpitude, (3) the commission by the Executive of theft, fraud, breach of trust
or any act of dishonesty involving the Company or any Affiliate or (4) the
significant violation by the Executive of any statutory or common law duty of
loyalty to the Company or any Affiliate.
(d) "Change in Control" means a "change in control" with
respect to Telephone and Data Systems, Inc. as described on Exhibit A, at a time
when Telephone and Data Systems, Inc. owns directly or indirectly at least 50%
of either the outstanding stock of the Company or the combined voting power of
such stock, or one of the following events:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act"), of
beneficial ownership within the meaning of Rule 13d-3 promulgated under the Act
of 25% or more of the combined voting power of the then outstanding securities
of the Company entitled to vote generally on matters (without regard to the
election of directors) (the "Outstanding Voting Securities"), excluding,
however, the following: (i) any acquisition directly from the Company, or an
Affiliate (excluding any acquisition resulting from the exercise of an exercise,
conversion or exchange privilege, unless the security being so exercised,
converted or exchanged was acquired directly from the Company or an Affiliate),
(ii) any acquisition by the Company or an Affiliate, (iii) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or an Affiliate, (iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (3)
below, or (v) any acquisition by the following persons: (A) LeRoy T. Carlson or
his spouse, (B) any child of LeRoy T. Carlson or the spouse of any such child,
(C) any grandchild of LeRoy T. Carlson, including any child adopted by any child
of LeRoy T. Carlson, or the spouse of any such grandchild, (D) the estate of any
of the persons described in clauses (A)-(C), (E) any trust or similar
arrangement (including any acquisition on behalf of such trust or similar
arrangement by the trustees or similar persons) PROVIDED THAT all of the current
beneficiaries of such trust or similar arrangement are persons described in
clauses (A)-(C) or their lineal descendants, or (F) the voting trust which
expires on June 30, 2009, or any successor to such voting trust, including the
trustees of such voting trust on behalf of such voting trust (all such persons,
collectively, the "Exempted Persons");
(2) individuals who, as of the date hereof constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
such Board; PROVIDED THAT any individual
2
<PAGE>
who becomes a director of the Company subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders, was approved
by the vote of at least a majority of the directors then comprising the
Incumbent Board shall be deemed a member of the Incumbent Board; and PROVIDED
FURTHER, that any individual who was initially elected as a director of the
Company as a result of an actual or threatened election contest, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Act, or any
other actual or threatened solicitation of proxies or consents by or on behalf
of any Person other than the Board shall not be deemed a member of the Incumbent
Board;
(3) the consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Corporate Transaction"), excluding, however, a Corporate Transaction
pursuant to which (i) all or substantially all of the individuals or entities
who are the beneficial owners of the Outstanding Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 51% of the combined voting power of the outstanding
securities of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns, either directly or indirectly, the Company or all or
substantially all of the Company's assets) which are entitled to vote generally
on matters (without regard to the election of directors), in substantially the
same proportions relative to each other as the shares of Outstanding Voting
Securities are owned immediately prior to such Corporate Transaction, (ii) no
Person (other than the following Persons: (v) the Company or an Affiliate, (w)
any employee benefit plan (or related trust) sponsored or maintained by the
Company or an Affiliate, (x) the corporation resulting from such Corporate
Transaction, (y) the Exempted Persons, (z) and any Person which beneficially
owned, immediately prior to such Corporate Transaction, directly or indirectly,
25% or more of the Outstanding Voting Securities) will beneficially own,
directly or indirectly, 25% or more of the combined voting power of the
outstanding securities of such corporation entitled to vote generally on matters
(without regard to the election of directors) and (iii) individuals who were
members of the Incumbent Board will constitute at least a majority of the
members of the board of directors of the corporation resulting from such
Corporate Transaction; or
(4) the consummation of a plan of complete liquidation or
dissolution of the Company.
(e) "Company" means Aerial Communications, Inc., a Delaware
corporation.
3
<PAGE>
(f) "Date of Termination" means (1) the effective date on
which the Executive's employment by the Company terminates as specified in a
prior written notice by the Company or the Executive, as the case may be, to the
other, delivered pursuant to Section 11 or (2) if the Executive's employment by
the Company terminates by reason of death, the date of death of the Executive.
(g) "Good Reason" means, without the Executive's express
written consent, the occurrence of any of the following events after a Change in
Control:
(1) any of (i) the assignment to the Executive of a materially
lower level of responsibility or status with the Company than existed
immediately prior to such Change in Control, or (ii) any failure to re-elect the
Executive to any significant office or, if applicable, directorship with the
Company held by the Executive immediately prior to such Change in Control;
(2) a reduction by the Company in the Executive's rate of
annual base salary or bonus opportunity as in effect immediately prior to such
Change in Control;
(3) any requirement of the Company that (i) the Executive be
based more than 30 miles from the facility where the Executive is located at the
time of the Change in Control or (ii) the Executive increase travel on Company
business by 20% or more than the travel obligations of the Executive immediately
prior to such Change in Control;
(4) the failure of the Company to (i) continue in effect any
employee benefit plan or compensation plan in which the Executive is
participating immediately prior to such Change in Control, unless the Executive
is permitted to participate in other plans providing the Executive with
substantially comparable benefits, or the taking of any action by the Company
which would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such plan, (ii) provide the Executive
and the Executive's dependents welfare benefits (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and programs)
in accordance with the plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive immediately prior to
such Change in Control as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies; or
(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 10(b).
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(h) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company for Cause, (2) by the Executive for
any reason other than a Good Reason, (3) as a result of the Executive's death or
(4) by the Company due to the Executive's absence from his duties with the
Company on a full-time basis for at least 180 consecutive days as a result of
the Executive's incapacity due to physical or mental illness.
(i) "Termination Period" means the period of time beginning
with a Change in Control and ending on the earlier to occur of (1) two years
following such Change in Control and (2) the Executive's death.
2. OBLIGATIONS OF THE EXECUTIVE. The Executive agrees that in
the event any person or group attempts a Change in Control, he shall not
voluntarily leave the employ of the Company without Good Reason (a) until such
attempted Change in Control terminates or (b) if a Change in Control shall
occur, until 90 days following such Change in Control. For purposes of clause
(a) of the preceding sentence, Good Reason shall be determined as if a Change in
Control had occurred when such attempted Change in Control became known to the
Board.
3. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If during the Termination Period (i) the employment of the
Executive shall terminate, other than by reason of a Nonqualifying Termination,
and (ii) the Executive (or the Executive's executor or other legal
representative in the case of the Executive's death or disability following such
termination) executes a general release in the form of Exhibit A hereto within
five days following the Executive's Date of Termination and has not revoked such
release, then the Company shall pay to the Executive (or the Executive's
beneficiary or estate) within 30 days following the Date of Termination, as
compensation for services rendered to the Company:
(1) a cash amount equal to the sum of (i) the Executive's full
annual base salary from the Company and its affiliated companies through the
Date of Termination, to the extent not theretofore paid, (ii) the Executive's
target bonus for the fiscal year in which the Change in Control occurs,
multiplied by a fraction, the numerator of which is the number of days in the
fiscal year in which the Change in Control occurs through the Date of
Termination and the denominator of which is 365 or 366, as applicable, to the
extent not theretofore paid and (iii) any compensation previously deferred by
the Executive (together with any interest and earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid; plus
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(2) a lump-sum cash amount (subject to any applicable payroll
or other taxes required to be withheld pursuant to Section 5) in an amount equal
to (i)2.25 times the Executive's highest annual base salary from the Company and
its affiliated companies in effect during the 12-month period prior to the Date
of Termination, plus (ii)2.25 times the Executive's target bonus for the fiscal
year in which the Change in Control occurs, PROVIDED, HOWEVER, that any amount
paid pursuant to this Section 3(a)(2) shall be paid in lieu of any other amount
of severance relating to salary or bonus continuation to be received by the
Executive upon termination of employment of the Executive under any employment
agreement or severance plan, policy or arrangement of the Company, Aerial
Operating Company, Inc., Telephone and Data Systems, Inc. or any other Affiliate
(as determined immediately prior to a Change in Control).
(b)(1) In addition to the payments to be made pursuant to
Section 3(a) for a period of 27 months commencing on the Date of Termination,
the Company shall continue to keep in full force and effect all policies of
medical, accident, disability and life insurance with respect to the Executive
and his dependents with the same level of coverage, upon the same terms and
otherwise to the same extent as such policies shall have been in effect
immediately prior to the Date of Termination as provided generally with respect
to other peer executives of the Company and its affiliated companies, and the
Company and the Executive shall share the costs of the continuation of such
insurance coverage in the same proportion as such costs were shared immediately
prior to the Date of Termination.
(2) In addition to the payments to be made pursuant to Section
3(a), the Executive shall be entitled to outplacement services to be provided by
a firm selected by the Company, provided that such outplacement services are
commenced within 30 days following the Date of Termination. Payments in the
aggregate amount not to exceed $12,000 shall be made directly to such
outplacement firm upon submission of proper documentation to the Company. If the
Executive elects not to use such outplacement services, the Executive will not
be entitled to cash compensation in lieu thereof.
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(c) If during the Termination Period the employment of the
Executive shall terminate by reason of a Nonqualifying Termination, then the
Company shall pay to the Executive within 30 days following the Date of
Termination, a cash amount equal to the sum of (1) the Executive's full annual
base salary from the Company through the Date of Termination, to the extent not
theretofore paid, and (2) any compensation previously deferred by the Executive
(together with any interest and earnings thereon) and any accrued vacation pay,
in each case to the extent not theretofore paid.
4. LIMITATION ON PAYMENTS BY THE COMPANY. Solely for the purposes
of the computation of benefits under this Agreement and notwithstanding any
other provisions hereof, payments to the Executive under this Agreement shall be
reduced (but not below zero) so that the present value, as determined in
accordance with Section 280G(d)(4) of the Code, of such payments plus any other
payments that must be taken into account for purposes of any computation
relating to the Executive under Section 280G(b)(2)(A)(ii) of the Code, shall
not, in the aggregate, exceed 2.99 times the Executive's "base amount," as such
term is defined in Section 280G(b)(3) of the Code. Notwithstanding any other
provision hereof, no reduction in payments under the limitation contained in the
immediately preceding sentence shall be applied to payments hereunder which do
not constitute "excess parachute payments" within the meaning of the Code. Any
payments in excess of the limitation of this Section 4 or otherwise determined
to be "excess parachute payments" made to the Executive hereunder shall be
deemed to be overpayments which shall constitute an amount owing from the
Executive to the Company with interest from the date of receipt by the Executive
to the date of repayment (or offset) at the applicable federal rate under
Section 1274(d) of the Code, compounded semi-annually, which shall be payable to
the Company upon demand; provided, however, that no repayment shall be required
under this sentence if in the written opinion of tax counsel satisfactory to the
Executive and delivered to the Executive and the Company such repayment does not
allow such overpayment to be excluded for federal income and excise tax purposes
from the Executive's income for the year of receipt or afford the Executive a
compensating federal income tax deduction for the year of repayment.
5. WITHHOLDING TAXES. The Company may withhold from all
payments due to the Executive (or his beneficiary or estate) hereunder all taxes
which, by applicable federal, state, local or other law, the Company is required
to withhold therefrom.
6. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall
arise under this Agreement involving termination of the Executive's employment
with the Company or involving the
7
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failure or refusal of the Company to perform fully in accordance with the terms
hereof, the Company shall reimburse the Executive, on a current basis, for all
legal fees and expenses, if any, incurred by the Executive in connection with
such contest or dispute, together with interest thereon at a rate equal to the
prime rate, as published under "Money Rates" in THE WALL STREET JOURNAL from
time to time, but in no event higher than the maximum legal rate permissible
under applicable law, such interest to accrue from the date the Company receives
the Executive's statement for such fees and expenses through the date of payment
thereof; PROVIDED, HOWEVER, that in the event the resolution of any such contest
or dispute includes a finding denying, in total, the Executive's claims in such
contest or dispute, the Executive shall be required to reimburse the Company,
over a period of 12 months from the date of such resolution, for all sums
advanced to the Executive pursuant to this Section 6.
7. OPERATIVE EVENT. Notwithstanding any provision herein to
the contrary, no amounts shall be payable hereunder unless and until there is a
Change in Control at a time when the Executive is employed by the Company.
8. TERMINATION OF AGREEMENT. (a) This Agreement shall be
effective on the date hereof and shall continue until terminated by the Company
as provided in Section 8(b); PROVIDED, HOWEVER, that this Agreement shall
terminate in any event upon the earliest to occur of (i) termination of the
Executive's employment with the Company prior to a Change in Control, (ii) the
Executive's death and (iii) the date all obligations of the Company to make
payments or provide benefits to the Executive hereunder are satisfied in full.
(b) The Company shall have the right prior to a Change in
Control, in its sole discretion, pursuant to action by the Board, to approve the
termination of this Agreement, which termination shall not become effective
until the date fixed by the Board for such termination, which date shall be at
least 120 days after notice thereof is given by the Company to the Executive in
accordance with Section 11; PROVIDED, HOWEVER, that no such action shall be
taken by the Board during any period of time when the Board has knowledge that
any person has taken steps reasonably calculated to effect a Change in Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change in Control; and PROVIDED FURTHER, that in no event
shall this Agreement be terminated in the event of a Change in Control.
9. SCOPE OF AGREEMENT. Nothing in this Agreement shall be
deemed to entitle the Executive to continued employment with the Company or its
subsidiaries and, if the Executive's employment with the Company shall terminate
prior to a Change in
8
<PAGE>
Control, then the Executive shall have no further rights under this Agreement;
PROVIDED, HOWEVER, that any termination of the Executive's employment following
a Change in Control and prior to the end of the Termination Period shall be
subject to all of the provisions of this Agreement.
10. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in Section 10(a), it will cause
any successor or transferee unconditionally to assume, by written instrument
delivered to the Executive (or his beneficiary or estate), all of the
obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to or concurrent with the effectiveness of any such merger,
consolidation or transfer of assets shall be a breach of this Agreement and
shall entitle the Executive to compensation and other benefits from the Company
in the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive's employment were terminated following a Change in
Control other than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any such merger, consolidation or
transfer becomes effective shall be deemed the Date of Termination.
(c) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amounts would be payable to the Executive
hereunder had the Executive continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to such person or persons appointed in writing by the Executive to
receive such amounts or, if no person is so appointed, to the Executive's
estate.
11. NOTICES. (a) For purposes of this Agreement, all notices
and other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given when delivered or five days after
deposit in the United States mail, certified and return receipt requested,
postage prepaid, addressed (1) if to the Executive, to Donald Warkentin, and if
to the Company, to Aerial Communications, Inc., attention Vice
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President, Human Resources, or (2) to such other address as either party may
have furnished to the other in writing in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
(b) A written notice of the Executive's Date of Termination by
the Company or the Executive, as the case may be, to the other, shall (i)
indicate the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the termination
date (which date shall be not less than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in such notice
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company hereunder or preclude
the Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
12. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make any payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced whether or
not the Executive obtains other employment.
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or without
Good Reason, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to the Executive and his dependents or other beneficiaries,
as the case may be, under Sections 3(a) and 3(b), the Company shall pay all
amounts, and provide all benefits, to the Executive and his dependents or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Sections 3(a) and 3(b) as though such termination were by
the Company without Cause or by the Executive with Good Reason; PROVIDED,
HOWEVER, that the Company shall not be required to pay any disputed amounts
pursuant to this Section 12(b) except upon receipt of an undertaking by or on
behalf of the Executive to repay all such amounts to which the Executive is
ultimately adjudged by such court not to be entitled.
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13. EMPLOYMENT WITH AFFILIATES. Employment with the Company
for purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% of more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
14. GOVERNING LAW; VALIDITY. The interpretation, construction
and performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Illinois without
regard to the principle of conflicts of laws. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which other provisions
shall remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
16. MISCELLANEOUS. No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by the Executive and by a duly authorized officer of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. Failure by the Executive or the Company to insist upon strict compliance
with any provision of this Agreement or to assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement. Except as otherwise expressly set forth in this Agreement, the rights
of, and benefits payable to, the Executive, his estate or his beneficiaries
pursuant to this Agreement are in addition to any rights of, or benefits payable
to, the Executive, his estate or his beneficiaries under any other employee
benefit plan or compensation program of the Company.
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IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by a duly authorized officer of the Company and the Executive has
executed this Agreement as of the day and year first above written.
AERIAL COMMUNICATIONS, INC.
By: /s/ Carol Ogren
---------------------------
Carol Ogren, VP-H.R.
EXECUTIVE
/s/ Donald Warkentin
------------------------------
Donald Warkentin
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Exhibit A
Change in Control of
Telephone and Data Systems, Inc.
For purposes of paragraph 1(d) of the Agreement, a "change in control"
with respect to Telephone and Data Systems, Inc. shall mean one of the
following:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership
within the meaning of Rule 13d-3 promulgated under the Exchange Act, of
25% or more of the combined voting power of the then outstanding
securities of Telephone and Data Systems, Inc., a Delaware corporation
(the "Company") entitled to vote generally on matters (without regard
to the election of directors) (the "Outstanding Voting Securities"),
excluding, however, the following: (i) any acquisition directly from
the Company or a corporation which owns directly or indirectly at least
50% of the outstanding stock of the Company or the combined voting
power of such outstanding stock or a corporation at least 50% of whose
outstanding stock or the combined voting power of such outstanding
stock is owned directly or indirectly by the Company (an "Affiliate")
(excluding any acquisition resulting from the exercise of an exercise,
conversion or exchange privilege, unless the security being so
exercised, converted or exchanged was acquired directly from the
Company or an Affiliate), (ii) any acquisition by the Company or an
Affiliate, (iii) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or an Affiliate,
(iv) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (3) of this
Exhibit A, or (v) any acquisition by the following persons: (A) LeRoy
T. Carlson or his spouse, (B) any child of LeRoy T. Carlson or the
spouse of any such child, (C) any grandchild of LeRoy T. Carlson,
including any child adopted by any child of LeRoy T. Carlson, or the
spouse of any such grandchild, (D) the estate of any of the persons
described in clauses (A)-(C), (E) any trust or similar arrangement
(including any acquisition on behalf of such trust or similar
arrangement by the trustees or similar persons) PROVIDED THAT all of
the current beneficiaries of such trust or similar arrangement are
persons described in clauses (A)-(C) or their lineal descendants, or
(F) the voting trust which expires on June 30, 2009, or any successor
to such voting trust, including the trustees of such voting trust on
behalf of such voting trust (all such persons, collectively, the
"Exempted Persons");
A-1
<PAGE>
(2) individuals who, as of the effective date of the merger of
Telephone and Data Systems, Inc., an Iowa corporation, into the
Company, constitute the Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of such Board;
PROVIDED THAT any individual who becomes a director of the Company
subsequent to the effective date of the merger of Telephone and Data
Systems, Inc., an Iowa corporation, into the Company, whose election,
or nomination for election by the Company's stockholders, was approved
by the vote of at least a majority of the directors then comprising the
Incumbent Board shall be deemed a member of the Incumbent Board; and
PROVIDED FURTHER, that any individual who was initially elected as a
director of the Company as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other
than the Board shall not be deemed a member of the Incumbent Board;
(3) the consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Corporate Transaction"), excluding,
however, a Corporate Transaction pursuant to which (i) all or
substantially all of the individuals or entities who are the beneficial
owners of the Outstanding Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly,
more than 51% of the combined voting power of the outstanding
securities of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns, either directly or indirectly, the Company or all or
substantially all of the Company's assets) which are entitled to vote
generally on matters (without regard to the election of directors), in
substantially the same proportions relative to each other as the shares
of Outstanding Voting Securities are owned immediately prior to such
Corporate Transaction, (ii) no Person (other than the following
Persons: (v) the Company or an Affiliate, (w) any employee benefit plan
(or related trust) sponsored or maintained by the Company or an
Affiliate, (x) the corporation resulting from such Corporate
Transaction, (y) the Exempted Persons, (z) and any Person which
beneficially owned, immediately prior to such Corporate Transaction,
directly or indirectly, 25% or more of the Outstanding Voting
Securities) will beneficially own, directly or indirectly, 25% or more
of the combined voting power of the outstanding securities of such
corporation entitled to vote
A-2
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generally on matters (without regard to the election of directors) and
(iii) individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate
Transaction; or
(4) the consummation of a plan of complete liquidation or
dissolution of the Company.
A-3
<PAGE>
EXHIBIT B
GENERAL RELEASE
This General Release (this "Release") is executed by _________
(the "Executive") pursuant to the Severance Agreement dated as of
______________, 1999 (the "Agreement") between the Executive and Aerial
Communications, Inc. (the "Company").
WHEREAS, the Executive's employment with the "Company" is
terminating;
WHEREAS, the Executive has had [21][45] days to consider the
form of this Release;
WHEREAS, the Company advised the Executive in writing to
consult with an attorney before signing this Release;
WHEREAS, the Executive acknowledges that the consideration to
be provided to the Executive under the Agreement is sufficient to support this
Release; and
WHEREAS, the Executive understands that the Company regards
the representations by the Executive in this Release as material and that the
Company is relying on such representations in paying amounts to the Executive
pursuant to the Agreement.
THE EXECUTIVE THEREFORE AGREES AS FOLLOWS:
1. The Executive's employment with the Company shall terminate
on ________, and the Executive shall receive the payments set forth in Section 3
of the Agreement in accordance with the terms and subject to the conditions
thereof.
2. The Executive, on behalf of the Executive and anyone
claiming through the Executive, hereby agrees not to sue the Company or
Telephone and Data Systems, Inc. ("TDS") or any division, subsidiary, affiliate
or other related entity of the Company or TDS (whether or not such entity is
wholly owned), or any of the past, present or future directors, officers,
administrators, trustees, fiduciaries, employees, agents, attorneys or
shareholders of the Company or TDS or any of such other entities, or the
predecessors, successors or assigns of any of them (hereinafter referred to as
the "Released Parties"), and agrees to release and discharge, fully, finally and
forever, the Released Parties from any and all claims, causes of action,
lawsuits, liabilities, debts, accounts, covenants, contracts, controversies,
agreements, promises, sums of money, damages, judgments and demands of any
nature whatsoever, in law or in equity, both known and unknown, asserted or not
asserted,
<PAGE>
foreseen or unforeseen, which the Executive ever had or may presently have
against any of the Released Parties arising from the beginning of time up to and
including the effective date of this Release, including, without limitation, all
matters in any way related to the Executive's employment by the Company or by
TDS or any of their affiliates, the terms and conditions thereof, any failure to
promote the Executive and the termination or cessation of the Executive's
employment with the Company or by TDS or any of their affiliates, and including,
without limitation, any and all claims arising under the Civil Rights Act of
1964, as amended, the Civil Rights Act of 1991, the Civil Rights Act of 1866,
the Age Discrimination in Employment Act, the Older Workers' Benefit Protection
Act, the Family and Medical Leave Act, the Americans With Disabilities Act, the
Executive Retirement Income Security Act of 1974, the Illinois Human Rights Act,
the Chicago or Cook County Human Rights Ordinance or any other federal, state,
local or foreign statute, regulation, ordinance or order, or pursuant to any
common law doctrine; provided, however, that nothing contained in this Release
shall apply to, or release the Company from, any obligation of the Company
contained in the Agreement. The consideration offered in the Agreement is
accepted by the Executive as being in full accord, satisfaction, compromise and
settlement of any and all claims or potential claims, and the Executive
expressly agrees that the Executive is not entitled to, and shall not receive,
any further recovery of any kind from the Company or any of the other Released
Parties, and that in the event of any further proceedings whatsoever based upon
any matter released herein, neither the Company nor any of the other Released
Parties shall have any further monetary or other obligation of any kind to the
Executive, including any obligation for any costs, expenses or attorneys' fees
incurred by or on behalf of the Executive. The Executive agrees that the
Executive has no present or future right to employment with the Company or any
of the other Released Parties.
3. The Executive expressly represents and warrants that the
Executive is the sole owner of the actual and alleged claims, demands, rights,
causes of action and other matters that are released herein; that the same have
not been transferred or assigned or caused to be transferred or assigned to any
other person, firm, corporation or other legal entity; and that the Executive
has the full right and power to grant, execute and deliver the general release,
undertakings and agreements contained herein.
4. ACKNOWLEDGMENT BY EXECUTIVE. BY EXECUTING THIS RELEASE, THE
EXECUTIVE EXPRESSLY ACKNOWLEDGES THAT THE EXECUTIVE HAS READ THIS RELEASE
CAREFULLY, THAT THE EXECUTIVE FULLY UNDERSTANDS ITS TERMS AND CONDITIONS, THAT
THE EXECUTIVE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING
THIS RELEASE, THAT THE EXECUTIVE HAS BEEN ADVISED THAT THE EXECUTIVE
<PAGE>
HAS [21][45] DAYS WITHIN WHICH TO DECIDE WHETHER OR NOT TO EXECUTE THIS RELEASE
AND THAT THE EXECUTIVE INTENDS TO BE LEGALLY BOUND BY IT. DURING A PERIOD OF
SEVEN DAYS FOLLOWING THE DATE OF THE EXECUTIVE'S EXECUTION OF THIS RELEASE, THE
EXECUTIVE SHALL HAVE THE RIGHT TO REVOKE THE RELEASE OF CLAIMS UNDER THE AGE
DISCRIMINATION IN EMPLOYMENT ACT BY SERVING WITHIN SUCH PERIOD WRITTEN NOTICE OF
REVOCATION. IF THE EXECUTIVE EXERCISES THE EXECUTIVE'S RIGHTS UNDER THE
PRECEDING SENTENCE, THE EXECUTIVE SHALL FORFEIT ALL AMOUNTS PAYABLE TO HIM
PURSUANT TO THE AGREEMENT.
5. The Agreement and this Release constitute the entire
understanding between the parties. The Executive has not relied on any oral
statements that are not included in the Agreement or this Release.
6. This Release shall be construed, interpreted and applied in
accordance with the internal laws of the State of Illinois without regard to the
principle of conflicts of laws.
-------------------------------
[NAME]
Date:
--------------------------
<PAGE>
EXHIBIT 10.30
SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of September 21, 1999 by and
between Aerial Communications, Inc., a Delaware corporation, and J. Clarke Smith
(the "Executive").
WHEREAS, the Executive currently serves as a key employee of
the Company (as defined in Section 1) or one of its subsidiaries and the
Executives' services and knowledge are valuable to the Company in connection
with the management of one or more of the Company's principal operating
facilities, divisions, departments or subsidiaries;
WHEREAS, the Board (as defined in Section 1) has determined
that it is in the best interests of the Company and its stockholders to secure
the Executive's continued services and to ensure the Executive's continued
dedication and objectivity in the event of any threat or occurrence of, or
negotiation or other action that could lead to, or create the possibility of, a
Change in Control (as defined in Section 1) of the Company, so that the
Executive need not be hindered or distracted by personal uncertainties and risks
created by any such possible Change in Control, and to encourage the Executive's
full attention and dedication to the Company, the Board has authorized the
Company to enter into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and agreements herein contained, the Company and the
Executive hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the respective meanings set forth below:
(a) "Affiliate" means a corporation which owns directly or
indirectly at least 50% of the outstanding stock of the Company or the combined
voting power of such outstanding stock, or a corporation at least 50% of whose
outstanding stock or the combined voting power of such outstanding stock is
owned directly or indirectly by the Company.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means (1) a material breach by the Executive of
those duties and responsibilities of the Executive which do not, in the
aggregate, differ materially from the duties and responsibilities of the
Executive during the 90-day period immediately prior to a Change in Control
(other than as a result of incapacity due to physical or mental illness) which
is willful, which is committed in bad faith or without reasonable belief that
such breach is in the best interests of the Company and which is not remedied in
a reasonable period of time after receipt of written notice from the Company
specifying such
<PAGE>
breach, (2) the commission by the Executive of a felony involving moral
turpitude, (3) the commission by the Executive of theft, fraud, breach of trust
or any act of dishonesty involving the Company or any Affiliate or (4) the
significant violation by the Executive of any statutory or common law duty of
loyalty to the Company or any Affiliate.
(d) "Change in Control" means a "change in control" with
respect to Telephone and Data Systems, Inc. as described on Exhibit A, at a time
when Telephone and Data Systems, Inc. owns directly or indirectly at least 50%
of either the outstanding stock of the Company or the combined voting power of
such stock, or one of the following events:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act"), of
beneficial ownership within the meaning of Rule 13d-3 promulgated under the Act
of 25% or more of the combined voting power of the then outstanding securities
of the Company entitled to vote generally on matters (without regard to the
election of directors) (the "Outstanding Voting Securities"), excluding,
however, the following: (i) any acquisition directly from the Company, or an
Affiliate (excluding any acquisition resulting from the exercise of an exercise,
conversion or exchange privilege, unless the security being so exercised,
converted or exchanged was acquired directly from the Company or an Affiliate),
(ii) any acquisition by the Company or an Affiliate, (iii) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or an Affiliate, (iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (3)
below, or (v) any acquisition by the following persons: (A) LeRoy T. Carlson or
his spouse, (B) any child of LeRoy T. Carlson or the spouse of any such child,
(C) any grandchild of LeRoy T. Carlson, including any child adopted by any child
of LeRoy T. Carlson, or the spouse of any such grandchild, (D) the estate of any
of the persons described in clauses (A)-(C), (E) any trust or similar
arrangement (including any acquisition on behalf of such trust or similar
arrangement by the trustees or similar persons) PROVIDED THAT all of the current
beneficiaries of such trust or similar arrangement are persons described in
clauses (A)-(C) or their lineal descendants, or (F) the voting trust which
expires on June 30, 2009, or any successor to such voting trust, including the
trustees of such voting trust on behalf of such voting trust (all such persons,
collectively, the "Exempted Persons");
(2) individuals who, as of the date hereof constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
such Board; PROVIDED THAT any individual
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<PAGE>
who becomes a director of the Company subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders, was approved
by the vote of at least a majority of the directors then comprising the
Incumbent Board shall be deemed a member of the Incumbent Board; and PROVIDED
FURTHER, that any individual who was initially elected as a director of the
Company as a result of an actual or threatened election contest, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Act, or any
other actual or threatened solicitation of proxies or consents by or on behalf
of any Person other than the Board shall not be deemed a member of the Incumbent
Board;
(3) the consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Corporate Transaction"), excluding, however, a Corporate Transaction
pursuant to which (i) all or substantially all of the individuals or entities
who are the beneficial owners of the Outstanding Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 51% of the combined voting power of the outstanding
securities of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns, either directly or indirectly, the Company or all or
substantially all of the Company's assets) which are entitled to vote generally
on matters (without regard to the election of directors), in substantially the
same proportions relative to each other as the shares of Outstanding Voting
Securities are owned immediately prior to such Corporate Transaction, (ii) no
Person (other than the following Persons: (v) the Company or an Affiliate, (w)
any employee benefit plan (or related trust) sponsored or maintained by the
Company or an Affiliate, (x) the corporation resulting from such Corporate
Transaction, (y) the Exempted Persons, (z) and any Person which beneficially
owned, immediately prior to such Corporate Transaction, directly or indirectly,
25% or more of the Outstanding Voting Securities) will beneficially own,
directly or indirectly, 25% or more of the combined voting power of the
outstanding securities of such corporation entitled to vote generally on matters
(without regard to the election of directors) and (iii) individuals who were
members of the Incumbent Board will constitute at least a majority of the
members of the board of directors of the corporation resulting from such
Corporate Transaction; or
(4) the consummation of a plan of complete liquidation or
dissolution of the Company.
(e) "Company" means Aerial Communications, Inc., a Delaware
corporation.
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<PAGE>
(f) "Date of Termination" means (1) the effective date on
which the Executive's employment by the Company terminates as specified in a
prior written notice by the Company or the Executive, as the case may be, to the
other, delivered pursuant to Section 11 or (2) if the Executive's employment by
the Company terminates by reason of death, the date of death of the Executive.
(g) "Good Reason" means, without the Executive's express
written consent, the occurrence of any of the following events after a Change in
Control:
(1) any of (i) the assignment to the Executive of a materially
lower level of responsibility or status with the Company than existed
immediately prior to such Change in Control, or (ii) any failure to re-elect the
Executive to any significant office or, if applicable, directorship with the
Company held by the Executive immediately prior to such Change in Control;
(2) a reduction by the Company in the Executive's rate of
annual base salary or bonus opportunity as in effect immediately prior to such
Change in Control;
(3) any requirement of the Company that (i) the Executive be
based more than 30 miles from the facility where the Executive is located at the
time of the Change in Control or (ii) the Executive increase travel on Company
business by 20% or more than the travel obligations of the Executive immediately
prior to such Change in Control;
(4) the failure of the Company to (i) continue in effect any
employee benefit plan or compensation plan in which the Executive is
participating immediately prior to such Change in Control, unless the Executive
is permitted to participate in other plans providing the Executive with
substantially comparable benefits, or the taking of any action by the Company
which would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such plan, (ii) provide the Executive
and the Executive's dependents welfare benefits (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and programs)
in accordance with the plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive immediately prior to
such Change in Control as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies; or
(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 10(b).
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(h) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company for Cause, (2) by the Executive for
any reason other than a Good Reason, (3) as a result of the Executive's death or
(4) by the Company due to the Executive's absence from his duties with the
Company on a full-time basis for at least 180 consecutive days as a result of
the Executive's incapacity due to physical or mental illness.
(i) "Termination Period" means the period of time beginning
with a Change in Control and ending on the earlier to occur of (1) two years
following such Change in Control and (2) the Executive's death.
2. OBLIGATIONS OF THE EXECUTIVE. The Executive agrees that in
the event any person or group attempts a Change in Control, he shall not
voluntarily leave the employ of the Company without Good Reason (a) until such
attempted Change in Control terminates or (b) if a Change in Control shall
occur, until 90 days following such Change in Control. For purposes of clause
(a) of the preceding sentence, Good Reason shall be determined as if a Change in
Control had occurred when such attempted Change in Control became known to the
Board.
3. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If during the Termination Period (i) the employment of the
Executive shall terminate, other than by reason of a Nonqualifying Termination,
and (ii) the Executive (or the Executive's executor or other legal
representative in the case of the Executive's death or disability following such
termination) executes a general release in the form of Exhibit A hereto within
five days following the Executive's Date of Termination and has not revoked such
release, then the Company shall pay to the Executive (or the Executive's
beneficiary or estate) within 30 days following the Date of Termination, as
compensation for services rendered to the Company:
(1) a cash amount equal to the sum of (i) the Executive's full
annual base salary from the Company and its affiliated companies through the
Date of Termination, to the extent not theretofore paid, (ii) the Executive's
target bonus for the fiscal year in which the Change in Control occurs,
multiplied by a fraction, the numerator of which is the number of days in the
fiscal year in which the Change in Control occurs through the Date of
Termination and the denominator of which is 365 or 366, as applicable, to the
extent not theretofore paid and (iii) any compensation previously deferred by
the Executive (together with any interest and earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid; plus
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<PAGE>
(2) a lump-sum cash amount (subject to any applicable payroll
or other taxes required to be withheld pursuant to Section 5) in an amount equal
to (i) 150% of the Executive's highest annual base salary from the Company and
its affiliated companies in effect during the 12-month period prior to the Date
of Termination, plus (ii)150% of the Executive's target bonus for the fiscal
year in which the Change in Control occurs, PROVIDED, HOWEVER, that any amount
paid pursuant to this Section 3(a)(2) shall be paid in lieu of any other amount
of severance relating to salary or bonus continuation to be received by the
Executive upon termination of employment of the Executive under any employment
agreement or severance plan, policy or arrangement of the Company, Aerial
Operating Company, Inc., Telephone and Data Systems, Inc. or any other Affiliate
(as determined immediately prior to a Change in Control).
(b)(1) In addition to the payments to be made pursuant to
Section 3(a) for a period of 18 months commencing on the Date of Termination,
the Company shall continue to keep in full force and effect all policies of
medical, accident, disability and life insurance with respect to the Executive
and his dependents with the same level of coverage, upon the same terms and
otherwise to the same extent as such policies shall have been in effect
immediately prior to the Date of Termination as provided generally with respect
to other peer executives of the Company and its affiliated companies, and the
Company and the Executive shall share the costs of the continuation of such
insurance coverage in the same proportion as such costs were shared immediately
prior to the Date of Termination.
(2) In addition to the payments to be made pursuant to Section
3(a), the Executive shall be entitled to outplacement services to be provided by
a firm selected by the Company, provided that such outplacement services are
commenced within 30 days following the Date of Termination. Payments in the
aggregate amount not to exceed $12,000 shall be made directly to such
outplacement firm upon submission of proper documentation to the Company. If the
Executive elects not to use such outplacement services, the Executive will not
be entitled to cash compensation in lieu thereof.
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<PAGE>
(c) If during the Termination Period the employment of the
Executive shall terminate by reason of a Nonqualifying Termination, then the
Company shall pay to the Executive within 30 days following the Date of
Termination, a cash amount equal to the sum of (1) the Executive's full annual
base salary from the Company through the Date of Termination, to the extent not
theretofore paid, and (2) any compensation previously deferred by the Executive
(together with any interest and earnings thereon) and any accrued vacation pay,
in each case to the extent not theretofore paid.
4. LIMITATION ON PAYMENTS BY THE COMPANY. Solely for the purposes
of the computation of benefits under this Agreement and notwithstanding any
other provisions hereof, payments to the Executive under this Agreement shall be
reduced (but not below zero) so that the present value, as determined in
accordance with Section 280G(d)(4) of the Code, of such payments plus any other
payments that must be taken into account for purposes of any computation
relating to the Executive under Section 280G(b)(2)(A)(ii) of the Code, shall
not, in the aggregate, exceed 2.99 times the Executive's "base amount," as such
term is defined in Section 280G(b)(3) of the Code. Notwithstanding any other
provision hereof, no reduction in payments under the limitation contained in the
immediately preceding sentence shall be applied to payments hereunder which do
not constitute "excess parachute payments" within the meaning of the Code. Any
payments in excess of the limitation of this Section 4 or otherwise determined
to be "excess parachute payments" made to the Executive hereunder shall be
deemed to be overpayments which shall constitute an amount owing from the
Executive to the Company with interest from the date of receipt by the Executive
to the date of repayment (or offset) at the applicable federal rate under
Section 1274(d) of the Code, compounded semi-annually, which shall be payable to
the Company upon demand; provided, however, that no repayment shall be required
under this sentence if in the written opinion of tax counsel satisfactory to the
Executive and delivered to the Executive and the Company such repayment does not
allow such overpayment to be excluded for federal income and excise tax purposes
from the Executive's income for the year of receipt or afford the Executive a
compensating federal income tax deduction for the year of repayment.
5. WITHHOLDING TAXES. The Company may withhold from all
payments due to the Executive (or his beneficiary or estate) hereunder all taxes
which, by applicable federal, state, local or other law, the Company is required
to withhold therefrom.
6. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall
arise under this Agreement involving termination of the Executive's employment
with the Company or involving the failure or refusal of the Company to perform
fully in accordance
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with the terms hereof, the Company shall reimburse the Executive, on a current
basis, for all legal fees and expenses, if any, incurred by the Executive in
connection with such contest or dispute, together with interest thereon at a
rate equal to the prime rate, as published under "Money Rates" in THE WALL
STREET JOURNAL from time to time, but in no event higher than the maximum legal
rate permissible under applicable law, such interest to accrue from the date the
Company receives the Executive's statement for such fees and expenses through
the date of payment thereof; PROVIDED, HOWEVER, that in the event the resolution
of any such contest or dispute includes a finding denying, in total, the
Executive's claims in such contest or dispute, the Executive shall be required
to reimburse the Company, over a period of 12 months from the date of such
resolution, for all sums advanced to the Executive pursuant to this Section 6.
7. OPERATIVE EVENT. Notwithstanding any provision herein to
the contrary, no amounts shall be payable hereunder unless and until there is a
Change in Control at a time when the Executive is employed by the Company.
8. TERMINATION OF AGREEMENT. (a) This Agreement shall be
effective on the date hereof and shall continue until terminated by the Company
as provided in Section 8(b); PROVIDED, HOWEVER, that this Agreement shall
terminate in any event upon the earliest to occur of (i) termination of the
Executive's employment with the Company prior to a Change in Control, (ii) the
Executive's death and (iii) the date all obligations of the Company to make
payments or provide benefits to the Executive hereunder are satisfied in full.
(b) The Company shall have the right prior to a Change in
Control, in its sole discretion, pursuant to action by the Board, to approve the
termination of this Agreement, which termination shall not become effective
until the date fixed by the Board for such termination, which date shall be at
least 120 days after notice thereof is given by the Company to the Executive in
accordance with Section 11; PROVIDED, HOWEVER, that no such action shall be
taken by the Board during any period of time when the Board has knowledge that
any person has taken steps reasonably calculated to effect a Change in Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change in Control; and PROVIDED FURTHER, that in no event
shall this Agreement be terminated in the event of a Change in Control.
9. SCOPE OF AGREEMENT. Nothing in this Agreement shall be
deemed to entitle the Executive to continued employment with the Company or its
subsidiaries and, if the Executive's employment with the Company shall terminate
prior to a Change in Control, then the Executive shall have no further rights
under
8
<PAGE>
this Agreement; PROVIDED, HOWEVER, that any termination of the Executive's
employment following a Change in Control and prior to the end of the Termination
Period shall be subject to all of the provisions of this Agreement.
10. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in Section 10(a), it will cause
any successor or transferee unconditionally to assume, by written instrument
delivered to the Executive (or his beneficiary or estate), all of the
obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to or concurrent with the effectiveness of any such merger,
consolidation or transfer of assets shall be a breach of this Agreement and
shall entitle the Executive to compensation and other benefits from the Company
in the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive's employment were terminated following a Change in
Control other than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any such merger, consolidation or
transfer becomes effective shall be deemed the Date of Termination.
(c) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amounts would be payable to the Executive
hereunder had the Executive continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to such person or persons appointed in writing by the Executive to
receive such amounts or, if no person is so appointed, to the Executive's
estate.
11. NOTICES. (a) For purposes of this Agreement, all notices
and other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given when delivered or five days after
deposit in the United States mail, certified and return receipt requested,
postage prepaid, addressed (1) if to the Executive, to J. Clarke Smith, and if
to the Company, to Aerial Communications, Inc., attention Vice President, Human
Resources, or (2) to such other address as
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<PAGE>
either party may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
(b) A written notice of the Executive's Date of Termination by
the Company or the Executive, as the case may be, to the other, shall (i)
indicate the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the termination
date (which date shall be not less than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in such notice
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company hereunder or preclude
the Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
12. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make any payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced whether or
not the Executive obtains other employment.
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or without
Good Reason, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to the Executive and his dependents or other beneficiaries,
as the case may be, under Sections 3(a) and 3(b), the Company shall pay all
amounts, and provide all benefits, to the Executive and his dependents or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Sections 3(a) and 3(b) as though such termination were by
the Company without Cause or by the Executive with Good Reason; PROVIDED,
HOWEVER, that the Company shall not be required to pay any disputed amounts
pursuant to this Section 12(b) except upon receipt of an undertaking by or on
behalf of the Executive to repay all such amounts to which the Executive is
ultimately adjudged by such court not to be entitled.
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13. EMPLOYMENT WITH AFFILIATES. Employment with the Company
for purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% of more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
14. GOVERNING LAW; VALIDITY. The interpretation, construction
and performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Illinois without
regard to the principle of conflicts of laws. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which other provisions
shall remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
16. MISCELLANEOUS. No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by the Executive and by a duly authorized officer of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. Failure by the Executive or the Company to insist upon strict compliance
with any provision of this Agreement or to assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement. Except as otherwise expressly set forth in this Agreement, the rights
of, and benefits payable to, the Executive, his estate or his beneficiaries
pursuant to this Agreement are in addition to any rights of, or benefits payable
to, the Executive, his estate or his beneficiaries under any other employee
benefit plan or compensation program of the Company.
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IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by a duly authorized officer of the Company and the Executive has
executed this Agreement as of the day and year first above written.
AERIAL COMMUNICATIONS, INC.
By: /s/ Donald Warkentin
---------------------------
Donald Warkentin
President and Chief
Executive Officer
EXECUTIVE
/s/ J. Clarke Smith
------------------------------
J. Clarke Smith
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Exhibit A
Change in Control of
Telephone and Data Systems, Inc.
For purposes of paragraph 1(d) of the Agreement, a "change in control"
with respect to Telephone and Data Systems, Inc. shall mean one of the
following:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership
within the meaning of Rule 13d-3 promulgated under the Exchange Act, of
25% or more of the combined voting power of the then outstanding
securities of Telephone and Data Systems, Inc., a Delaware corporation
(the "Company") entitled to vote generally on matters (without regard
to the election of directors) (the "Outstanding Voting Securities"),
excluding, however, the following: (i) any acquisition directly from
the Company or a corporation which owns directly or indirectly at least
50% of the outstanding stock of the Company or the combined voting
power of such outstanding stock or a corporation at least 50% of whose
outstanding stock or the combined voting power of such outstanding
stock is owned directly or indirectly by the Company (an "Affiliate")
(excluding any acquisition resulting from the exercise of an exercise,
conversion or exchange privilege, unless the security being so
exercised, converted or exchanged was acquired directly from the
Company or an Affiliate), (ii) any acquisition by the Company or an
Affiliate, (iii) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or an Affiliate,
(iv) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (3) of this
Exhibit A, or (v) any acquisition by the following persons: (A) LeRoy
T. Carlson or his spouse, (B) any child of LeRoy T. Carlson or the
spouse of any such child, (C) any grandchild of LeRoy T. Carlson,
including any child adopted by any child of LeRoy T. Carlson, or the
spouse of any such grandchild, (D) the estate of any of the persons
described in clauses (A)-(C), (E) any trust or similar arrangement
(including any acquisition on behalf of such trust or similar
arrangement by the trustees or similar persons) PROVIDED THAT all of
the current beneficiaries of such trust or similar arrangement are
persons described in clauses (A)-(C) or their lineal descendants, or
(F) the voting trust which expires on June 30, 2009, or any successor
to such voting trust, including the trustees of such voting trust on
behalf of such voting trust (all such persons, collectively, the
"Exempted Persons");
A-1
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(2) individuals who, as of the effective date of the merger of
Telephone and Data Systems, Inc., an Iowa corporation, into the
Company, constitute the Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of such Board;
PROVIDED THAT any individual who becomes a director of the Company
subsequent to the effective date of the merger of Telephone and Data
Systems, Inc., an Iowa corporation, into the Company, whose election,
or nomination for election by the Company's stockholders, was approved
by the vote of at least a majority of the directors then comprising the
Incumbent Board shall be deemed a member of the Incumbent Board; and
PROVIDED FURTHER, that any individual who was initially elected as a
director of the Company as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other
than the Board shall not be deemed a member of the Incumbent Board;
(3) the consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Corporate Transaction"), excluding,
however, a Corporate Transaction pursuant to which (i) all or
substantially all of the individuals or entities who are the beneficial
owners of the Outstanding Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly,
more than 51% of the combined voting power of the outstanding
securities of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns, either directly or indirectly, the Company or all or
substantially all of the Company's assets) which are entitled to vote
generally on matters (without regard to the election of directors), in
substantially the same proportions relative to each other as the shares
of Outstanding Voting Securities are owned immediately prior to such
Corporate Transaction, (ii) no Person (other than the following
Persons: (v) the Company or an Affiliate, (w) any employee benefit plan
(or related trust) sponsored or maintained by the Company or an
Affiliate, (x) the corporation resulting from such Corporate
Transaction, (y) the Exempted Persons, (z) and any Person which
beneficially owned, immediately prior to such Corporate Transaction,
directly or indirectly, 25% or more of the Outstanding Voting
Securities) will beneficially own, directly or indirectly, 25% or more
of the combined voting power of the outstanding securities of such
corporation entitled to vote
A-2
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generally on matters (without regard to the election of directors) and
(iii) individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate
Transaction; or
(4) the consummation of a plan of complete liquidation or
dissolution of the Company.
A-3
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EXHIBIT B
GENERAL RELEASE
This General Release (this "Release") is executed by _________
(the "Executive") pursuant to the Severance Agreement dated as of
______________, 1999 (the "Agreement") between the Executive and Aerial
Communications, Inc. (the "Company").
WHEREAS, the Executive's employment with the "Company" is
terminating;
WHEREAS, the Executive has had [21][45] days to consider the
form of this Release;
WHEREAS, the Company advised the Executive in writing to
consult with an attorney before signing this Release;
WHEREAS, the Executive acknowledges that the consideration to
be provided to the Executive under the Agreement is sufficient to support this
Release; and
WHEREAS, the Executive understands that the Company regards
the representations by the Executive in this Release as material and that the
Company is relying on such representations in paying amounts to the Executive
pursuant to the Agreement.
THE EXECUTIVE THEREFORE AGREES AS FOLLOWS:
1. The Executive's employment with the Company shall terminate
on ________, and the Executive shall receive the payments set forth in Section 3
of the Agreement in accordance with the terms and subject to the conditions
thereof.
2. The Executive, on behalf of the Executive and anyone
claiming through the Executive, hereby agrees not to sue the Company or
Telephone and Data Systems, Inc. ("TDS") or any division, subsidiary, affiliate
or other related entity of the Company or TDS (whether or not such entity is
wholly owned), or any of the past, present or future directors, officers,
administrators, trustees, fiduciaries, employees, agents, attorneys or
shareholders of the Company or TDS or any of such other entities, or the
predecessors, successors or assigns of any of them (hereinafter referred to as
the "Released Parties"), and agrees to release and discharge, fully, finally and
forever, the Released Parties from any and all claims, causes of action,
lawsuits, liabilities, debts, accounts, covenants, contracts, controversies,
agreements, promises, sums of money, damages, judgments and demands of any
nature whatsoever, in law or in equity, both known and unknown, asserted or not
asserted,
<PAGE>
foreseen or unforeseen, which the Executive ever had or may presently have
against any of the Released Parties arising from the beginning of time up to and
including the effective date of this Release, including, without limitation, all
matters in any way related to the Executive's employment by the Company or by
TDS or any of their affiliates, the terms and conditions thereof, any failure to
promote the Executive and the termination or cessation of the Executive's
employment with the Company or by TDS or any of their affiliates, and including,
without limitation, any and all claims arising under the Civil Rights Act of
1964, as amended, the Civil Rights Act of 1991, the Civil Rights Act of 1866,
the Age Discrimination in Employment Act, the Older Workers' Benefit Protection
Act, the Family and Medical Leave Act, the Americans With Disabilities Act, the
Executive Retirement Income Security Act of 1974, the Illinois Human Rights Act,
the Chicago or Cook County Human Rights Ordinance or any other federal, state,
local or foreign statute, regulation, ordinance or order, or pursuant to any
common law doctrine; provided, however, that nothing contained in this Release
shall apply to, or release the Company from, any obligation of the Company
contained in the Agreement. The consideration offered in the Agreement is
accepted by the Executive as being in full accord, satisfaction, compromise and
settlement of any and all claims or potential claims, and the Executive
expressly agrees that the Executive is not entitled to, and shall not receive,
any further recovery of any kind from the Company or any of the other Released
Parties, and that in the event of any further proceedings whatsoever based upon
any matter released herein, neither the Company nor any of the other Released
Parties shall have any further monetary or other obligation of any kind to the
Executive, including any obligation for any costs, expenses or attorneys' fees
incurred by or on behalf of the Executive. The Executive agrees that the
Executive has no present or future right to employment with the Company or any
of the other Released Parties.
3. The Executive expressly represents and warrants that the
Executive is the sole owner of the actual and alleged claims, demands, rights,
causes of action and other matters that are released herein; that the same have
not been transferred or assigned or caused to be transferred or assigned to any
other person, firm, corporation or other legal entity; and that the Executive
has the full right and power to grant, execute and deliver the general release,
undertakings and agreements contained herein.
4. ACKNOWLEDGMENT BY EXECUTIVE. BY EXECUTING THIS RELEASE, THE
EXECUTIVE EXPRESSLY ACKNOWLEDGES THAT THE EXECUTIVE HAS READ THIS RELEASE
CAREFULLY, THAT THE EXECUTIVE FULLY UNDERSTANDS ITS TERMS AND CONDITIONS, THAT
THE EXECUTIVE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING
THIS RELEASE, THAT THE EXECUTIVE HAS BEEN ADVISED THAT THE EXECUTIVE
<PAGE>
HAS [21][45] DAYS WITHIN WHICH TO DECIDE WHETHER OR NOT TO EXECUTE THIS RELEASE
AND THAT THE EXECUTIVE INTENDS TO BE LEGALLY BOUND BY IT. DURING A PERIOD OF
SEVEN DAYS FOLLOWING THE DATE OF THE EXECUTIVE'S EXECUTION OF THIS RELEASE, THE
EXECUTIVE SHALL HAVE THE RIGHT TO REVOKE THE RELEASE OF CLAIMS UNDER THE AGE
DISCRIMINATION IN EMPLOYMENT ACT BY SERVING WITHIN SUCH PERIOD WRITTEN NOTICE OF
REVOCATION. IF THE EXECUTIVE EXERCISES THE EXECUTIVE'S RIGHTS UNDER THE
PRECEDING SENTENCE, THE EXECUTIVE SHALL FORFEIT ALL AMOUNTS PAYABLE TO HIM
PURSUANT TO THE AGREEMENT.
5. The Agreement and this Release constitute the entire
understanding between the parties. The Executive has not relied on any oral
statements that are not included in the Agreement or this Release.
6. This Release shall be construed, interpreted and applied in
accordance with the internal laws of the State of Illinois without regard to the
principle of conflicts of laws.
--------------------------
[NAME]
Date:
----------------------
<PAGE>
EXHIBIT 10.31
SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of October 29, 1999 by and
between Aerial Communications, Inc., a Delaware corporation, and Gary Ballard
(the "Executive").
WHEREAS, the Executive currently serves as a key employee of
the Company (as defined in Section 1) or one of its subsidiaries and the
Executives' services and knowledge are valuable to the Company in connection
with the management of one or more of the Company's principal operating
facilities, divisions, departments or subsidiaries;
WHEREAS, the Board (as defined in Section 1) has determined
that it is in the best interests of the Company and its stockholders to secure
the Executive's continued services and to ensure the Executive's continued
dedication and objectivity in the event of any threat or occurrence of, or
negotiation or other action that could lead to, or create the possibility of, a
Change in Control (as defined in Section 1) of the Company, so that the
Executive need not be hindered or distracted by personal uncertainties and risks
created by any such possible Change in Control, and to encourage the Executive's
full attention and dedication to the Company, the Board has authorized the
Company to enter into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and agreements herein contained, the Company and the
Executive hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the respective meanings set forth below:
(a) "Affiliate" means a corporation which owns directly or
indirectly at least 50% of the outstanding stock of the Company or the combined
voting power of such outstanding stock, or a corporation at least 50% of whose
outstanding stock or the combined voting power of such outstanding stock is
owned directly or indirectly by the Company.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means (1) a material breach by the Executive of
those duties and responsibilities of the Executive which do not, in the
aggregate, differ materially from the duties and responsibilities of the
Executive during the 90-day period immediately prior to a Change in Control
(other than as a result of incapacity due to physical or mental illness) which
is willful, which is committed in bad faith or without reasonable belief that
such breach is in the best interests of the Company and which is not remedied in
a reasonable period of time after receipt of written notice from the Company
specifying such
<PAGE>
breach, (2) the commission by the Executive of a felony involving moral
turpitude, (3) the commission by the Executive of theft, fraud, breach of trust
or any act of dishonesty involving the Company or any Affiliate or (4) the
significant violation by the Executive of any statutory or common law duty of
loyalty to the Company or any Affiliate.
(d) "Change in Control" means a "change in control" with
respect to Telephone and Data Systems, Inc. as described on Exhibit A, at a time
when Telephone and Data Systems, Inc. owns directly or indirectly at least 50%
of either the outstanding stock of the Company or the combined voting power of
such stock, or one of the following events:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act"), of
beneficial ownership within the meaning of Rule 13d-3 promulgated under the Act
of 25% or more of the combined voting power of the then outstanding securities
of the Company entitled to vote generally on matters (without regard to the
election of directors) (the "Outstanding Voting Securities"), excluding,
however, the following: (i) any acquisition directly from the Company, or an
Affiliate (excluding any acquisition resulting from the exercise of an exercise,
conversion or exchange privilege, unless the security being so exercised,
converted or exchanged was acquired directly from the Company or an Affiliate),
(ii) any acquisition by the Company or an Affiliate, (iii) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or an Affiliate, (iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (3)
below, or (v) any acquisition by the following persons: (A) LeRoy T. Carlson or
his spouse, (B) any child of LeRoy T. Carlson or the spouse of any such child,
(C) any grandchild of LeRoy T. Carlson, including any child adopted by any child
of LeRoy T. Carlson, or the spouse of any such grandchild, (D) the estate of any
of the persons described in clauses (A)-(C), (E) any trust or similar
arrangement (including any acquisition on behalf of such trust or similar
arrangement by the trustees or similar persons) PROVIDED THAT all of the current
beneficiaries of such trust or similar arrangement are persons described in
clauses (A)-(C) or their lineal descendants, or (F) the voting trust which
expires on June 30, 2009, or any successor to such voting trust, including the
trustees of such voting trust on behalf of such voting trust (all such persons,
collectively, the "Exempted Persons");
(2) individuals who, as of the date hereof constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
such Board; PROVIDED THAT any individual
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<PAGE>
who becomes a director of the Company subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders, was approved
by the vote of at least a majority of the directors then comprising the
Incumbent Board shall be deemed a member of the Incumbent Board; and PROVIDED
FURTHER, that any individual who was initially elected as a director of the
Company as a result of an actual or threatened election contest, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Act, or any
other actual or threatened solicitation of proxies or consents by or on behalf
of any Person other than the Board shall not be deemed a member of the Incumbent
Board;
(3) the consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Corporate Transaction"), excluding, however, a Corporate Transaction
pursuant to which (i) all or substantially all of the individuals or entities
who are the beneficial owners of the Outstanding Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 51% of the combined voting power of the outstanding
securities of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns, either directly or indirectly, the Company or all or
substantially all of the Company's assets) which are entitled to vote generally
on matters (without regard to the election of directors), in substantially the
same proportions relative to each other as the shares of Outstanding Voting
Securities are owned immediately prior to such Corporate Transaction, (ii) no
Person (other than the following Persons: (v) the Company or an Affiliate, (w)
any employee benefit plan (or related trust) sponsored or maintained by the
Company or an Affiliate, (x) the corporation resulting from such Corporate
Transaction, (y) the Exempted Persons, (z) and any Person which beneficially
owned, immediately prior to such Corporate Transaction, directly or indirectly,
25% or more of the Outstanding Voting Securities) will beneficially own,
directly or indirectly, 25% or more of the combined voting power of the
outstanding securities of such corporation entitled to vote generally on matters
(without regard to the election of directors) and (iii) individuals who were
members of the Incumbent Board will constitute at least a majority of the
members of the board of directors of the corporation resulting from such
Corporate Transaction; or
(4) the consummation of a plan of complete liquidation or
dissolution of the Company.
(e) "Company" means Aerial Communications, Inc., a Delaware
corporation.
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(f) "Date of Termination" means (1) the effective date on
which the Executive's employment by the Company terminates as specified in a
prior written notice by the Company or the Executive, as the case may be, to the
other, delivered pursuant to Section 11 or (2) if the Executive's employment by
the Company terminates by reason of death, the date of death of the Executive.
(g) "Good Reason" means, without the Executive's express
written consent, the occurrence of any of the following events after a Change in
Control:
(1) any of (i) the assignment to the Executive of a materially
lower level of responsibility or status with the Company than existed
immediately prior to such Change in Control, or (ii) any failure to re-elect the
Executive to any significant office or, if applicable, directorship with the
Company held by the Executive immediately prior to such Change in Control;
(2) a reduction by the Company in the Executive's rate of
annual base salary or bonus opportunity as in effect immediately prior to such
Change in Control;
(3) any requirement of the Company that (i) the Executive be
based more than 30 miles from the facility where the Executive is located at the
time of the Change in Control or (ii) the Executive increase travel on Company
business by 20% or more than the travel obligations of the Executive immediately
prior to such Change in Control;
(4) the failure of the Company to (i) continue in effect any
employee benefit plan or compensation plan in which the Executive is
participating immediately prior to such Change in Control, unless the Executive
is permitted to participate in other plans providing the Executive with
substantially comparable benefits, or the taking of any action by the Company
which would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such plan, (ii) provide the Executive
and the Executive's dependents welfare benefits (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and programs)
in accordance with the plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive immediately prior to
such Change in Control as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies; or
(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 10(b).
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(h) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company for Cause, (2) by the Executive for
any reason other than a Good Reason, (3) as a result of the Executive's death or
(4) by the Company due to the Executive's absence from his duties with the
Company on a full-time basis for at least 180 consecutive days as a result of
the Executive's incapacity due to physical or mental illness.
(i) "Termination Period" means the period of time beginning
with a Change in Control and ending on the earlier to occur of (1) two years
following such Change in Control and (2) the Executive's death.
2. OBLIGATIONS OF THE EXECUTIVE. The Executive agrees that in
the event any person or group attempts a Change in Control, he shall not
voluntarily leave the employ of the Company without Good Reason (a) until such
attempted Change in Control terminates or (b) if a Change in Control shall
occur, until 90 days following such Change in Control. For purposes of clause
(a) of the preceding sentence, Good Reason shall be determined as if a Change in
Control had occurred when such attempted Change in Control became known to the
Board.
3. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If during the Termination Period (i) the employment of the
Executive shall terminate, other than by reason of a Nonqualifying Termination,
and (ii) the Executive (or the Executive's executor or other legal
representative in the case of the Executive's death or disability following such
termination) executes a general release in the form of Exhibit A hereto within
five days following the Executive's Date of Termination and has not revoked such
release, then the Company shall pay to the Executive (or the Executive's
beneficiary or estate) within 30 days following the Date of Termination, as
compensation for services rendered to the Company:
(1) a cash amount equal to the sum of (i) the Executive's full
annual base salary from the Company and its affiliated companies through the
Date of Termination, to the extent not theretofore paid, (ii) the Executive's
target bonus for the fiscal year in which the Change in Control occurs,
multiplied by a fraction, the numerator of which is the number of days in the
fiscal year in which the Change in Control occurs through the Date of
Termination and the denominator of which is 365 or 366, as applicable, to the
extent not theretofore paid and (iii) any compensation previously deferred by
the Executive (together with any interest and earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid; plus
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<PAGE>
(2) a lump-sum cash amount (subject to any applicable payroll
or other taxes required to be withheld pursuant to Section 5) in an amount equal
to (i)1.5 times the Executive's highest annual base salary from the Company and
its affiliated companies in effect during the 12-month period prior to the Date
of Termination, plus (ii)1.5 times the Executive's target bonus for the fiscal
year in which the Change in Control occurs, PROVIDED, HOWEVER, that any amount
paid pursuant to this Section 3(a)(2) shall be paid in lieu of any other amount
of severance relating to salary or bonus continuation to be received by the
Executive upon termination of employment of the Executive under any employment
agreement or severance plan, policy or arrangement of the Company, Aerial
Operating Company, Inc., Telephone and Data Systems, Inc. or any other Affiliate
(as determined immediately prior to a Change in Control).
(b)(1) In addition to the payments to be made pursuant to
Section 3(a) for a period of 18 months commencing on the Date of Termination,
the Company shall continue to keep in full force and effect all policies of
medical, accident, disability and life insurance with respect to the Executive
and his dependents with the same level of coverage, upon the same terms and
otherwise to the same extent as such policies shall have been in effect
immediately prior to the Date of Termination as provided generally with respect
to other peer executives of the Company and its affiliated companies, and the
Company and the Executive shall share the costs of the continuation of such
insurance coverage in the same proportion as such costs were shared immediately
prior to the Date of Termination.
(2) In addition to the payments to be made pursuant to Section
3(a), the Executive shall be entitled to outplacement services to be provided by
a firm selected by the Company, provided that such outplacement services are
commenced within 30 days following the Date of Termination. Payments in the
aggregate amount not to exceed $12,000 shall be made directly to such
outplacement firm upon submission of proper documentation to the Company. If the
Executive elects not to use such outplacement services, the Executive will not
be entitled to cash compensation in lieu thereof.
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<PAGE>
(c) If during the Termination Period the employment of the
Executive shall terminate by reason of a Nonqualifying Termination, then the
Company shall pay to the Executive within 30 days following the Date of
Termination, a cash amount equal to the sum of (1) the Executive's full annual
base salary from the Company through the Date of Termination, to the extent not
theretofore paid, and (2) any compensation previously deferred by the Executive
(together with any interest and earnings thereon) and any accrued vacation pay,
in each case to the extent not theretofore paid.
4. LIMITATION ON PAYMENTS BY THE COMPANY. Solely for the
purposes of the computation of benefits under this Agreement and
notwithstanding any other provisions hereof, payments to the Executive under
this Agreement shall be reduced (but not below zero) so that the present
value, as determined in accordance with Section 280G(d)(4) of the Code, of
such payments plus any other payments that must be taken into account for
purposes of any computation relating to the Executive under Section
280G(b)(2)(A)(ii) of the Code, shall not, in the aggregate, exceed 2.99 times
the Executive's "base amount," as such term is defined in Section 280G(b)(3)
of the Code. Notwithstanding any other provision hereof, no reduction in
payments under the limitation contained in the immediately preceding sentence
shall be applied to payments hereunder which do not constitute "excess
parachute payments" within the meaning of the Code. Any payments in excess of
the limitation of this Section 4 or otherwise determined to be "excess
parachute payments" made to the Executive hereunder shall be deemed to be
overpayments which shall constitute an amount owing from the Executive to the
Company with interest from the date of receipt by the Executive to the date
of repayment (or offset) at the applicable federal rate under Section 1274(d)
of the Code, compounded semi-annually, which shall be payable to the Company
upon demand; provided, however, that no repayment shall be required under
this sentence if in the written opinion of tax counsel satisfactory to the
Executive and delivered to the Executive and the Company such repayment does
not allow such overpayment to be excluded for federal income and excise tax
purposes from the Executive's income for the year of receipt or afford the
Executive a compensating federal income tax deduction for the year of
repayment.
5. WITHHOLDING TAXES. The Company may withhold from all
payments due to the Executive (or his beneficiary or estate) hereunder all taxes
which, by applicable federal, state, local or other law, the Company is required
to withhold therefrom.
6. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall
arise under this Agreement involving termination of the Executive's employment
with the Company or involving the failure or refusal of the Company to perform
fully in accordance
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with the terms hereof, the Company shall reimburse the Executive, on a current
basis, for all legal fees and expenses, if any, incurred by the Executive in
connection with such contest or dispute, together with interest thereon at a
rate equal to the prime rate, as published under "Money Rates" in THE WALL
STREET JOURNAL from time to time, but in no event higher than the maximum legal
rate permissible under applicable law, such interest to accrue from the date the
Company receives the Executive's statement for such fees and expenses through
the date of payment thereof; PROVIDED, HOWEVER, that in the event the resolution
of any such contest or dispute includes a finding denying, in total, the
Executive's claims in such contest or dispute, the Executive shall be required
to reimburse the Company, over a period of 12 months from the date of such
resolution, for all sums advanced to the Executive pursuant to this Section 6.
7. OPERATIVE EVENT. Notwithstanding any provision herein to
the contrary, no amounts shall be payable hereunder unless and until there is a
Change in Control at a time when the Executive is employed by the Company.
8. TERMINATION OF AGREEMENT. (a) This Agreement shall be
effective on the date hereof and shall continue until terminated by the Company
as provided in Section 8(b); PROVIDED, HOWEVER, that this Agreement shall
terminate in any event upon the earliest to occur of (i) termination of the
Executive's employment with the Company prior to a Change in Control, (ii) the
Executive's death and (iii) the date all obligations of the Company to make
payments or provide benefits to the Executive hereunder are satisfied in full.
(b) The Company shall have the right prior to a Change in
Control, in its sole discretion, pursuant to action by the Board, to approve the
termination of this Agreement, which termination shall not become effective
until the date fixed by the Board for such termination, which date shall be at
least 120 days after notice thereof is given by the Company to the Executive in
accordance with Section 11; PROVIDED, HOWEVER, that no such action shall be
taken by the Board during any period of time when the Board has knowledge that
any person has taken steps reasonably calculated to effect a Change in Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change in Control; and PROVIDED FURTHER, that in no event
shall this Agreement be terminated in the event of a Change in Control.
9. SCOPE OF AGREEMENT. Nothing in this Agreement shall be
deemed to entitle the Executive to continued employment with the Company or its
subsidiaries and, if the Executive's employment with the Company shall terminate
prior to a Change in Control, then the Executive shall have no further rights
under
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this Agreement; PROVIDED, HOWEVER, that any termination of the Executive's
employment following a Change in Control and prior to the end of the Termination
Period shall be subject to all of the provisions of this Agreement.
10. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in Section 10(a), it will cause
any successor or transferee unconditionally to assume, by written instrument
delivered to the Executive (or his beneficiary or estate), all of the
obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to or concurrent with the effectiveness of any such merger,
consolidation or transfer of assets shall be a breach of this Agreement and
shall entitle the Executive to compensation and other benefits from the Company
in the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive's employment were terminated following a Change in
Control other than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any such merger, consolidation or
transfer becomes effective shall be deemed the Date of Termination.
(c) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amounts would be payable to the Executive
hereunder had the Executive continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to such person or persons appointed in writing by the Executive to
receive such amounts or, if no person is so appointed, to the Executive's
estate.
11. NOTICES. (a) For purposes of this Agreement, all notices
and other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given when delivered or five days after
deposit in the United States mail, certified and return receipt requested,
postage prepaid, addressed (1) if to the Executive, to Gary Ballard, and if to
the Company, to Aerial Communications, Inc., attention Vice President, Human
Resources, or (2) to such other address as
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either party may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
(b) A written notice of the Executive's Date of Termination by
the Company or the Executive, as the case may be, to the other, shall (i)
indicate the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the termination
date (which date shall be not less than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in such notice
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company hereunder or preclude
the Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
12. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make any payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced whether or
not the Executive obtains other employment.
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or without
Good Reason, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to the Executive and his dependents or other beneficiaries,
as the case may be, under Sections 3(a) and 3(b), the Company shall pay all
amounts, and provide all benefits, to the Executive and his dependents or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Sections 3(a) and 3(b) as though such termination were by
the Company without Cause or by the Executive with Good Reason; PROVIDED,
HOWEVER, that the Company shall not be required to pay any disputed amounts
pursuant to this Section 12(b) except upon receipt of an undertaking by or on
behalf of the Executive to repay all such amounts to which the Executive is
ultimately adjudged by such court not to be entitled.
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13. EMPLOYMENT WITH AFFILIATES. Employment with the Company
for purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% of more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
14. GOVERNING LAW; VALIDITY. The interpretation, construction
and performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Illinois without
regard to the principle of conflicts of laws. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which other provisions
shall remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
16. MISCELLANEOUS. No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by the Executive and by a duly authorized officer of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. Failure by the Executive or the Company to insist upon strict compliance
with any provision of this Agreement or to assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement. Except as otherwise expressly set forth in this Agreement, the rights
of, and benefits payable to, the Executive, his estate or his beneficiaries
pursuant to this Agreement are in addition to any rights of, or benefits payable
to, the Executive, his estate or his beneficiaries under any other employee
benefit plan or compensation program of the Company.
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by a duly authorized officer of the Company and the Executive has
executed this Agreement as of the day and year first above written.
AERIAL COMMUNICATIONS, INC.
By: /s/ Donald Warkentin
--------------------------
Donald Warkentin, President
EXECUTIVE
/s/ Gary F. Ballard
-------------------------
Gary F. Ballard
12
<PAGE>
Exhibit A
Change in Control of
Telephone and Data Systems, Inc.
For purposes of paragraph 1(d) of the Agreement, a "change in control"
with respect to Telephone and Data Systems, Inc. shall mean one of the
following:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership
within the meaning of Rule 13d-3 promulgated under the Exchange Act, of
25% or more of the combined voting power of the then outstanding
securities of Telephone and Data Systems, Inc., a Delaware corporation
(the "Company") entitled to vote generally on matters (without regard
to the election of directors) (the "Outstanding Voting Securities"),
excluding, however, the following: (i) any acquisition directly from
the Company or a corporation which owns directly or indirectly at least
50% of the outstanding stock of the Company or the combined voting
power of such outstanding stock or a corporation at least 50% of whose
outstanding stock or the combined voting power of such outstanding
stock is owned directly or indirectly by the Company (an "Affiliate")
(excluding any acquisition resulting from the exercise of an exercise,
conversion or exchange privilege, unless the security being so
exercised, converted or exchanged was acquired directly from the
Company or an Affiliate), (ii) any acquisition by the Company or an
Affiliate, (iii) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or an Affiliate,
(iv) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (3) of this
Exhibit A, or (v) any acquisition by the following persons: (A) LeRoy
T. Carlson or his spouse, (B) any child of LeRoy T. Carlson or the
spouse of any such child, (C) any grandchild of LeRoy T. Carlson,
including any child adopted by any child of LeRoy T. Carlson, or the
spouse of any such grandchild, (D) the estate of any of the persons
described in clauses (A)-(C), (E) any trust or similar arrangement
(including any acquisition on behalf of such trust or similar
arrangement by the trustees or similar persons) PROVIDED THAT all of
the current beneficiaries of such trust or similar arrangement are
persons described in clauses (A)-(C) or their lineal descendants, or
(F) the voting trust which expires on June 30, 2009, or any successor
to such voting trust, including the trustees of such voting trust on
behalf of such voting trust (all such persons, collectively, the
"Exempted Persons");
A-1
<PAGE>
(2) individuals who, as of the effective date of the merger of
Telephone and Data Systems, Inc., an Iowa corporation, into the
Company, constitute the Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of such Board;
PROVIDED THAT any individual who becomes a director of the Company
subsequent to the effective date of the merger of Telephone and Data
Systems, Inc., an Iowa corporation, into the Company, whose election,
or nomination for election by the Company's stockholders, was approved
by the vote of at least a majority of the directors then comprising the
Incumbent Board shall be deemed a member of the Incumbent Board; and
PROVIDED FURTHER, that any individual who was initially elected as a
director of the Company as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other
than the Board shall not be deemed a member of the Incumbent Board;
(3) the consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Corporate Transaction"), excluding,
however, a Corporate Transaction pursuant to which (i) all or
substantially all of the individuals or entities who are the beneficial
owners of the Outstanding Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly,
more than 51% of the combined voting power of the outstanding
securities of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns, either directly or indirectly, the Company or all or
substantially all of the Company's assets) which are entitled to vote
generally on matters (without regard to the election of directors), in
substantially the same proportions relative to each other as the shares
of Outstanding Voting Securities are owned immediately prior to such
Corporate Transaction, (ii) no Person (other than the following
Persons: (V) the Company or an Affiliate, (W) any employee benefit plan
(or related trust) sponsored or maintained by the Company or an
Affiliate, (X) the corporation resulting from such Corporate
Transaction, (Y) the Exempted Persons, (Z) and any Person which
beneficially owned, immediately prior to such Corporate Transaction,
directly or indirectly, 25% or more of the Outstanding Voting
Securities) will beneficially own, directly or indirectly, 25% or more
of the combined voting power of the outstanding securities of such
corporation entitled to vote
A-2
<PAGE>
generally on matters (without regard to the election of directors) and
(iii) individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate
Transaction; or
(4) the consummation of a plan of complete liquidation or
dissolution of the Company.
A-3
<PAGE>
EXHIBIT B
GENERAL RELEASE
This General Release (this "Release") is executed by _________
(the "Executive") pursuant to the Severance Agreement dated as of
______________, 1999 (the "Agreement") between the Executive and Aerial
Communications, Inc. (the "Company").
WHEREAS, the Executive's employment with the "Company" is
terminating;
WHEREAS, the Executive has had [21][45] days to consider the
form of this Release;
WHEREAS, the Company advised the Executive in writing to
consult with an attorney before signing this Release;
WHEREAS, the Executive acknowledges that the consideration to
be provided to the Executive under the Agreement is sufficient to support this
Release; and
WHEREAS, the Executive understands that the Company regards
the representations by the Executive in this Release as material and that the
Company is relying on such representations in paying amounts to the Executive
pursuant to the Agreement.
THE EXECUTIVE THEREFORE AGREES AS FOLLOWS:
1. The Executive's employment with the Company shall terminate
on ________, and the Executive shall receive the payments set forth in Section 3
of the Agreement in accordance with the terms and subject to the conditions
thereof.
2. The Executive, on behalf of the Executive and anyone
claiming through the Executive, hereby agrees not to sue the Company or
Telephone and Data Systems, Inc. ("TDS") or any division, subsidiary, affiliate
or other related entity of the Company or TDS (whether or not such entity is
wholly owned), or any of the past, present or future directors, officers,
administrators, trustees, fiduciaries, employees, agents, attorneys or
shareholders of the Company or TDS or any of such other entities, or the
predecessors, successors or assigns of any of them (hereinafter referred to as
the "Released Parties"), and agrees to release and discharge, fully, finally and
forever, the Released Parties from any and all claims, causes of action,
lawsuits, liabilities, debts, accounts, covenants, contracts, controversies,
agreements, promises, sums of money, damages, judgments and demands of any
nature whatsoever, in law or in equity, both known and unknown, asserted or not
asserted,
<PAGE>
foreseen or unforeseen, which the Executive ever had or may presently have
against any of the Released Parties arising from the beginning of time up to and
including the effective date of this Release, including, without limitation, all
matters in any way related to the Executive's employment by the Company or by
TDS or any of their affiliates, the terms and conditions thereof, any failure to
promote the Executive and the termination or cessation of the Executive's
employment with the Company or by TDS or any of their affiliates, and including,
without limitation, any and all claims arising under the Civil Rights Act of
1964, as amended, the Civil Rights Act of 1991, the Civil Rights Act of 1866,
the Age Discrimination in Employment Act, the Older Workers' Benefit Protection
Act, the Family and Medical Leave Act, the Americans With Disabilities Act, the
Executive Retirement Income Security Act of 1974, the Illinois Human Rights Act,
the Chicago or Cook County Human Rights Ordinance or any other federal, state,
local or foreign statute, regulation, ordinance or order, or pursuant to any
common law doctrine; provided, however, that nothing contained in this Release
shall apply to, or release the Company from, any obligation of the Company
contained in the Agreement. The consideration offered in the Agreement is
accepted by the Executive as being in full accord, satisfaction, compromise and
settlement of any and all claims or potential claims, and the Executive
expressly agrees that the Executive is not entitled to, and shall not receive,
any further recovery of any kind from the Company or any of the other Released
Parties, and that in the event of any further proceedings whatsoever based upon
any matter released herein, neither the Company nor any of the other Released
Parties shall have any further monetary or other obligation of any kind to the
Executive, including any obligation for any costs, expenses or attorneys' fees
incurred by or on behalf of the Executive. The Executive agrees that the
Executive has no present or future right to employment with the Company or any
of the other Released Parties.
3. The Executive expressly represents and warrants that the
Executive is the sole owner of the actual and alleged claims, demands, rights,
causes of action and other matters that are released herein; that the same have
not been transferred or assigned or caused to be transferred or assigned to any
other person, firm, corporation or other legal entity; and that the Executive
has the full right and power to grant, execute and deliver the general release,
undertakings and agreements contained herein.
4. ACKNOWLEDGMENT BY EXECUTIVE. BY EXECUTING THIS RELEASE, THE
EXECUTIVE EXPRESSLY ACKNOWLEDGES THAT THE EXECUTIVE HAS READ THIS RELEASE
CAREFULLY, THAT THE EXECUTIVE FULLY UNDERSTANDS ITS TERMS AND CONDITIONS, THAT
THE EXECUTIVE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING
THIS RELEASE, THAT THE EXECUTIVE HAS BEEN ADVISED THAT THE EXECUTIVE
<PAGE>
HAS [21][45] DAYS WITHIN WHICH TO DECIDE WHETHER OR NOT TO EXECUTE THIS RELEASE
AND THAT THE EXECUTIVE INTENDS TO BE LEGALLY BOUND BY IT. DURING A PERIOD OF
SEVEN DAYS FOLLOWING THE DATE OF THE EXECUTIVE'S EXECUTION OF THIS RELEASE, THE
EXECUTIVE SHALL HAVE THE RIGHT TO REVOKE THE RELEASE OF CLAIMS UNDER THE AGE
DISCRIMINATION IN EMPLOYMENT ACT BY SERVING WITHIN SUCH PERIOD WRITTEN NOTICE OF
REVOCATION. IF THE EXECUTIVE EXERCISES THE EXECUTIVE'S RIGHTS UNDER THE
PRECEDING SENTENCE, THE EXECUTIVE SHALL FORFEIT ALL AMOUNTS PAYABLE TO HIM
PURSUANT TO THE AGREEMENT.
5. The Agreement and this Release constitute the entire
understanding between the parties. The Executive has not relied on any oral
statements that are not included in the Agreement or this Release.
6. This Release shall be construed, interpreted and applied in
accordance with the internal laws of the State of Illinois without regard to the
principle of conflicts of laws.
-----------------------------
[NAME]
Date:
------------------------
<PAGE>
EXHIBIT 10.32
SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of September 21, 1999 by and
between Aerial Communications, Inc., a Delaware corporation, and David B. Lowry
(the "Executive").
WHEREAS, the Executive currently serves as a key employee of
the Company (as defined in Section 1) or one of its subsidiaries and the
Executives' services and knowledge are valuable to the Company in connection
with the management of one or more of the Company's principal operating
facilities, divisions, departments or subsidiaries;
WHEREAS, the Board (as defined in Section 1) has determined
that it is in the best interests of the Company and its stockholders to secure
the Executive's continued services and to ensure the Executive's continued
dedication and objectivity in the event of any threat or occurrence of, or
negotiation or other action that could lead to, or create the possibility of, a
Change in Control (as defined in Section 1) of the Company, so that the
Executive need not be hindered or distracted by personal uncertainties and risks
created by any such possible Change in Control, and to encourage the Executive's
full attention and dedication to the Company, the Board has authorized the
Company to enter into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and agreements herein contained, the Company and the
Executive hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the respective meanings set forth below:
(a) "Affiliate" means a corporation which owns directly or
indirectly at least 50% of the outstanding stock of the Company or the combined
voting power of such outstanding stock, or a corporation at least 50% of whose
outstanding stock or the combined voting power of such outstanding stock is
owned directly or indirectly by the Company.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means (1) a material breach by the Executive of
those duties and responsibilities of the Executive which do not, in the
aggregate, differ materially from the duties and responsibilities of the
Executive during the 90-day period immediately prior to a Change in Control
(other than as a result of incapacity due to physical or mental illness) which
is willful, which is committed in bad faith or without reasonable belief that
such breach is in the best interests of the Company and which is not remedied in
a reasonable period of time after receipt of written notice from the Company
specifying such
<PAGE>
breach, (2) the commission by the Executive of a felony involving moral
turpitude, (3) the commission by the Executive of theft, fraud, breach of trust
or any act of dishonesty involving the Company or any Affiliate or (4) the
significant violation by the Executive of any statutory or common law duty of
loyalty to the Company or any Affiliate.
(d) "Change in Control" means a "change in control" with
respect to Telephone and Data Systems, Inc. as described on Exhibit A, at a time
when Telephone and Data Systems, Inc. owns directly or indirectly at least 50%
of either the outstanding stock of the Company or the combined voting power of
such stock, or one of the following events:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act"), of
beneficial ownership within the meaning of Rule 13d-3 promulgated under the Act
of 25% or more of the combined voting power of the then outstanding securities
of the Company entitled to vote generally on matters (without regard to the
election of directors) (the "Outstanding Voting Securities"), excluding,
however, the following: (i) any acquisition directly from the Company, or an
Affiliate (excluding any acquisition resulting from the exercise of an exercise,
conversion or exchange privilege, unless the security being so exercised,
converted or exchanged was acquired directly from the Company or an Affiliate),
(ii) any acquisition by the Company or an Affiliate, (iii) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or an Affiliate, (iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (3)
below, or (v) any acquisition by the following persons: (A) LeRoy T. Carlson or
his spouse, (B) any child of LeRoy T. Carlson or the spouse of any such child,
(C) any grandchild of LeRoy T. Carlson, including any child adopted by any child
of LeRoy T. Carlson, or the spouse of any such grandchild, (D) the estate of any
of the persons described in clauses (A)-(C), (E) any trust or similar
arrangement (including any acquisition on behalf of such trust or similar
arrangement by the trustees or similar persons) PROVIDED THAT all of the current
beneficiaries of such trust or similar arrangement are persons described in
clauses (A)-(C) or their lineal descendants, or (F) the voting trust which
expires on June 30, 2009, or any successor to such voting trust, including the
trustees of such voting trust on behalf of such voting trust (all such persons,
collectively, the "Exempted Persons");
(2) individuals who, as of the date hereof constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
such Board; PROVIDED THAT any individual
2
<PAGE>
who becomes a director of the Company subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders, was approved
by the vote of at least a majority of the directors then comprising the
Incumbent Board shall be deemed a member of the Incumbent Board; and PROVIDED
FURTHER, that any individual who was initially elected as a director of the
Company as a result of an actual or threatened election contest, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Act, or any
other actual or threatened solicitation of proxies or consents by or on behalf
of any Person other than the Board shall not be deemed a member of the Incumbent
Board;
(3) the consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Corporate Transaction"), excluding, however, a Corporate Transaction
pursuant to which (i) all or substantially all of the individuals or entities
who are the beneficial owners of the Outstanding Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 51% of the combined voting power of the outstanding
securities of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns, either directly or indirectly, the Company or all or
substantially all of the Company's assets) which are entitled to vote generally
on matters (without regard to the election of directors), in substantially the
same proportions relative to each other as the shares of Outstanding Voting
Securities are owned immediately prior to such Corporate Transaction, (ii) no
Person (other than the following Persons: (V) the Company or an Affiliate, (W)
any employee benefit plan (or related trust) sponsored or maintained by the
Company or an Affiliate, (X) the corporation resulting from such Corporate
Transaction, (Y) the Exempted Persons, (Z) and any Person which beneficially
owned, immediately prior to such Corporate Transaction, directly or indirectly,
25% or more of the Outstanding Voting Securities) will beneficially own,
directly or indirectly, 25% or more of the combined voting power of the
outstanding securities of such corporation entitled to vote generally on matters
(without regard to the election of directors) and (iii) individuals who were
members of the Incumbent Board will constitute at least a majority of the
members of the board of directors of the corporation resulting from such
Corporate Transaction; or
(4) the consummation of a plan of complete liquidation or
dissolution of the Company.
(e) "Company" means Aerial Communications, Inc., a Delaware
corporation.
3
<PAGE>
(f) "Date of Termination" means (1) the effective date on
which the Executive's employment by the Company terminates as specified in a
prior written notice by the Company or the Executive, as the case may be, to the
other, delivered pursuant to Section 11 or (2) if the Executive's employment by
the Company terminates by reason of death, the date of death of the Executive.
(g) "Good Reason" means, without the Executive's express
written consent, the occurrence of any of the following events after a Change in
Control:
(1) any of (i) the assignment to the Executive of a materially
lower level of responsibility or status with the Company than existed
immediately prior to such Change in Control, or (ii) any failure to re-elect the
Executive to any significant office or, if applicable, directorship with the
Company held by the Executive immediately prior to such Change in Control;
(2) a reduction by the Company in the Executive's rate of
annual base salary or bonus opportunity as in effect immediately prior to such
Change in Control;
(3) any requirement of the Company that (i) the Executive be
based more than 30 miles from the facility where the Executive is located at the
time of the Change in Control or (ii) the Executive increase travel on Company
business by 20% or more than the travel obligations of the Executive immediately
prior to such Change in Control;
(4) the failure of the Company to (i) continue in effect any
employee benefit plan or compensation plan in which the Executive is
participating immediately prior to such Change in Control, unless the Executive
is permitted to participate in other plans providing the Executive with
substantially comparable benefits, or the taking of any action by the Company
which would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such plan, (ii) provide the Executive
and the Executive's dependents welfare benefits (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and programs)
in accordance with the plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive immediately prior to
such Change in Control as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies; or
(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 10(b).
4
<PAGE>
(h) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company for Cause, (2) by the Executive for
any reason other than a Good Reason, (3) as a result of the Executive's death or
(4) by the Company due to the Executive's absence from his duties with the
Company on a full-time basis for at least 180 consecutive days as a result of
the Executive's incapacity due to physical or mental illness.
(i) "Termination Period" means the period of time beginning
with a Change in Control and ending on the earlier to occur of (1) two years
following such Change in Control and (2) the Executive's death.
2. OBLIGATIONS OF THE EXECUTIVE. The Executive agrees that in
the event any person or group attempts a Change in Control, he shall not
voluntarily leave the employ of the Company without Good Reason (a) until such
attempted Change in Control terminates or (b) if a Change in Control shall
occur, until 90 days following such Change in Control. For purposes of clause
(a) of the preceding sentence, Good Reason shall be determined as if a Change in
Control had occurred when such attempted Change in Control became known to the
Board.
3. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If during the Termination Period (i) the employment of the
Executive shall terminate, other than by reason of a Nonqualifying Termination,
and (ii) the Executive (or the Executive's executor or other legal
representative in the case of the Executive's death or disability following such
termination) executes a general release in the form of Exhibit A hereto within
five days following the Executive's Date of Termination and has not revoked such
release, then the Company shall pay to the Executive (or the Executive's
beneficiary or estate) within 30 days following the Date of Termination, as
compensation for services rendered to the Company:
(1) a cash amount equal to the sum of (i) the Executive's full
annual base salary from the Company and its affiliated companies through the
Date of Termination, to the extent not theretofore paid, (ii) the Executive's
target bonus for the fiscal year in which the Change in Control occurs,
multiplied by a fraction, the numerator of which is the number of days in the
fiscal year in which the Change in Control occurs through the Date of
Termination and the denominator of which is 365 or 366, as applicable, to the
extent not theretofore paid and (iii) any compensation previously deferred by
the Executive (together with any interest and earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid; plus
5
<PAGE>
(2) a lump-sum cash amount (subject to any applicable payroll
or other taxes required to be withheld pursuant to Section 5) in an amount equal
to (i)150% of the Executive's highest annual base salary from the Company and
its affiliated companies in effect during the 12-month period prior to the Date
of Termination, plus (ii)150% of the Executive's target bonus for the fiscal
year in which the Change in Control occurs, PROVIDED, HOWEVER, that any amount
paid pursuant to this Section 3(a)(2) shall be paid in lieu of any other amount
of severance relating to salary or bonus continuation to be received by the
Executive upon termination of employment of the Executive under any employment
agreement or severance plan, policy or arrangement of the Company, Aerial
Operating Company, Inc., Telephone and Data Systems, Inc. or any other Affiliate
(as determined immediately prior to a Change in Control).
(b)(1) In addition to the payments to be made pursuant to
Section 3(a) for a period of 18 months commencing on the Date of Termination,
the Company shall continue to keep in full force and effect all policies of
medical, accident, disability and life insurance with respect to the Executive
and his dependents with the same level of coverage, upon the same terms and
otherwise to the same extent as such policies shall have been in effect
immediately prior to the Date of Termination as provided generally with respect
to other peer executives of the Company and its affiliated companies, and the
Company and the Executive shall share the costs of the continuation of such
insurance coverage in the same proportion as such costs were shared immediately
prior to the Date of Termination.
(2) In addition to the payments to be made pursuant to Section
3(a), the Executive shall be entitled to outplacement services to be provided by
a firm selected by the Company, provided that such outplacement services are
commenced within 30 days following the Date of Termination. Payments in the
aggregate amount not to exceed $12,000 shall be made directly to such
outplacement firm upon submission of proper documentation to the Company. If the
Executive elects not to use such outplacement services, the Executive will not
be entitled to cash compensation in lieu thereof.
6
<PAGE>
(c) If during the Termination Period the employment of the
Executive shall terminate by reason of a Nonqualifying Termination, then the
Company shall pay to the Executive within 30 days following the Date of
Termination, a cash amount equal to the sum of (1) the Executive's full annual
base salary from the Company through the Date of Termination, to the extent not
theretofore paid, and (2) any compensation previously deferred by the Executive
(together with any interest and earnings thereon) and any accrued vacation pay,
in each case to the extent not theretofore paid.
4. LIMITATION ON PAYMENTS BY THE COMPANY. Solely for the purposes
of the computation of benefits under this Agreement and notwithstanding any
other provisions hereof, payments to the Executive under this Agreement shall be
reduced (but not below zero) so that the present value, as determined in
accordance with Section 280G(d)(4) of the Code, of such payments plus any other
payments that must be taken into account for purposes of any computation
relating to the Executive under Section 280G(b)(2)(A)(ii) of the Code, shall
not, in the aggregate, exceed 2.99 times the Executive's "base amount," as such
term is defined in Section 280G(b)(3) of the Code. Notwithstanding any other
provision hereof, no reduction in payments under the limitation contained in the
immediately preceding sentence shall be applied to payments hereunder which do
not constitute "excess parachute payments" within the meaning of the Code. Any
payments in excess of the limitation of this Section 4 or otherwise determined
to be "excess parachute payments" made to the Executive hereunder shall be
deemed to be overpayments which shall constitute an amount owing from the
Executive to the Company with interest from the date of receipt by the Executive
to the date of repayment (or offset) at the applicable federal rate under
Section 1274(d) of the Code, compounded semi-annually, which shall be payable to
the Company upon demand; provided, however, that no repayment shall be required
under this sentence if in the written opinion of tax counsel satisfactory to the
Executive and delivered to the Executive and the Company such repayment does not
allow such overpayment to be excluded for federal income and excise tax purposes
from the Executive's income for the year of receipt or afford the Executive a
compensating federal income tax deduction for the year of repayment.
5. WITHHOLDING TAXES. The Company may withhold from all
payments due to the Executive (or his beneficiary or estate) hereunder all taxes
which, by applicable federal, state, local or other law, the Company is required
to withhold therefrom.
6. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall
arise under this Agreement involving termination of the Executive's employment
with the Company or involving the failure or refusal of the Company to perform
fully in accordance
7
<PAGE>
with the terms hereof, the Company shall reimburse the Executive, on a current
basis, for all legal fees and expenses, if any, incurred by the Executive in
connection with such contest or dispute, together with interest thereon at a
rate equal to the prime rate, as published under "Money Rates" in THE WALL
STREET JOURNAL from time to time, but in no event higher than the maximum legal
rate permissible under applicable law, such interest to accrue from the date the
Company receives the Executive's statement for such fees and expenses through
the date of payment thereof; PROVIDED, HOWEVER, that in the event the resolution
of any such contest or dispute includes a finding denying, in total, the
Executive's claims in such contest or dispute, the Executive shall be required
to reimburse the Company, over a period of 12 months from the date of such
resolution, for all sums advanced to the Executive pursuant to this Section 6.
7. OPERATIVE EVENT. Notwithstanding any provision herein to
the contrary, no amounts shall be payable hereunder unless and until there is a
Change in Control at a time when the Executive is employed by the Company.
8. TERMINATION OF AGREEMENT. (a) This Agreement shall be
effective on the date hereof and shall continue until terminated by the Company
as provided in Section 8(b); PROVIDED, HOWEVER, that this Agreement shall
terminate in any event upon the earliest to occur of (i) termination of the
Executive's employment with the Company prior to a Change in Control, (ii) the
Executive's death and (iii) the date all obligations of the Company to make
payments or provide benefits to the Executive hereunder are satisfied in full.
(b) The Company shall have the right prior to a Change in
Control, in its sole discretion, pursuant to action by the Board, to approve the
termination of this Agreement, which termination shall not become effective
until the date fixed by the Board for such termination, which date shall be at
least 120 days after notice thereof is given by the Company to the Executive in
accordance with Section 11; PROVIDED, HOWEVER, that no such action shall be
taken by the Board during any period of time when the Board has knowledge that
any person has taken steps reasonably calculated to effect a Change in Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change in Control; and PROVIDED FURTHER, that in no event
shall this Agreement be terminated in the event of a Change in Control.
9. SCOPE OF AGREEMENT. Nothing in this Agreement shall be
deemed to entitle the Executive to continued employment with the Company or its
subsidiaries and, if the Executive's employment with the Company shall terminate
prior to a Change in Control, then the Executive shall have no further rights
under
8
<PAGE>
this Agreement; PROVIDED, HOWEVER, that any termination of the Executive's
employment following a Change in Control and prior to the end of the Termination
Period shall be subject to all of the provisions of this Agreement.
10. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in Section 10(a), it will cause
any successor or transferee unconditionally to assume, by written instrument
delivered to the Executive (or his beneficiary or estate), all of the
obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to or concurrent with the effectiveness of any such merger,
consolidation or transfer of assets shall be a breach of this Agreement and
shall entitle the Executive to compensation and other benefits from the Company
in the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive's employment were terminated following a Change in
Control other than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any such merger, consolidation or
transfer becomes effective shall be deemed the Date of Termination.
(c) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amounts would be payable to the Executive
hereunder had the Executive continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to such person or persons appointed in writing by the Executive to
receive such amounts or, if no person is so appointed, to the Executive's
estate.
11. NOTICES. (a) For purposes of this Agreement, all notices
and other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given when delivered or five days after
deposit in the United States mail, certified and return receipt requested,
postage prepaid, addressed (1) if to the Executive, to David B. Lowry, and if to
the Company, to Aerial Communications, Inc., attention Vice President, Human
Resources, or (2) to such other address as
9
<PAGE>
either party may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
(b) A written notice of the Executive's Date of Termination by
the Company or the Executive, as the case may be, to the other, shall (i)
indicate the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the termination
date (which date shall be not less than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in such notice
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company hereunder or preclude
the Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
12. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make any payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced whether or
not the Executive obtains other employment.
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or without
Good Reason, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to the Executive and his dependents or other beneficiaries,
as the case may be, under Sections 3(a) and 3(b), the Company shall pay all
amounts, and provide all benefits, to the Executive and his dependents or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Sections 3(a) and 3(b) as though such termination were by
the Company without Cause or by the Executive with Good Reason; PROVIDED,
HOWEVER, that the Company shall not be required to pay any disputed amounts
pursuant to this Section 12(b) except upon receipt of an undertaking by or on
behalf of the Executive to repay all such amounts to which the Executive is
ultimately adjudged by such court not to be entitled.
10
<PAGE>
13. EMPLOYMENT WITH AFFILIATES. Employment with the Company
for purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% of more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
14. GOVERNING LAW; VALIDITY. The interpretation, construction
and performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Illinois without
regard to the principle of conflicts of laws. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which other provisions
shall remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
16. MISCELLANEOUS. No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by the Executive and by a duly authorized officer of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. Failure by the Executive or the Company to insist upon strict compliance
with any provision of this Agreement or to assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement. Except as otherwise expressly set forth in this Agreement, the rights
of, and benefits payable to, the Executive, his estate or his beneficiaries
pursuant to this Agreement are in addition to any rights of, or benefits payable
to, the Executive, his estate or his beneficiaries under any other employee
benefit plan or compensation program of the Company.
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by a duly authorized officer of the Company and the Executive has
executed this Agreement as of the day and year first above written.
AERIAL COMMUNICATIONS, INC.
By: /s/ Donald Warkentin
---------------------------
Donald Warkentin
President and Chief
Executive Officer
EXECUTIVE
/s/ David B. Lowry
------------------------------
David B. Lowry
12
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Exhibit A
Change in Control of
Telephone and Data Systems, Inc.
For purposes of paragraph 1(d) of the Agreement, a "change in control"
with respect to Telephone and Data Systems, Inc. shall mean one of the
following:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership
within the meaning of Rule 13d-3 promulgated under the Exchange Act, of
25% or more of the combined voting power of the then outstanding
securities of Telephone and Data Systems, Inc., a Delaware corporation
(the "Company") entitled to vote generally on matters (without regard
to the election of directors) (the "Outstanding Voting Securities"),
excluding, however, the following: (i) any acquisition directly from
the Company or a corporation which owns directly or indirectly at least
50% of the outstanding stock of the Company or the combined voting
power of such outstanding stock or a corporation at least 50% of whose
outstanding stock or the combined voting power of such outstanding
stock is owned directly or indirectly by the Company (an "Affiliate")
(excluding any acquisition resulting from the exercise of an exercise,
conversion or exchange privilege, unless the security being so
exercised, converted or exchanged was acquired directly from the
Company or an Affiliate), (ii) any acquisition by the Company or an
Affiliate, (iii) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or an Affiliate,
(iv) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (3) of this
Exhibit A, or (v) any acquisition by the following persons: (A) LeRoy
T. Carlson or his spouse, (B) any child of LeRoy T. Carlson or the
spouse of any such child, (C) any grandchild of LeRoy T. Carlson,
including any child adopted by any child of LeRoy T. Carlson, or the
spouse of any such grandchild, (D) the estate of any of the persons
described in clauses (A)-(C), (E) any trust or similar arrangement
(including any acquisition on behalf of such trust or similar
arrangement by the trustees or similar persons) PROVIDED THAT all of
the current beneficiaries of such trust or similar arrangement are
persons described in clauses (A)-(C) or their lineal descendants, or
(F) the voting trust which expires on June 30, 2009, or any successor
to such voting trust, including the trustees of such voting trust on
behalf of such voting trust (all such persons, collectively, the
"Exempted Persons");
A-1
<PAGE>
(2) individuals who, as of the effective date of the merger of
Telephone and Data Systems, Inc., an Iowa corporation, into the
Company, constitute the Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of such Board;
PROVIDED THAT any individual who becomes a director of the Company
subsequent to the effective date of the merger of Telephone and Data
Systems, Inc., an Iowa corporation, into the Company, whose election,
or nomination for election by the Company's stockholders, was approved
by the vote of at least a majority of the directors then comprising the
Incumbent Board shall be deemed a member of the Incumbent Board; and
PROVIDED FURTHER, that any individual who was initially elected as a
director of the Company as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other
than the Board shall not be deemed a member of the Incumbent Board;
(3) the consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Corporate Transaction"), excluding,
however, a Corporate Transaction pursuant to which (i) all or
substantially all of the individuals or entities who are the beneficial
owners of the Outstanding Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly,
more than 51% of the combined voting power of the outstanding
securities of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns, either directly or indirectly, the Company or all or
substantially all of the Company's assets) which are entitled to vote
generally on matters (without regard to the election of directors), in
substantially the same proportions relative to each other as the shares
of Outstanding Voting Securities are owned immediately prior to such
Corporate Transaction, (ii) no Person (other than the following
Persons: (v) the Company or an Affiliate, (w) any employee benefit plan
(or related trust) sponsored or maintained by the Company or an
Affiliate, (x) the corporation resulting from such Corporate
Transaction, (y) the Exempted Persons, (z) and any Person which
beneficially owned, immediately prior to such Corporate Transaction,
directly or indirectly, 25% or more of the Outstanding Voting
Securities) will beneficially own, directly or indirectly, 25% or more
of the combined voting power of the outstanding securities of such
corporation entitled to vote
A-2
<PAGE>
generally on matters (without regard to the election of directors) and
(iii) individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate
Transaction; or
(4) the consummation of a plan of complete liquidation or
dissolution of the Company.
A-3
<PAGE>
EXHIBIT B
GENERAL RELEASE
This General Release (this "Release") is executed by _________
(the "Executive") pursuant to the Severance Agreement dated as of
______________, 1999 (the "Agreement") between the Executive and Aerial
Communications, Inc. (the "Company").
WHEREAS, the Executive's employment with the "Company" is
terminating;
WHEREAS, the Executive has had [21][45] days to consider the
form of this Release;
WHEREAS, the Company advised the Executive in writing to
consult with an attorney before signing this Release;
WHEREAS, the Executive acknowledges that the consideration to
be provided to the Executive under the Agreement is sufficient to support this
Release; and
WHEREAS, the Executive understands that the Company regards
the representations by the Executive in this Release as material and that the
Company is relying on such representations in paying amounts to the Executive
pursuant to the Agreement.
THE EXECUTIVE THEREFORE AGREES AS FOLLOWS:
1. The Executive's employment with the Company shall terminate
on ________, and the Executive shall receive the payments set forth in Section 3
of the Agreement in accordance with the terms and subject to the conditions
thereof.
2. The Executive, on behalf of the Executive and anyone
claiming through the Executive, hereby agrees not to sue the Company or
Telephone and Data Systems, Inc. ("TDS") or any division, subsidiary, affiliate
or other related entity of the Company or TDS (whether or not such entity is
wholly owned), or any of the past, present or future directors, officers,
administrators, trustees, fiduciaries, employees, agents, attorneys or
shareholders of the Company or TDS or any of such other entities, or the
predecessors, successors or assigns of any of them (hereinafter referred to as
the "Released Parties"), and agrees to release and discharge, fully, finally and
forever, the Released Parties from any and all claims, causes of action,
lawsuits, liabilities, debts, accounts, covenants, contracts, controversies,
agreements, promises, sums of money, damages, judgments and demands of any
nature whatsoever, in law or in equity, both known and unknown, asserted or not
asserted,
<PAGE>
foreseen or unforeseen, which the Executive ever had or may presently have
against any of the Released Parties arising from the beginning of time up to and
including the effective date of this Release, including, without limitation, all
matters in any way related to the Executive's employment by the Company or by
TDS or any of their affiliates, the terms and conditions thereof, any failure to
promote the Executive and the termination or cessation of the Executive's
employment with the Company or by TDS or any of their affiliates, and including,
without limitation, any and all claims arising under the Civil Rights Act of
1964, as amended, the Civil Rights Act of 1991, the Civil Rights Act of 1866,
the Age Discrimination in Employment Act, the Older Workers' Benefit Protection
Act, the Family and Medical Leave Act, the Americans With Disabilities Act, the
Executive Retirement Income Security Act of 1974, the Illinois Human Rights Act,
the Chicago or Cook County Human Rights Ordinance or any other federal, state,
local or foreign statute, regulation, ordinance or order, or pursuant to any
common law doctrine; provided, however, that nothing contained in this Release
shall apply to, or release the Company from, any obligation of the Company
contained in the Agreement. The consideration offered in the Agreement is
accepted by the Executive as being in full accord, satisfaction, compromise and
settlement of any and all claims or potential claims, and the Executive
expressly agrees that the Executive is not entitled to, and shall not receive,
any further recovery of any kind from the Company or any of the other Released
Parties, and that in the event of any further proceedings whatsoever based upon
any matter released herein, neither the Company nor any of the other Released
Parties shall have any further monetary or other obligation of any kind to the
Executive, including any obligation for any costs, expenses or attorneys' fees
incurred by or on behalf of the Executive. The Executive agrees that the
Executive has no present or future right to employment with the Company or any
of the other Released Parties.
3. The Executive expressly represents and warrants that the
Executive is the sole owner of the actual and alleged claims, demands, rights,
causes of action and other matters that are released herein; that the same have
not been transferred or assigned or caused to be transferred or assigned to any
other person, firm, corporation or other legal entity; and that the Executive
has the full right and power to grant, execute and deliver the general release,
undertakings and agreements contained herein.
4. ACKNOWLEDGMENT BY EXECUTIVE. BY EXECUTING THIS RELEASE, THE
EXECUTIVE EXPRESSLY ACKNOWLEDGES THAT THE EXECUTIVE HAS READ THIS RELEASE
CAREFULLY, THAT THE EXECUTIVE FULLY UNDERSTANDS ITS TERMS AND CONDITIONS, THAT
THE EXECUTIVE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING
THIS RELEASE, THAT THE EXECUTIVE HAS BEEN ADVISED THAT THE EXECUTIVE
<PAGE>
HAS [21][45] DAYS WITHIN WHICH TO DECIDE WHETHER OR NOT TO EXECUTE THIS
RELEASE AND THAT THE EXECUTIVE INTENDS TO BE LEGALLY BOUND BY IT. DURING A
PERIOD OF SEVEN DAYS FOLLOWING THE DATE OF THE EXECUTIVE'S EXECUTION OF THIS
RELEASE, THE EXECUTIVE SHALL HAVE THE RIGHT TO REVOKE THE RELEASE OF CLAIMS
UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT BY SERVING WITHIN SUCH PERIOD
WRITTEN NOTICE OF REVOCATION. IF THE EXECUTIVE EXERCISES THE EXECUTIVE'S
RIGHTS UNDER THE PRECEDING SENTENCE, THE EXECUTIVE SHALL FORFEIT ALL AMOUNTS
PAYABLE TO HIM PURSUANT TO THE AGREEMENT.
5. The Agreement and this Release constitute the entire
understanding between the parties. The Executive has not relied on any oral
statements that are not included in the Agreement or this Release.
6. This Release shall be construed, interpreted and applied in
accordance with the internal laws of the State of Illinois without regard to the
principle of conflicts of laws.
---------------------------------
[NAME]
Date:
----------------------
<PAGE>
EXHIBIT 10.33
SEVERANCE AGREEMENT
THIS AGREEMENT is entered into as of October 25, 1999 by and
between Aerial Communications, Inc., a Delaware corporation, and Carol J. Ogren
(the "Executive").
WHEREAS, the Executive currently serves as a key employee of
the Company (as defined in Section 1) or one of its subsidiaries and the
Executives' services and knowledge are valuable to the Company in connection
with the management of one or more of the Company's principal operating
facilities, divisions, departments or subsidiaries;
WHEREAS, the Board (as defined in Section 1) has determined
that it is in the best interests of the Company and its stockholders to secure
the Executive's continued services and to ensure the Executive's continued
dedication and objectivity in the event of any threat or occurrence of, or
negotiation or other action that could lead to, or create the possibility of, a
Change in Control (as defined in Section 1) of the Company, so that the
Executive need not be hindered or distracted by personal uncertainties and risks
created by any such possible Change in Control, and to encourage the Executive's
full attention and dedication to the Company, the Board has authorized the
Company to enter into this Agreement.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants and agreements herein contained, the Company and the
Executive hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the respective meanings set forth below:
(a) "Affiliate" means a corporation which owns directly or
indirectly at least 50% of the outstanding stock of the Company or the combined
voting power of such outstanding stock, or a corporation at least 50% of whose
outstanding stock or the combined voting power of such outstanding stock is
owned directly or indirectly by the Company.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means (1) a material breach by the Executive of
those duties and responsibilities of the Executive which do not, in the
aggregate, differ materially from the duties and responsibilities of the
Executive during the 90-day period immediately prior to a Change in Control
(other than as a result of incapacity due to physical or mental illness) which
is willful, which is committed in bad faith or without reasonable belief that
such breach is in the best interests of the Company and which is not remedied in
a reasonable period of time after receipt of written notice from the Company
specifying such
<PAGE>
breach, (2) the commission by the Executive of a felony involving moral
turpitude, (3) the commission by the Executive of theft, fraud, breach of trust
or any act of dishonesty involving the Company or any Affiliate or (4) the
significant violation by the Executive of any statutory or common law duty of
loyalty to the Company or any Affiliate.
(d) "Change in Control" means a "change in control" with
respect to Telephone and Data Systems, Inc. as described on Exhibit A, at a time
when Telephone and Data Systems, Inc. owns directly or indirectly at least 50%
of either the outstanding stock of the Company or the combined voting power of
such stock, or one of the following events:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Act"), of
beneficial ownership within the meaning of Rule 13d-3 promulgated under the Act
of 25% or more of the combined voting power of the then outstanding securities
of the Company entitled to vote generally on matters (without regard to the
election of directors) (the "Outstanding Voting Securities"), excluding,
however, the following: (i) any acquisition directly from the Company, or an
Affiliate (excluding any acquisition resulting from the exercise of an exercise,
conversion or exchange privilege, unless the security being so exercised,
converted or exchanged was acquired directly from the Company or an Affiliate),
(ii) any acquisition by the Company or an Affiliate, (iii) any acquisition by an
employee benefit plan (or related trust) sponsored or maintained by the Company
or an Affiliate, (iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (3)
below, or (v) any acquisition by the following persons: (A) LeRoy T. Carlson or
his spouse, (B) any child of LeRoy T. Carlson or the spouse of any such child,
(C) any grandchild of LeRoy T. Carlson, including any child adopted by any child
of LeRoy T. Carlson, or the spouse of any such grandchild, (D) the estate of any
of the persons described in clauses (A)-(C), (E) any trust or similar
arrangement (including any acquisition on behalf of such trust or similar
arrangement by the trustees or similar persons) PROVIDED THAT all of the current
beneficiaries of such trust or similar arrangement are persons described in
clauses (A)-(C) or their lineal descendants, or (F) the voting trust which
expires on June 30, 2009, or any successor to such voting trust, including the
trustees of such voting trust on behalf of such voting trust (all such persons,
collectively, the "Exempted Persons");
(2) individuals who, as of the date hereof constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
such Board; PROVIDED THAT any individual
2
<PAGE>
who becomes a director of the Company subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders, was approved
by the vote of at least a majority of the directors then comprising the
Incumbent Board shall be deemed a member of the Incumbent Board; and PROVIDED
FURTHER, that any individual who was initially elected as a director of the
Company as a result of an actual or threatened election contest, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Act, or any
other actual or threatened solicitation of proxies or consents by or on behalf
of any Person other than the Board shall not be deemed a member of the Incumbent
Board;
(3) the consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Corporate Transaction"), excluding, however, a Corporate Transaction
pursuant to which (i) all or substantially all of the individuals or entities
who are the beneficial owners of the Outstanding Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 51% of the combined voting power of the outstanding
securities of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns, either directly or indirectly, the Company or all or
substantially all of the Company's assets) which are entitled to vote generally
on matters (without regard to the election of directors), in substantially the
same proportions relative to each other as the shares of Outstanding Voting
Securities are owned immediately prior to such Corporate Transaction, (ii) no
Person (other than the following Persons: (v) the Company or an Affiliate, (w)
any employee benefit plan (or related trust) sponsored or maintained by the
Company or an Affiliate, (x) the corporation resulting from such Corporate
Transaction, (y) the Exempted Persons, (z) and any Person which beneficially
owned, immediately prior to such Corporate Transaction, directly or indirectly,
25% or more of the Outstanding Voting Securities) will beneficially own,
directly or indirectly, 25% or more of the combined voting power of the
outstanding securities of such corporation entitled to vote generally on matters
(without regard to the election of directors) and (iii) individuals who were
members of the Incumbent Board will constitute at least a majority of the
members of the board of directors of the corporation resulting from such
Corporate Transaction; or
(4) the consummation of a plan of complete liquidation or
dissolution of the Company.
(e) "Company" means Aerial Communications, Inc., a Delaware
corporation.
3
<PAGE>
(f) "Date of Termination" means (1) the effective date on
which the Executive's employment by the Company terminates as specified in a
prior written notice by the Company or the Executive, as the case may be, to the
other, delivered pursuant to Section 11 or (2) if the Executive's employment by
the Company terminates by reason of death, the date of death of the Executive.
(g) "Good Reason" means, without the Executive's express
written consent, the occurrence of any of the following events after a Change in
Control:
(1) any of (i) the assignment to the Executive of a materially
lower level of responsibility or status with the Company than existed
immediately prior to such Change in Control, or (ii) any failure to re-elect the
Executive to any significant office or, if applicable, directorship with the
Company held by the Executive immediately prior to such Change in Control;
(2) a reduction by the Company in the Executive's rate of
annual base salary or bonus opportunity as in effect immediately prior to such
Change in Control;
(3) any requirement of the Company that (i) the Executive be
based more than 30 miles from the facility where the Executive is located at the
time of the Change in Control or (ii) the Executive increase travel on Company
business by 20% or more than the travel obligations of the Executive immediately
prior to such Change in Control;
(4) the failure of the Company to (i) continue in effect any
employee benefit plan or compensation plan in which the Executive is
participating immediately prior to such Change in Control, unless the Executive
is permitted to participate in other plans providing the Executive with
substantially comparable benefits, or the taking of any action by the Company
which would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such plan, (ii) provide the Executive
and the Executive's dependents welfare benefits (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and programs)
in accordance with the plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive immediately prior to
such Change in Control as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies; or
(5) the failure of the Company to obtain the assumption
agreement from any successor as contemplated in Section 10(b).
4
<PAGE>
(h) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company for Cause, (2) by the Executive for
any reason other than a Good Reason, (3) as a result of the Executive's death or
(4) by the Company due to the Executive's absence from his duties with the
Company on a full-time basis for at least 180 consecutive days as a result of
the Executive's incapacity due to physical or mental illness.
(i) "Termination Period" means the period of time beginning
with a Change in Control and ending on the earlier to occur of (1) two years
following such Change in Control and (2) the Executive's death.
2. OBLIGATIONS OF THE EXECUTIVE. The Executive agrees that in
the event any person or group attempts a Change in Control, he shall not
voluntarily leave the employ of the Company without Good Reason (a) until such
attempted Change in Control terminates or (b) if a Change in Control shall
occur, until 90 days following such Change in Control. For purposes of clause
(a) of the preceding sentence, Good Reason shall be determined as if a Change in
Control had occurred when such attempted Change in Control became known to the
Board.
3. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) If during the Termination Period (i) the employment of the
Executive shall terminate, other than by reason of a Nonqualifying Termination,
and (ii) the Executive (or the Executive's executor or other legal
representative in the case of the Executive's death or disability following such
termination) executes a general release in the form of Exhibit A hereto within
five days following the Executive's Date of Termination and has not revoked such
release, then the Company shall pay to the Executive (or the Executive's
beneficiary or estate) within 30 days following the Date of Termination, as
compensation for services rendered to the Company:
(1) a cash amount equal to the sum of (i) the Executive's full
annual base salary from the Company and its affiliated companies through the
Date of Termination, to the extent not theretofore paid, (ii) the Executive's
target bonus for the fiscal year in which the Change in Control occurs,
multiplied by a fraction, the numerator of which is the number of days in the
fiscal year in which the Change in Control occurs through the Date of
Termination and the denominator of which is 365 or 366, as applicable, to the
extent not theretofore paid and (iii) any compensation previously deferred by
the Executive (together with any interest and earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid; plus
5
<PAGE>
(2) a lump-sum cash amount (subject to any applicable payroll
or other taxes required to be withheld pursuant to Section 5) in an amount equal
to (i)1.25 times the Executive's highest annual base salary from the Company and
its affiliated companies in effect during the 12-month period prior to the Date
of Termination, plus (ii)1.25 times the Executive's target bonus for the fiscal
year in which the Change in Control occurs, PROVIDED, HOWEVER, that any amount
paid pursuant to this Section 3(a)(2) shall be paid in lieu of any other amount
of severance relating to salary or bonus continuation to be received by the
Executive upon termination of employment of the Executive under any employment
agreement or severance plan, policy or arrangement of the Company, Aerial
Operating Company, Inc., Telephone and Data Systems, Inc. or any other Affiliate
(as determined immediately prior to a Change in Control).
(b)(1) In addition to the payments to be made pursuant to
Section 3(a) for a period of 15 months commencing on the Date of Termination,
the Company shall continue to keep in full force and effect all policies of
medical, accident, disability and life insurance with respect to the Executive
and his dependents with the same level of coverage, upon the same terms and
otherwise to the same extent as such policies shall have been in effect
immediately prior to the Date of Termination as provided generally with respect
to other peer executives of the Company and its affiliated companies, and the
Company and the Executive shall share the costs of the continuation of such
insurance coverage in the same proportion as such costs were shared immediately
prior to the Date of Termination.
(2) In addition to the payments to be made pursuant to Section
3(a), the Executive shall be entitled to outplacement services to be provided by
a firm selected by the Company, provided that such outplacement services are
commenced within 30 days following the Date of Termination. Payments in the
aggregate amount not to exceed $12,000 shall be made directly to such
outplacement firm upon submission of proper documentation to the Company. If the
Executive elects not to use such outplacement services, the Executive will not
be entitled to cash compensation in lieu thereof.
6
<PAGE>
(c) If during the Termination Period the employment of the
Executive shall terminate by reason of a Nonqualifying Termination, then the
Company shall pay to the Executive within 30 days following the Date of
Termination, a cash amount equal to the sum of (1) the Executive's full annual
base salary from the Company through the Date of Termination, to the extent not
theretofore paid, and (2) any compensation previously deferred by the Executive
(together with any interest and earnings thereon) and any accrued vacation pay,
in each case to the extent not theretofore paid.
4. LIMITATION ON PAYMENTS BY THE COMPANY. Solely for the purposes
of the computation of benefits under this Agreement and notwithstanding any
other provisions hereof, payments to the Executive under this Agreement shall be
reduced (but not below zero) so that the present value, as determined in
accordance with Section 280G(d)(4) of the Code, of such payments plus any other
payments that must be taken into account for purposes of any computation
relating to the Executive under Section 280G(b)(2)(A)(ii) of the Code, shall
not, in the aggregate, exceed 2.99 times the Executive's "base amount," as such
term is defined in Section 280G(b)(3) of the Code. Notwithstanding any other
provision hereof, no reduction in payments under the limitation contained in the
immediately preceding sentence shall be applied to payments hereunder which do
not constitute "excess parachute payments" within the meaning of the Code. Any
payments in excess of the limitation of this Section 4 or otherwise determined
to be "excess parachute payments" made to the Executive hereunder shall be
deemed to be overpayments which shall constitute an amount owing from the
Executive to the Company with interest from the date of receipt by the Executive
to the date of repayment (or offset) at the applicable federal rate under
Section 1274(d) of the Code, compounded semi-annually, which shall be payable to
the Company upon demand; provided, however, that no repayment shall be required
under this sentence if in the written opinion of tax counsel satisfactory to the
Executive and delivered to the Executive and the Company such repayment does not
allow such overpayment to be excluded for federal income and excise tax purposes
from the Executive's income for the year of receipt or afford the Executive a
compensating federal income tax deduction for the year of repayment.
5. WITHHOLDING TAXES. The Company may withhold from all
payments due to the Executive (or his beneficiary or estate) hereunder all taxes
which, by applicable federal, state, local or other law, the Company is required
to withhold therefrom.
6. REIMBURSEMENT OF EXPENSES. If any contest or dispute shall
arise under this Agreement involving termination of the Executive's employment
with the Company or involving the failure or refusal of the Company to perform
fully in accordance
7
<PAGE>
with the terms hereof, the Company shall reimburse the Executive, on a current
basis, for all legal fees and expenses, if any, incurred by the Executive in
connection with such contest or dispute, together with interest thereon at a
rate equal to the prime rate, as published under "Money Rates" in THE WALL
STREET JOURNAL from time to time, but in no event higher than the maximum legal
rate permissible under applicable law, such interest to accrue from the date the
Company receives the Executive's statement for such fees and expenses through
the date of payment thereof; PROVIDED, HOWEVER, that in the event the resolution
of any such contest or dispute includes a finding denying, in total, the
Executive's claims in such contest or dispute, the Executive shall be required
to reimburse the Company, over a period of 12 months from the date of such
resolution, for all sums advanced to the Executive pursuant to this Section 6.
7. OPERATIVE EVENT. Notwithstanding any provision herein to
the contrary, no amounts shall be payable hereunder unless and until there is a
Change in Control at a time when the Executive is employed by the Company.
8. TERMINATION OF AGREEMENT. (a) This Agreement shall be
effective on the date hereof and shall continue until terminated by the Company
as provided in Section 8(b); PROVIDED, HOWEVER, that this Agreement shall
terminate in any event upon the earliest to occur of (i) termination of the
Executive's employment with the Company prior to a Change in Control, (ii) the
Executive's death and (iii) the date all obligations of the Company to make
payments or provide benefits to the Executive hereunder are satisfied in full.
(b) The Company shall have the right prior to a Change in
Control, in its sole discretion, pursuant to action by the Board, to approve the
termination of this Agreement, which termination shall not become effective
until the date fixed by the Board for such termination, which date shall be at
least 120 days after notice thereof is given by the Company to the Executive in
accordance with Section 11; PROVIDED, HOWEVER, that no such action shall be
taken by the Board during any period of time when the Board has knowledge that
any person has taken steps reasonably calculated to effect a Change in Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change in Control; and PROVIDED FURTHER, that in no event
shall this Agreement be terminated in the event of a Change in Control.
9. SCOPE OF AGREEMENT. Nothing in this Agreement shall be
deemed to entitle the Executive to continued employment with the Company or its
subsidiaries and, if the Executive's employment with the Company shall terminate
prior to a Change in Control, then the Executive shall have no further rights
under
8
<PAGE>
this Agreement; PROVIDED, HOWEVER, that any termination of the Executive's
employment following a Change in Control and prior to the end of the Termination
Period shall be subject to all of the provisions of this Agreement.
10. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in Section 10(a), it will cause
any successor or transferee unconditionally to assume, by written instrument
delivered to the Executive (or his beneficiary or estate), all of the
obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to or concurrent with the effectiveness of any such merger,
consolidation or transfer of assets shall be a breach of this Agreement and
shall entitle the Executive to compensation and other benefits from the Company
in the same amount and on the same terms as the Executive would be entitled
hereunder if the Executive's employment were terminated following a Change in
Control other than by reason of a Nonqualifying Termination. For purposes of
implementing the foregoing, the date on which any such merger, consolidation or
transfer becomes effective shall be deemed the Date of Termination.
(c) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive shall die while any amounts would be payable to the Executive
hereunder had the Executive continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to such person or persons appointed in writing by the Executive to
receive such amounts or, if no person is so appointed, to the Executive's
estate.
11. NOTICES. (a) For purposes of this Agreement, all notices
and other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given when delivered or five days after
deposit in the United States mail, certified and return receipt requested,
postage prepaid, addressed (1) if to the Executive, to Carol J. Ogren, and if to
the Company, to Aerial Communications, Inc., attention Vice President, Human
Resources, or (2) to such other address as
9
<PAGE>
either party may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
(b) A written notice of the Executive's Date of Termination by
the Company or the Executive, as the case may be, to the other, shall (i)
indicate the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the termination
date (which date shall be not less than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in such notice
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company hereunder or preclude
the Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
12. FULL SETTLEMENT; RESOLUTION OF DISPUTES. (a) The Company's
obligation to make any payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement and such amounts shall not be reduced whether or
not the Executive obtains other employment.
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or without
Good Reason, or that the Company is not otherwise obligated to pay any amount or
provide any benefit to the Executive and his dependents or other beneficiaries,
as the case may be, under Sections 3(a) and 3(b), the Company shall pay all
amounts, and provide all benefits, to the Executive and his dependents or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Sections 3(a) and 3(b) as though such termination were by
the Company without Cause or by the Executive with Good Reason; PROVIDED,
HOWEVER, that the Company shall not be required to pay any disputed amounts
pursuant to this Section 12(b) except upon receipt of an undertaking by or on
behalf of the Executive to repay all such amounts to which the Executive is
ultimately adjudged by such court not to be entitled.
10
<PAGE>
13. EMPLOYMENT WITH AFFILIATES. Employment with the Company
for purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% of more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
14. GOVERNING LAW; VALIDITY. The interpretation, construction
and performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Illinois without
regard to the principle of conflicts of laws. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which other provisions
shall remain in full force and effect.
15. COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
16. MISCELLANEOUS. No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by the Executive and by a duly authorized officer of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. Failure by the Executive or the Company to insist upon strict compliance
with any provision of this Agreement or to assert any right the Executive or the
Company may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement. Except as otherwise expressly set forth in this Agreement, the rights
of, and benefits payable to, the Executive, his estate or his beneficiaries
pursuant to this Agreement are in addition to any rights of, or benefits payable
to, the Executive, his estate or his beneficiaries under any other employee
benefit plan or compensation program of the Company.
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by a duly authorized officer of the Company and the Executive has
executed this Agreement as of the day and year first above written.
AERIAL COMMUNICATIONS, INC.
By: /s/ Donald Warkentin
---------------------------
Donald Warkentin, President
EXECUTIVE
/s/ Carol J. Ogren
------------------------------
Carol J. Ogren
12
<PAGE>
Exhibit A
Change in Control of
Telephone and Data Systems, Inc.
For purposes of paragraph 1(d) of the Agreement, a "change in control"
with respect to Telephone and Data Systems, Inc. shall mean one of the
following:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership
within the meaning of Rule 13d-3 promulgated under the Exchange Act, of
25% or more of the combined voting power of the then outstanding
securities of Telephone and Data Systems, Inc., a Delaware corporation
(the "Company") entitled to vote generally on matters (without regard
to the election of directors) (the "Outstanding Voting Securities"),
excluding, however, the following: (i) any acquisition directly from
the Company or a corporation which owns directly or indirectly at least
50% of the outstanding stock of the Company or the combined voting
power of such outstanding stock or a corporation at least 50% of whose
outstanding stock or the combined voting power of such outstanding
stock is owned directly or indirectly by the Company (an "Affiliate")
(excluding any acquisition resulting from the exercise of an exercise,
conversion or exchange privilege, unless the security being so
exercised, converted or exchanged was acquired directly from the
Company or an Affiliate), (ii) any acquisition by the Company or an
Affiliate, (iii) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or an Affiliate,
(iv) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (3) of this
Exhibit A, or (v) any acquisition by the following persons: (A) LeRoy
T. Carlson or his spouse, (B) any child of LeRoy T. Carlson or the
spouse of any such child, (C) any grandchild of LeRoy T. Carlson,
including any child adopted by any child of LeRoy T. Carlson, or the
spouse of any such grandchild, (D) the estate of any of the persons
described in clauses (A)-(C), (E) any trust or similar arrangement
(including any acquisition on behalf of such trust or similar
arrangement by the trustees or similar persons) PROVIDED THAT all of
the current beneficiaries of such trust or similar arrangement are
persons described in clauses (A)-(C) or their lineal descendants, or
(F) the voting trust which expires on June 30, 2009, or any successor
to such voting trust, including the trustees of such voting trust on
behalf of such voting trust (all such persons, collectively, the
"Exempted Persons");
A-1
<PAGE>
(2) individuals who, as of the effective date of the merger of
Telephone and Data Systems, Inc., an Iowa corporation, into the
Company, constitute the Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of such Board;
PROVIDED THAT any individual who becomes a director of the Company
subsequent to the effective date of the merger of Telephone and Data
Systems, Inc., an Iowa corporation, into the Company, whose election,
or nomination for election by the Company's stockholders, was approved
by the vote of at least a majority of the directors then comprising the
Incumbent Board shall be deemed a member of the Incumbent Board; and
PROVIDED FURTHER, that any individual who was initially elected as a
director of the Company as a result of an actual or threatened election
contest, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other
than the Board shall not be deemed a member of the Incumbent Board;
(3) the consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Corporate Transaction"), excluding,
however, a Corporate Transaction pursuant to which (i) all or
substantially all of the individuals or entities who are the beneficial
owners of the Outstanding Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly,
more than 51% of the combined voting power of the outstanding
securities of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a result of such
transaction owns, either directly or indirectly, the Company or all or
substantially all of the Company's assets) which are entitled to vote
generally on matters (without regard to the election of directors), in
substantially the same proportions relative to each other as the shares
of Outstanding Voting Securities are owned immediately prior to such
Corporate Transaction, (ii) no Person (other than the following
Persons: (V) the Company or an Affiliate, (W) any employee benefit plan
(or related trust) sponsored or maintained by the Company or an
Affiliate, (X) the corporation resulting from such Corporate
Transaction, (Y) the Exempted Persons, (Z) and any Person which
beneficially owned, immediately prior to such Corporate Transaction,
directly or indirectly, 25% or more of the Outstanding Voting
Securities) will beneficially own, directly or indirectly, 25% or more
of the combined voting power of the outstanding securities of such
corporation entitled to vote
A-2
<PAGE>
generally on matters (without regard to the election of directors) and
(iii) individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of
directors of the corporation resulting from such Corporate
Transaction; or
(4) the consummation of a plan of complete liquidation or
dissolution of the Company.
A-3
<PAGE>
EXHIBIT B
GENERAL RELEASE
This General Release (this "Release") is executed by _________
(the "Executive") pursuant to the Severance Agreement dated as of
______________, 1999 (the "Agreement") between the Executive and Aerial
Communications, Inc. (the "Company").
WHEREAS, the Executive's employment with the "Company" is
terminating;
WHEREAS, the Executive has had [21][45] days to consider the
form of this Release;
WHEREAS, the Company advised the Executive in writing to
consult with an attorney before signing this Release;
WHEREAS, the Executive acknowledges that the consideration to
be provided to the Executive under the Agreement is sufficient to support this
Release; and
WHEREAS, the Executive understands that the Company regards
the representations by the Executive in this Release as material and that the
Company is relying on such representations in paying amounts to the Executive
pursuant to the Agreement.
THE EXECUTIVE THEREFORE AGREES AS FOLLOWS:
1. The Executive's employment with the Company shall terminate
on ________, and the Executive shall receive the payments set forth in Section 3
of the Agreement in accordance with the terms and subject to the conditions
thereof.
2. The Executive, on behalf of the Executive and anyone
claiming through the Executive, hereby agrees not to sue the Company or
Telephone and Data Systems, Inc. ("TDS") or any division, subsidiary, affiliate
or other related entity of the Company or TDS (whether or not such entity is
wholly owned), or any of the past, present or future directors, officers,
administrators, trustees, fiduciaries, employees, agents, attorneys or
shareholders of the Company or TDS or any of such other entities, or the
predecessors, successors or assigns of any of them (hereinafter referred to as
the "Released Parties"), and agrees to release and discharge, fully, finally and
forever, the Released Parties from any and all claims, causes of action,
lawsuits, liabilities, debts, accounts, covenants, contracts, controversies,
agreements, promises, sums of money, damages, judgments and demands of any
nature whatsoever, in law or in equity, both known and unknown, asserted or not
asserted,
<PAGE>
foreseen or unforeseen, which the Executive ever had or may presently have
against any of the Released Parties arising from the beginning of time up to and
including the effective date of this Release, including, without limitation, all
matters in any way related to the Executive's employment by the Company or by
TDS or any of their affiliates, the terms and conditions thereof, any failure to
promote the Executive and the termination or cessation of the Executive's
employment with the Company or by TDS or any of their affiliates, and including,
without limitation, any and all claims arising under the Civil Rights Act of
1964, as amended, the Civil Rights Act of 1991, the Civil Rights Act of 1866,
the Age Discrimination in Employment Act, the Older Workers' Benefit Protection
Act, the Family and Medical Leave Act, the Americans With Disabilities Act, the
Executive Retirement Income Security Act of 1974, the Illinois Human Rights Act,
the Chicago or Cook County Human Rights Ordinance or any other federal, state,
local or foreign statute, regulation, ordinance or order, or pursuant to any
common law doctrine; provided, however, that nothing contained in this Release
shall apply to, or release the Company from, any obligation of the Company
contained in the Agreement. The consideration offered in the Agreement is
accepted by the Executive as being in full accord, satisfaction, compromise and
settlement of any and all claims or potential claims, and the Executive
expressly agrees that the Executive is not entitled to, and shall not receive,
any further recovery of any kind from the Company or any of the other Released
Parties, and that in the event of any further proceedings whatsoever based upon
any matter released herein, neither the Company nor any of the other Released
Parties shall have any further monetary or other obligation of any kind to the
Executive, including any obligation for any costs, expenses or attorneys' fees
incurred by or on behalf of the Executive. The Executive agrees that the
Executive has no present or future right to employment with the Company or any
of the other Released Parties.
3. The Executive expressly represents and warrants that the
Executive is the sole owner of the actual and alleged claims, demands, rights,
causes of action and other matters that are released herein; that the same have
not been transferred or assigned or caused to be transferred or assigned to any
other person, firm, corporation or other legal entity; and that the Executive
has the full right and power to grant, execute and deliver the general release,
undertakings and agreements contained herein.
4. ACKNOWLEDGMENT BY EXECUTIVE. BY EXECUTING THIS RELEASE, THE
EXECUTIVE EXPRESSLY ACKNOWLEDGES THAT THE EXECUTIVE HAS READ THIS RELEASE
CAREFULLY, THAT THE EXECUTIVE FULLY UNDERSTANDS ITS TERMS AND CONDITIONS, THAT
THE EXECUTIVE HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING
THIS RELEASE, THAT THE EXECUTIVE HAS BEEN ADVISED THAT THE EXECUTIVE
<PAGE>
HAS [21][45] DAYS WITHIN WHICH TO DECIDE WHETHER OR NOT TO EXECUTE THIS
RELEASE AND THAT THE EXECUTIVE INTENDS TO BE LEGALLY BOUND BY IT. DURING A
PERIOD OF SEVEN DAYS FOLLOWING THE DATE OF THE EXECUTIVE'S EXECUTION OF THIS
RELEASE, THE EXECUTIVE SHALL HAVE THE RIGHT TO REVOKE THE RELEASE OF CLAIMS
UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT BY SERVING WITHIN SUCH PERIOD
WRITTEN NOTICE OF REVOCATION. IF THE EXECUTIVE EXERCISES THE EXECUTIVE'S
RIGHTS UNDER THE PRECEDING SENTENCE, THE EXECUTIVE SHALL FORFEIT ALL AMOUNTS
PAYABLE TO HIM PURSUANT TO THE AGREEMENT.
5. The Agreement and this Release constitute the entire
understanding between the parties. The Executive has not relied on any oral
statements that are not included in the Agreement or this Release.
6. This Release shall be construed, interpreted and applied in
accordance with the internal laws of the State of Illinois without regard to the
principle of conflicts of laws.
---------------------------
[NAME]
Date:
----------------------
<PAGE>
EXHIBIT 11
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998
----------------------- ---- ----
<S> <C> <C>
BASIC EARNINGS PER COMMON SHARE:
Net (Loss) $(169,346) $(337,895)
======== ========
Weighted average number of Common and Series
A Common Shares Outstanding 75,734 71,723
======== ========
BASIC EARNINGS PER COMMON SHARE
Net (Loss) $(2.24) $(4.71)
======== =========
DILUTED EARNINGS PER COMMON SHARE (1):
Net (Loss) $(169,346) $(337,895)
======== =========
Weighted average number of Common and Series
A Common Shares Outstanding 75,734 71,723
======== =========
DILUTED EARNINGS PER COMMON SHARE
Net (Loss) $(2.24) $(4.71)
======== =========
</TABLE>
(1) In 1999 and 1998 respectively, 0.8 million and 1.7 million stock
options were not included in computing diluted (Loss) per Common and
Series A Common Share because their effects were antidilutive.
<PAGE>
EXHIBIT 21
AERIAL COMMUNICATIONS, INC.
SUBSIDIARIES OF AERIAL COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
STATE OF
INCORPORATION
OR
LEGAL NAME ORGANIZATION
---------- ------------
<S> <C>
APT Operating Company, Inc. Delaware
APT Columbus, Inc. Delaware
APT Kansas City, Inc. Delaware
APT Tampa/Orlando, Inc. Delaware
APT Minneapolis, Inc. Delaware
APT Houston, Inc. Delaware
APT Pittsburgh Limited Partnership Delaware
APT Pittsburgh General Partner, Inc. Delaware
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated January 27, 2000, on the consolidated
financial statements and financial statement schedule of Aerial
Communications, Inc. and Subsidiaries (the "Company"), included in this Form
10-K, into the Company's previously filed Form S-8 Registration Statements,
File No. 333-10199, File No. 333-06471, File No. 333-10201, File No.
333-26429, File No. 333-67461, File No. 333-51561, File No. 333-76459 and
File No. 333-32743.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 22, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF AERIAL COMMUNICATIONS, INC. AS OF DECEMBER
31, 1999 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 19,887
<SECURITIES> 0
<RECEIVABLES> 32,309
<ALLOWANCES> 3,767
<INVENTORY> 8,336
<CURRENT-ASSETS> 67,062
<PP&E> 816,757
<DEPRECIATION> (196,844)
<TOTAL-ASSETS> 972,376
<CURRENT-LIABILITIES> 160,974
<BONDS> 250,846
0
0
<COMMON> 95,213
<OTHER-SE> 315,421
<TOTAL-LIABILITY-AND-EQUITY> 972,376
<SALES> 30,361
<TOTAL-REVENUES> 225,501
<CGS> 61,298
<TOTAL-COSTS> 435,509
<OTHER-EXPENSES> 10,577
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83,315
<INCOME-PRETAX> (282,746)
<INCOME-TAX> (113,400)
<INCOME-CONTINUING> (169,346)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (169,346)
<EPS-BASIC> (2.24)
<EPS-DILUTED> (2.24)
</TABLE>
